So what is a realtor really worth?
Well, according to the National Association of Realtors, they are worth $31,800, which seems like an awful lot. However, I’ve recently run across some more research on the subject and a few answers to my earlier questions about how the NAR came up with this magic number. A comment by Leonard of the website mainemls.com on the Freakonomics blog says:
“I talked to the author of this study at the National Association of Realtors and it was based on a survey return from 155,000 mailings. The returns totalled 7400. The criteria was a sold, single famiy, detached home in the suburbs.”
Ok, then my next question is - what did they do with this data? Is it a simple price average or median that they are presenting or is there more to it? Fortunately, the Real Estate Center at Texas A&M University did some more research on this subject, although they were focused on limited service brokers versus traditional full service brokers. What they found was this:
“Interestingly, the empirical results from the models show that limited service listings sold for 1.7 percent less than typical exclusive-right-to-sell listings and took 17.1 percent longer to sell. Given that the typical discount offered by limited service brokers is approximately 2 percent, there does not appear to be any net gain to sellers using limited service representation.”
This came as a bit of a surprise to me, however, they went on to say:
“If the limited service broker charges a total 4 percent commission, then the commission plus the 1.7 percent lower price is approximately equivalent to a 6 percent commission from the seller’s perspective. If this result holds up in additional studies, it would indicate that limited service brokerage offers no dollar advantages to the seller over typical brokerage when using the exclusive right to sell contract.”
Ok, so what this tells me is that using a discount agency versus using a full service agent has a fairly nominal difference, although the above math would still indicate a .3% gain by using the discount broker that charged 1%. It doesn’t sound like much, but this could be .3% x $500,000 in Southern California which would equal $1500 and is probably enough for a nice weekend vacation to Hawaii.
The more interesting question in my mind, is that if I am doing the math correctly then a flat fee MLS listing that costs $500 + a typical 3% buyers agent commission = a total of 3.25% commission on an average $200,000 home. So based on this research, if a flat fee MLS listed home sold for the same 1.7% less then the homeowner using a full service agent, then that would amount to a 2.75% gain which equals $5500 and is certainly enough money to motivate some people to do the extra work involved in this kind of transaction.