The landmark antitrust lawsuit settlement agreed to by the National Association of Realtors (NAR) in March has put the practices of real estate agents in the spotlight for both regulators and clients alike.
Now, with agent commissions starting to decline, agents naturally want to convey the value of their services to buyers and sellers. New research from the Federal Reserve Bank of Atlanta attempts to answer one question — can my agent get a better sale price on my home than a competing agent?
The answer is, almost certainly not. The study shows that there’s considerable homogeneity in the price outcomes of real estate agents. Although there are agents who consistently outperform on price relative to others, they are very rare.
In fact, the study found that flat-fee listing agents — agents who do little more than post a client’s listing to the local multiple listings service (MLS) — get 1% to 4% more on the final sale price than a more involved agent who is compensated with a percentage-based commission.
“The purpose of our paper was not to say the real estate agents do not deserve their commission,” said Lily Shen, a finance professor at Clemson University and co-author of the research. “We simply wanted to document the distribution of the price effect for both buyer and seller agents. We pretty much compare transactions that are listed by a flat-fee real estate agent, and we find that those houses were sold for a higher price.”
The researchers used MLS data in Charlotte, Minneapolis and Houston between January 2000 and December 2019. The dataset includes 2.3 million single-family home sales. They define a flat-fee broker as one who posts a listing to an MLS for a small fee. Shen said to think of this as a for-sale-by-owner transaction.
And while the results are clear with flat-fee listing agents, the inverse isn’t true. Homebuyers who weren’t represented by an agent weren’t able to buy their house at a discount, but it is unclear why.
Shen was quick to point out that the paper does not conclude that agents do not provide valuable services. The service aspect of an agent’s performance is qualitative, and the paper is a quantitative study. Particularly for first-time buyers and sellers, the process of a home sale is complicated and dense, which leaves most clients happy to pay an agent to decipher it for them, even if the agent isn’t getting them a better deal in the end.
“[RealTrends] found [in polling] that well over a third of all sellers considered using for sale by owner before they went with an agent,” said Steve Murray, the founder of RealTrends and a HousingWire consultant. “Why would they do this? It turns out that people perceive that using an agent to deal with the complexity and possibility of making a stupid mistake is better than if they did it themselves.”
Another important variable in the study is market conditions. The paper finds that the agents who consistently outperform others are more valuable in a cold market, as their skills are more needed. In a hot market, even mediocre agents will get multiple offers on their listings, which erases much of the value of a typically outperforming agent.
And for the agents who do get better prices for their clients, the market rewards them. The data shows that agents who demonstrated high performance in the first half of the sample attracted more clients than those in the second half of the sample.
There are a number of potential caveats to the research. Arman Javaherian — co-founder of Homa, a startup building an AI platform to automate the role of a buyer’s agent — said that one of them is that buyers and sellers who use a flat-fee broker are likely self-selecting.
“If I’m trying to sell my house and I don’t know what I’m doing, an agent is going to come in and help you out,” Javaherian said. “The type of person who’s using these flat-fee, low-cost agents are probably the type of people that actually know how to do things already.”
New research from the Federal Reserve Bank of Atlanta attempts to answer one question — can my agent get a better sale price on my home than a competing agent?
The answer is, almost certainly not.
I find this so dam funny it is ridiculous! There is so much difference in agents in knowledge and skills that it can be as much as 5%-7% difference in a sale price for a seller or buyer. Agents who know the market, who know THEIR competition, know the product will always get a better deal for their clients than a normal agent! Maybe the Fed needs to stay in the money part vs the real estate part, they already screw last two years! Just my two cents!
I believe this is bunk… what I’m not sure is factored into this is the experience and negotiation expertise of the agent whether on the buyside, list side or flat feet on the list side. I can tell you confidently that in my greater Chicagoland market flat fee brokers do not even fulfill their minimum services… they do not present offers, they do not help negotiate offers, they just tell you to submit your offer right to the seller. The majority of flat fee services that we see in our greater market are not much more than a foresale by owner with access to the MLS.
With that said I whole hardly disagree with this article and not from a defensive posture but from a real world experience perspective.
As a managing broker for a long time I specialize in teaching my agents how to help their clients win with different negotiation strategies. One of my agents that just came to oir brokerage after 12 years in the industry hadn’t even heard of a very popular strategy that I started using when I was a new agent many many many years ago. I explained to her the purpose of the strategy in multiple offers was to not have to guess where to come in with your offer or where to come in with your counter if it’s highest and best and also to call a bluff in a situation where the listing agent is not being honest and trying to get your buyer to pay more. The way I teach them to structure this is to give theirs buyers confidence in multiple offers and for this particular one she called me after the fact and said they won in multiple offers where there were 7 offers and she saved her client $20,000 in doing so. Naturalization her clients were thrilled. Now this was on the buyside and not the listing side but savvy agents know how to strategically position offers and counter offers and listing prices regardless of the side they are on… they know how to smell a bluff and they know how to anticipate outcomes and responses and structure offers and counter offers and pricing accordingly. They also know how to build appropriate rapport with listing agents and present their offers in a professional manner that gives the listing agent confidence. On the listing side they bring many similar skills to the table netting their clients more while saving the money through negotiations as well. The example I gave was on the buyside, I realize but the same is true on the list side. That is the piece this article does not account for. The data doesn’t always tell the story. I’ve seen sellers get far less than they deserve with a poor listing agent as well as with a flat feet company that just doesn’t care. Regardless we needed an elevated level of professionals in our industry without question
It’s unfortunate these types of articles reference “studies” with “researchers” as if it’s an accurate representation of what actually occurs in the marketplace. Maybe it’s just because it originates from the Federal Reserve Bank of Atlanta and mentions the involvement of a finance professor from Clemson? I wonder what kind of questions HousingWire asked, if any, before publishing the article? Was there any critical thinking performed to test the veracity of the data? HousingWire is a leading housing and real estate resource. Did HousingWire even see the data or study because no tangible data references were even mentioned in the article? Some of the article defies common sense.
I see in the article the “researchers” used MLS data. They define a flat-fee broker as “one who posts a listing to an MLS for a small fee. Shen said to think of this as a for-sale-by-owner transaction”.
The researchers (and Shen), not being subscribers to the MLS platform, where did they specifically get the data and in what level of detail? Most importantly, how did they find the small fee in the MLS listing that suggests a discount/flat fee broker? The Listing Broker fee is NOT collected by the MLS or even available in listings. At least, this is true for Bright MLS, the second largest MLS nationwide, serving my area in the mid-Atlantic. Available in the MLS prior to August 14, 2024 was the Buyer Broker Compensation. However, Buyer Broker Compensation has nothing to do with the Listing Broker Fee and presumed level of service provided by the Listing Broker. A perceived low percentage or flat fee for the buyer agent side has absolutely no connection to the Listing Broker Fee. Should the study be rejected on that basis alone?
In my local market of Northern Virginia, I can easily track the specific performance statistics of discount/flat fee brokers and teams because I know specifically who they are and how they market in my area (even using commercial radio ads). There are brokers/teams who generally charge sellers approximately $500 plus 0.5% of the sale. This is a discount/flat fee broker, and their fee is not listed in the MLS, but it is on their website and advertised in the radio spots.
So far this year, here’s the performance of one such broker: Sold-Price-to-Listing Price Ratio (99.7% vs 101.5% market average), Listings Sold in the fastest 0-10 Days on Market range (47% vs 70% market average), 28% Failed Listing Rate – meaning listings that FAIL TO SELL altogether being either Withdrawn, Expired, or Cancelled. Understand this particular discount/flat fee broker “underperforms” market AVERAGE while the agents the study portends to compare against are those who generally “outperform” market AVERAGE. For example, outperforming agents typically sell 2 points better than the average ratio (i.e. 103.5% of Listing Price – 4 points higher than this discount/flat fee broker). Outperforming agents sell in significantly fewer days (85% of listings selling in the fastest 0-10 days range – nearly 40 points better than the discount/flat fee agent), thus producing the outperforming sales price ratio. Failing to Sell, which is the ultimate breakdown in our business, is an infrequency with outperforming agents usually taking multiple years to see even a single instance compared to the discount/flat fee agent experiencing 28% annually. This number was 50% annually at pre-2020 inventory levels.
The article states, “In fact, the study found that flat-fee listing agents — agents who do little more than post a client’s listing to the local multiple listings service (MLS) — get 1% to 4% more on the final sale price than a more involved agent who is compensated with a percentage-based commission.” This is patently absurd, defying even common sense. An outperforming agent spends, on average, 120 to 160 hours on a listing from signed agreement to home settlement (6 to 8x the discount/flat fee agent). The article suggests a discount/flat fee broker can spend less than 20 hours (the article said “do little more than post a client’s listing to the local multiple listings service” – that’s maybe 20 hours) and get 1 to 4% more on the final sales price. An absurd finding by the researchers, Shen, and unfortunately given credibility by HousingWire. That would be similar to someone suggesting discount Professor Shen spends only 6 to 9 class hours with his students, instead of the typical 51 semester hours from other finance professors at Clemson, and Shen’s students outperform the grades of other students by 1 to 4% who have significantly more involved professors helping their outcome. I would say very unlikely, or Shen presumably provides negative value to his students beyond preparing his course syllabus.
How does an article like this make it past an editor if it somehow makes it past an “experienced real estate reporter and data journalist” responsible for writing the article?
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