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According to the book Freakonomics, written by Stephen Dubner and Steven Levitt, real estate agents sell their own homes for 3% more compared to what they get when they sell their client’s houses. The authors suggest dishonesty and double-standards as the reasons for this finding, but I think there’s a more honest reason why Realtors may be able to get a higher selling price for their homes compared to their clients’.
Many Realtors disagree with Freakonomic’s findings, swearing that real estate agents do not sell their homes for a higher price. I am not going to question the book’s findings; instead, I’m going to tell you why their findings SHOULD be true. Realtors should be able to sell their own homes for more than their clients. Think about it. When a real estate agent sells his/her own home, they have a highly-qualified agent, a realistic seller, and a perfect home to sell. How can they not sell it for more? Let me explain…
The Perfect House
While real estate agents are looking for a home, they also consider the house’s sale-ability. Realtors look for attractive properties, good schools, and great neighborhoods. They steer clear of houses that would be hard for them to sell later on. Lots of agents I know also keep their homes updated and make some form of improvement each year that helps to increase the property’s value. When real estate agents decorate their houses, they pick out colors or features that maintain or increase the house’s sale-ability. When agents sell their home, they know how to prep it for the sale. Agents will help you prep your home too, but how much of their advice do you usually follow?
The Perfect Price
Real estate agents are realistic when it comes to pricing their home to sell. If they are serious about selling their house, they don’t set their sales price unrealistically high. Realtors know the acceptable market price range that their house will sell and they set their price in that range. Their sales price should be competitive to all of the other comparable houses in their neighborhood and the house should have more sellable features than their non-Realtor neighbors’ houses. When you think about your house’s sales price, are you thinking about it from your perspective or the buyer’s? The buyer doesn’t care how much you owe or how much you spent remodeling it. Their only concern is how it compares to the competition.
Timing The Sale
The best time to sell your house is when you want to, not when you need to. When real estate agents want to get the best price for their homes and they’re not in a hurry to sell, they wait for a seller’s market. Even in a seller’s market, certain months are better than others. Spring and summer are the best times to sell and naturally winter is usually the worst. Realtors, who can wait for ideal market conditions, take all of these factors into consideration when they decide the best time to sell.
Taking A Risk By Holding Out For Better Offers
When you play “hard-ball” trying to maximize the negotiated offer, you stand a good chance of having the buyer walk away from the deal. If that happens then you’re left with nothing. Waiting for better offers has its share of risk. What if those better offers never come? What if it takes months to get the next offer? What if all future offers are less than the original offer? That’s a big risk to take and pressing too hard almost always leads to disaster. Real estate agents know that the longer the house stays on the market, the less money they can sell it for. Real estate agents have a duty to act in their client’s best interest and that agent must weigh the risks verses the rewards of holding out for better offers. Most agents are not comfortable putting all their client’s chips on the table to risk losing the offer just to get a few thousand dollars more in sales price.
Realtors may be inclined to be more risky with their own house. They know the odds and may be more willing to risk losing what may be their best offer. It’s a gamble they may be willing to take, but hesitate to recommend. Think how mad you would be if, while holding out for a few thousand more, your agent lost the best deal you had, forcing you to wait for months to eventually accept a much lower priced offer.
Conclusions
If you consider all of these factors then I think you’ll agree that a real estate agent should be able to get a higher sales price for their own property than they can for yours. If they can’t do a good job selling their own house, how in the world could they possibly do a good job selling yours? That’s why it’s so important for you to choose from among the best agents that have a recently proven track record in your neighborhood. Be sure to interview at least three agents and compare what they have to say. Find the agent that can help you get that additional 3% sales price. AgentHarvest can help you find those top producing agents in your neighborhood.
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You made some excellent points that a realtor SHOULD be able to get more for their house. I read Freakonomics and felt uncertain that they drew the right conclusion from those statistics. I appreciated your logical and professional opinion on this.
Louann:
Glad you liked my insight. Freakonomics naturally assumes that agents will eagerly go for the easy sale versus the better price since it’s not much of a commission difference and while that may be true with some agents, most agents will go the extra mile. I think it really depends on the expectations of the client. If the client is more risk-averse, and more willing to take a chance, then the Realtor may opt to hold out. However, if the client is blaming the agent for EVERYTHING and wants it sold now, then they get what they ask for. Remember, not only do agents work for commission, they also work for referrals. If they do a great job with you, they hope you’ll recommend them to someone else so it is in their best interest to get the best offer. Referrals weren’t addressed in the Freakonomics study.
Just now I read Freakonomics. This is really very helpful topic. I agree with it.
Then why do their home stay on the market longer. The explanations you give MAY be valid, except that they should not increase market time….in fact, they should decrease it. Thoughts?
The risk born by the realtor for waiting on better offer is essentially 0. They have contracts with the seller, so that can’t lose the potential sale, and the risk of the better offer not coming is entirely places on the seller.
Agents selling their own houses have the same seller risks as non-agent sellers do. If the house ages, it starts to look stale and people wonder what’s wrong with it. However, if you’re not forced to sell (like when you’re buying another house) you can let it ride, then remove it from the MLS and try again next spring. Maybe the reason their houses stay on the market longer is that there might be a higher percentage of agents that aren’t forced to sell, unlike the typical seller, and can ride the market, remove the listing, then start again with a fresh listing later on in the future.
I have the perfect house to sell. It’s only 11years old build like a fortresss 4 beds five baths chefs kitchen big yard comes with swing set huge deck comes with pit couch that seats7pp covered in granite and marble in kit/baths only I am by a busy road. My house does not face the busy road and I have a 7ft fence around it. Do you hear some noise a little but not bad in the house. We have parties in back yard all the time.
People come to see the house and won’t even get out of the car! My realitor is no help I haven’t even talked to her in three weeks. How do I find a realitor that will find the right buyer I need them now! I will not keep coming down in price until its free. That can’t be the answer to everything.
Any suggestions anyone?
Nikki:
No, price reductions aren’t the only solution. Price is just the easier route. You either need to find a way to minimize the problems or lower your price to a point where the buyer won’t care about the problems.
I recommend meeting with your agent or a new agent and discuss what’s wrong with the property. Find out what buyers looking at your house don’t like. How does it compare to the houses surrounding it that ARE selling? Find out where your house is lacking and make the necessary adjustments to make it more competitive with the competition. You might also try adding something great that the others don’t have. There are lots of things you could do, but if they cost more than the price deduction, they may not be worth it.
If noisy roads are a problem maybe you could do things to make your house more intimate. If your noisy road is beside or behind your house, you could plant a hedge or a tall fence to block the view and the sound.
If buyers aren’t even getting out of the car, spend more effort on curb appeal. Improvements to the kitchen won’t matter if no one comes in to see it. There are lots of things you can do to enhance curb appeal.
Excellent points that experts are likely to bring their own sets of behaviours that will affect correlations.
However I’m not sure that freakonomics claim that dishonesty is the reason, rather that there are incentives to do the extra work to sell your own place that aren’t there when selling someone else’s for a tiny commission. Spending extra days on looking around, waiting, painting, etc to earn an extra £10k is understandable, but for an extra £150 isn’t worth it, and you can’t expect agents to work for that rate. Sellers need to understand how those incentives work, and to negotiate suitable better incentives; perhaps agents could help by suggesting, eg, progressive rates.
I don’t think they mean dishonesty in an illegal sort of way. Rather they are accusing agents of purposely going for quick easy dollars, or should I say pounds sterling rather than working harder for a higher price.
But yes, you’re right, because the agent is selling their own house, they are getting more money, as opposed to a commission. They’re also saving the seller’s commission since they’re also the listing agent. All this extra money gives an agent the opportunity to invest more in upgrades, making the house more enticing and higher priced.
“What if it takes months to get the next offer?”
Why would this be bad unless the seller has some kind of rigid time frame in mind? If I’m moving up in house, every month I stay in this house is money saved, since I don’t have to pay a mortgage.
Also, how do I go about finding a Realtor that would put my chips on the table and hold off for an extra 3% as you say?
James:
Time is death to a listing. The longer it sits on the market, the more buyers think something’s wrong with it. If the seller prices it high and slowly drops the price over time, the buyer sees a house that the sellers have reduced in price many times and still it hasn’t sold. They think something’s seriously wrong with the house and they stay away, or they think that they can get the house for a much lower price. Either way, it’s not good. You end up selling the house for much less and over a longer period of time. Rarely does it pay to be greedy.
The best way to get the most money is by making the right home improvements, and finding the best time to put the house on the market. The best time is when demand far exceeds supply. Keep in mind, putting your chips on the table to hold off for an extra 3% could end up cost you 10% instead, if the gamble goes badly. The best time to gamble is when you don’t need to sell your house. Then if it doesn’t work out, you just keep living in it and wait for better times. While this strategy gives you a strong stance as a seller, it gives you a weaker stance as a buyer because you’re under a deadline to find your next home unless you’re willing to rent for awhile. As an agent, in my personal life, I prefer being in the strong position as a buyer. Since I’m probably going to be upgrading, a good deal buying will probably be more valuable to me than a good deal selling. Plus, I don’t want to be rushed into buying something I’m not going to be happy with.
I would say the biggest reason is that the realtor knows how to price the house right and as you pointed out may have purchased in the right area commanding more.t. They may put it on the market for slightly under market in order to get the most money . It is very hard to have a seller take that risk and they almost always want to overprice the house despite warnings to the contrary.They also will pray not necessarily take staging advice from you or do any staging at all.A realtor is likely to take their own advice when selling their home.I like your take on the article Bill.