There has been a lot going around about a recently published consumer reports survey of home buyers and sellers. I take these type of surveys with a grain of salt, but I don’t ignore them, especially when the information provided is so obviously incorrect.
The survey says:
Most people still close the deal. Eighty-six percent of our readers who put their homes on the market made a sale; only 8 percent of would-be sellers eventually gave up and took their homes off the market.
Wrong. No way. I don’t believe it. National sales data completely controverts this bogus figure of 8%. In Austin TX, one of the best markets in the country, in my June stats, you’ll see that 37% of the listings removed from the MLS in June failed to sell. There is no way that only 8% of sellers in a nationwide survey failed to sell their homes.
For crying out loud, over 30% over all homes sold in California through the MLS recently are foreclosures. The former owners of those homes were certainly unable to sell. I don’t know what sort of methodology Consumer Reports used, but they screwed this up. It’s so far fetched a number that, for me personally, it means the rest of the survey can be tossed in the garbage. But before we do that, let’s see what else they got wrong.
If you’re selling, it’s your call. The 82 percent of our respondents who sold with the help of an agent received $5,000 less, on average, than their original asking price. Almost all of the 17 percent who sold their homes without an agent said they received about what they originally asked.
Again, this doesn’t add up on a nationwide survey. I’ll use Austin as a barometer again.
January through June 2008, homes in Austin listed for an average of price of $261,662 and sold for an average of $253,044. That’s an average drop of $8,618 from list price to sales price in one of the strongest lowest price markets in the country. Does Consumer Reports really think anyone believes that sellers in Nevada, Florida, Michigan, Arizona and California are getting 86% of the listings sold for an average of only $5,000 of the ORIGINAL list price? In areas of California where average prices are more than $500,000, that would mean homes are selling for 99%+ of the list price. That’s simply not the case, as we all know.
So this ridiculous fairytale “$5,000 off the original list price” is so far from any possible reality that it renders the survey a joke and the journalists and magazine who produced it incompetent.
You can negotiate the fee. The usual 6 percent commission that agents charge sellers has been standard for so long that many homeowners apparently don’t realize it’s negotiable. But 46 percent of the sellers in our poll attempted to negotiate a lower commission and roughly 71 percent of that group succeeded…
We found that paying an agent a lower commission rarely had any effect on the sales price. And readers who paid commissions of 3 percent or less were just as happy with their brokers’ performance as those who paid 6 percent or more.
What? You can pay an agent “less than 3% instead of 6%” and get a home sold? No you can’t. Sorry, but it’s not true and it ain’t happening anywhere in the US beyond anything more than a freak, statistically insignificant number of times. I wonder if they are mixing up the listing side (usually half of the total) with the total commission?
For Austin, between Jan and June 2008, 10,609 homes sold. Of those, 10,211 have a buyer side commission of 3% or more offered. The 398 sales (3.75%) that have a buyer agent commission listed of less than 3%, took longer to sell (72 days compared to 65 for the others) and sold for a vastly lower sold to list price ration than the others. The listings that paid a buyer agent 3% or more sold for 96.36% of the list price. The sold listings that offered less than 3% to the buyer agent sold for 94.43% of the list price.
But I’m not even sure that matters because the sample size (in our case, 398 out of 10,609) is too small to be meaningful and if the percentages are similar in the nationawide survey, a small number like that is certainly not indicative enough of the entire survey to create headline news.
I’d like to see the MLS data from the areas in which Consumer reports says that the TOTAL commission can be less than 3%, and that 86% of the homes sell for an average of $5,000 off the list price.
I’d like to know how many respondents fell into the pool who made this claim. What I suspect is that the questions were poorly worded and/or the answers wrongly interpreted. I think they must have been talking about a discount off of the listing side being “less than 3%” because nothing else would make sense or stand up to data scrutiny. But then again, they state clearly “readers who paid commissions of 3 percent or less were just as happy with their brokers’ performance as those who paid 6 percent or more.” I’m scratching my head.
Paying less won’t hurt service. The industry generally defends the full 6 percent commission by saying it enables brokers to provide all the services home sellers need. And some of our survey respondents who paid lower commissions did get fewer services from their agents. But there wasn’t as big a gap as you might expect. For example, 81 percent who paid 3 percent or less said the agent provided a competitive market analysis of their home, compared with 87 percent of people who paid 6 percent or more. And those who paid a lower commission were somewhat less likely to have agent-sponsored open houses (54 vs. 59 percent).
First of all, the “industry” doesn’t generally defend any certain amount of commission. There is in fact a congregation of Realtor pricing at and around the 6% amount, for reasons that a statistics/economics professor could explain better than me, but it’s not set or determined by the “industry”. It’s 100% negotiable between each client and her agent.
Nevertheless, I think again that their definition of “less than 3%” is being misreported as a total of both sides of a deal when it must in fact be a discount off one side of the deal (buyer commission or seller commission). This is the only thing that would make sense.
Finally, I have no problem with Discount Brokers. It’s simply a business strategy, but one I don’t personally employ. I’ve encountered and dealt with some very competent agents working for less than I would, and I’ve run into a lot of terrible “full service” agents.
I’m still not sure why, for example, One Percent Realty in Austin has less than 1% market share. They seem to do a good job from what I can tell, and they advertise and market heavily. Yet consumers by a vast margin continue to select traditional “full price” Realtors such as Sylvia and I. Keller Williams owns almost a 20% market share in Austin, and it’s a full service Brokerage, though each individual agent is free to negotiate whatever fee they wish with a client.
Consumer Reports got it way wrong in this survey. They do a disservice to readers who won’t be able to glean the defects in the reporting but will instead be left to think they can actually hire an agent and sell a house for less than 3% total commission, and that they have an 86% chance of selling it for less than $5,000 off the listing price.
For a real study on the effects of limited service discount brokerage, check the article from the January 2006 issue of Tierra Grande Magazine, published by the Texas A&M Real Estate Research Center. Also note in their article (in the side box “about this study”, how they explained in detail the methodology used.What you end up with is the difference between a professional statistical/economic analysis or a topic versus crappy magazine reporting by journalists who don’t know what they’re doing. Consumer Reports should stick to testing toasters and refrigerators and stay out of the statistics and real estate data analysis business.