A few years back, the esteemed author of Freakonomics reviewed and provided commentary on a study showing that when realtors are selling their own homes (correcting for several factors so as to not influence the study), they leave their home on the market longer and get more money for their homes, all other things being equal. As would be expected, the National Association of Realtors felt it was necessary to defend their minions and they made themselves look even more foolish when Freakonomics owned them in their retort. But everything the study said, as well as common sense – makes sense.
What is this saying? It doesn’t necessarily mean that realtors are bad people or they’re committing fraud. It does however demonstrate a lesson in incentives. Because they have much more at stake in the sale of their own home, as opposed to the modest commission they get from selling yours (maybe 2-3% after paying their agency fees and personal expenses, etc.), they will tend to go that extra mile in negotiating a better deal. Doesn’t sound right? Think about this very representative example:
- Your house is listed for $300,000
- They will ultimately keep 2.5% of the final sale price
- We’re in a horrid economy
- The realtor hasn’t made a sale in 4 months
- 2.5% of $300,000 is $7500
- 2.5% of $285,000 is $7125
Do you really think your realtor’s going to hang around haggling and fighting with the opposing realtor for a prospective buyer over $375 when they can collect $7125 immediately?
$15,000 LOST to you is only $375 lost by your realtor.
Think about it.
With this information in hand, you’ll at least know when this is happening to you and if you so choose, just say no to the low offer your realtor is pushing you to accept. You don’t have to call them out or point them to this article, but at least you’ll know why they’re telling you, “This might be the best offer you’ll get; this is a great offer, etc.”
Now in case our realtor’s reading this, who’s a friend, this is not directed at you Vince! We’re in a situation where we don’t have an urgent “need to move”, we’ve just put our house up because we’d like to move to a different area. So, we’re under no pressure to accept an offer we’re not comfortable with and our realtor hasn’t pressured us to lower our asking price or anything like that. However, in general, the phenomena described above is more prominent than you may have ever contemplated.
Thoughts from Sellers? Realtors?