Madison WI – Sale By Owner Success

The New York Times asks is this a dull economist joke. “Does an economist with a real estate agent selling their house get more money than the adventurous economist who decides to sell without one?”

The answer is when the cost of sales commissions are factored in the do-it-yourself seller ends up better off.

Level Set

The reason this is such a contentious issue is the fact the National Association of Realtors has always claimed their research found that a realtor assisted sale typically yielded a 16 percent better result. To add salt to the wound, many new agents are taught to farm FSBO listings dismissing FSBO as a losing strategy.

Realtor Magazine Online, March 2003 advised its members how to persuade a seller to switch from a FSBO ad to listing with an agent, said to tell them that a 2002 survey found “on average, people who sell their homes through a real estate professional receive a price 27 percent higher than people who sell their home themselves.”

The Northwestern University economists provide their report at //faculty.econ.northwestern.edu/faculty/nevo/research/fsbo.pdf. They used the full transaction and property data for 15,616 listings of Madison homes from January 1998 to December 2004. This was then compared against a popular FSBO site FSBOMadison.com, the South-Central Wisconsin Realtors Association and The Madison city assessor's office.

Is There an Economist on the House?

The study began as an argument between three economists about who made the most money when selling. Saving a commission was countered by how much was lost on the price? Honest economists tend not speculate; rather apply intellect to the question and metrics to the answers, but not without care to caveat their conclusions:

1. Homes sold by agents during the studied period sold in 105 days versus FSBO sales in 125 days.
2. Gross average sale prices for FSBOs were $173,065 versus agent sales at $173,205.
3. Madison is a college town with a highly educated and liberal population that is willing to challenge the status quo in realty commissions.
4. This is data from a small market and not national data.
5. Only 13% of homes nationwide are sold FSBO, Madison is at 14%.

The fact agents failed to bring a higher price means the commission only represents the work they do and a $15,000 fee on a $250,000 house is very high hourly rate for the work

A Growing Trend to Professionalism?

Real estate professionals will always be worth their commission to a busy client desiring turnkey service. The problem is that finding that professional is not easy given the droves of mediocre real estate agents that dominate the industry.

As the market has tightened, FSBO popularity has slid per studies by REALTrends as it has become harder to sell.

If only the Madison study was able to add a dimension that looked at agent professionalism and transaction frequency the results may have been a little different? But that is where a home seller's or investor's due diligence comes in.

God Bless and Great Investing

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