Consumer Reports Flawed Realtor Survey

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.

19 thoughts on “Consumer Reports Flawed Realtor Survey”

  1. The Consumer Reports survey is limited to the highly particular universe of CR subscribers. And actually it’s a much smaller universe than that. The survey results, as CR states up front, is limited to the CR readers who responded to the survey by answering a questionnaire and sending it back to CR through the mail, or possibly the internet. The results from such a group is naturally going to be vary quite a bit from what you’d find in national sales data.

    That might be what you’re attempting to say in your post. But it’s not clear that CR is misrepresenting or misstating anything. They’re just talking about the results from their own questionnaire.

  2. Steve,

    I only skimmed over the CR report so far, but I think the problems with their survey can be summed up in three words: Self Selected Sample. I recall most of their surveys basically start with asking their subscriber base for volunteers, and the same psychology applies as does with talking about investments. That is, crow about the winners and gloss over the losers. It is plausible that enough readers who had a bad experience like expiring their listing, taking a haircut on sale price, or a short sale won’t feel like talking about it to skew results on a volunteer survey.

    CR’s auto reliability ratings have suffered from this effect for years. It’s a shame because they used to offer good objective tests of products. Lately they’ve deteriorated into subjective opinions and poorly designed testing. I made the mistake of trusting their advice on our dishwasher and clothes washer in the past two years. Never again!

  3. Good writeup. I stopped reading that article (on once I saw the 3% remark. It made it obvious the study is flawed.

    I stopped reading consumer reports a long time ago when I realized their data gathering model is seriously flawed. They send out long-winded questionnaires to their readers to get data, so they mainly get respondents who are angry and want to complain to someone.

    In this case, they didn’t get MLS data…they just got responses from sellers. Imagine if people can’t admit the price is wrong after 3 months on the market, what kind of responses they would put on the survey. Of course everyone is going to say they got what they wanted, the agent sucked and paying half the commission would be just fine. I wouldn’t be surprised if some respondents lied just out of spite.

  4. Jim,
    member questionnaires aside, CR doesn’t rate products or services based on its members’ preferences. It conducts independent research and evaluates stuff on the relative merits and in comparison to similar things. CR’s methodology is solid.

  5. Hey, speaking of the June stats, when are the July stats coming? I’ve heard that they are ugly. From what I am experiencing — trying to sell a house in area 6 and buy a house in 1A, the market above $400,000 is pretty frozen. Very little is moving and listings are definitely expiring and being withdrawn.

    We don’t HAVE to sell, no job change, no divorce, and we can well afford our current house, we’d just like a bigger yard and a slightly different location, so if we don’t sell soon, we will be one of the (more than 30%) who just withdraw our listing.

    And for what it is worth — realtors are priceless — all the time; and in a declining/difficult market, they are an absolute necessity!

  6. Thanks for all the comments. The main problem I have is that the Consumer Reports article has been published and spread all about the country, in all major newspapers, and it contains obvious problems. This is a disservice to consumers given the credence afforded to CR by so many. Other than me, I can’t find anything anywhere questioning the validity of the study or challenging the claims it makes.

    Shireen, I normally don’t put out stats until the middle or end of the month following the month being reported. This is because so many agents are slow to enter their sold listings and, for example,if I ran the stats on the 8th, there would be sales data missing that would be included if I wait until the 15th or later.

    Sorry to hear your house hasn’t sold yet. Remember, in a slow market, if you are moving up especially, you come out ahead when moving up so long as you obtain the same price concessions on your purchase as you give on your sale.


  7. The study is based on responses to the survey. That’s pretty much its main flaw. If someone had a good experience selling the home and paying 6% commission, they often can’t be bothered to reply.

    This type of survey system brings out the negative people and liars and you can’t tell accurately how many opposite reviews never got mailed in.

  8. Morning Steve,
    What about the cheerleading that the NAR pushes? That’s nationwide as well. Not to mention that the entire media ignored the possibility that the recent nationwide runup in realestate prices was unsustainable.

    All that said, I believe that their are many people who’d like to diy their home selling, but the information they need is “owned” by boards of realtors and the system isn’t setup for diy’s.

    All in all, I wouldn’t worry about this CR article – I’ll bet the impact to Realtor’s business is going to be close to 0%.

    There’s always a balance.


  9. Anon,

    You’re probably right, eventual impact will be minimal. I just have a problem with how our industry and occupation is misrepresented so often by journalists. And you’re right, NAR looks at everything with rose colored glasses, so they have problems too.

    I do wonder though why some think that MLS Data should not be “owned” by the Brokers who obtain the listings though. The MLS was started as a way for Brokers to share listings with each other. It’s our primary business tool, not a public service. If DIY, or FSBO listings were allowed in, it would cause a lot of problems and I’d probably I’d leave the industry.


  10. “I do wonder though why some think that MLS Data should not be “owned” by the Brokers who obtain the listings.”

    I think the question to ask is why shouldn’t consumers selling their house have access to the same information as does a realtor?

    It’s a sad state of affairs that realtors feel they need to “own” all the relevant data in order to have a successful career. Can you imagine the legal Bar arguing that nobody can have access to read a law or court decision unless they’re a member of the Bar? Or the Medical Association arguing that consumers can’t read independently information from drug firms and surgical suppliers?

  11. Hi Manny,

    you said:
    > “I think the question to ask is why shouldn’t consumers selling their house have access to the same information as does a realtor?”

    I think the question to ask is the opposite, why should Realtors work hard to create a work product that is then distributed for free to others? If I go out and invest my own money to dig a rock up out of the ground, it’s my rock. If I go out and invest my money to find a seller who wants to be represented by an agent and have his home listed in the MLS, then that’s my listing. You can view it online for free. So in that regard, consumers have full access to the listing data, unlike the old days when we had bi-weekly books that were published and which Realtor retained possession of.

    I think your question may be “why can’t a consumer simply list a home for sale in the MLS?” Well, you already can, through a Realtor , and at whatever price you negotiate with that Realtor.

    I’m not sure what more is desired, other than to turn the MLS into a free-for-all wild west, such as Craigslist. If that were a more efficient system, then Craigslist would have supplanted the MLS by now, but it’s not a workable search method, in most cases, to contact each individual seller on your own and schedule showings. That would be more combersome and costly than using a Realtor.


  12. I think there are 2 parts of the mls that are under consideration:
    1. listing for sale homes
    2. past sales history

    We can argue about both all day. Listing a home is probably about the same as posting on craigslist/ebay (getting a lockbox, pricing, ect. are considered as seperate for now). Searching for sales history (past pricing/comparables) is different. That’s closed to non-Realtors, but the information is based upon transactions which sellers/buyers execute. Diy’ers are locked out on both items.

    The weird thing of all this is that the Austin Board of Realtors shares sales information with the county tax assesors. So, they are passing sales info from Realtor clients back as a disclosure, when Texas is a nondisclosure state. Thus, if Texas were to move to a disclosure state, #2 above is somewhat fixed, but still not as easy to search as the commercial mls software.

    Interesting world we live in.


  13. Well, let me put it this way. I’ve sold a lot of houses to buyers who HAD to buy a house in Austin due to relocation here, new job, etc. They fly in on a Thursday, we go out looking Friday, maybe Saturday, by Sunday they have a home under contract and fly home. Nice, isn’t it, that they can accomplish that.

    Buyers are always going to need the ability to make that type of purchase. Not all of them, but many still. There is absolutely no way to accomplish that, in that time frame, and in a fully educated way, without help. That help comes from a Realtor. There will never come a day when buyers have the time and resources to learn everything they need to know about neighborhoods, schools, commute times, other misc info, see all the homes they want to see, and complete the transaction in a timely hassle-free way dealing directly with sellers. It simply ain’t ever gonna happen on a large scale.

    Therefore, a system of acquiring and sharing listing access must be in place. A way for a buyer’s agent to locate and show available homes. That system, used by Realtors, is the MLS. The listings therein are Realtor listings and we have a common set of rules, processes and and expectations to follow such that transactions can be done in a way that makes sense for all parties. We pay dues and fees for use and access to the MLS and we have strict guidelines we must follow related to the content of the listings and what can and cannot be published in them.

    If what you want is for every home owner to have free access and use of the MLS system, that’s an unreasonable and unworkable idea. It will never happen, for reasons too numerous and lengthy to lay out in this comment.

  14. Just to keep things real we should allow for the fact that an increasingly large number of sellers never use a realtor, or quit using a lousy realtor or decide to try selling themselves, or decide to wait for the market to catch up with their offering price and ‘hold out’ all of which accounts for many properties being withdrawn from MLS as it is a closed list accessible only to the fraction of sellers currently using a realtor. Given enough time on the market nearly all properties eventually sell – I haven’t noticed too many abandoned properties, just a tiny number.

    Thanks again for the blog. It’s definitely useful.

  15. Hi Ray,

    Actually, the research I’ve seen shows that only about 12% of sellers sell without a Realtor, and 40% of those sell to someone they know, which means only about 7% of home sales are true successful FSBO open market efforts.

    Out of the last 100+ homes Sylvia and I have sold, only one was a FSBO and, frankly, I think my buyer got a much better deal than the seller could have achieved through MLS exposure.


  16. Steve –

    I had to comment on these statements:
    “Well, let me put it this way. I’ve sold a lot of houses to buyers who HAD to buy a house in Austin due to relocation here, new job, etc. They fly in on a Thursday, we go out looking Friday, maybe Saturday, by Sunday they have a home under contract and fly home. Nice, isn’t it, that they can accomplish that.

    Buyers are always going to need the ability to make that type of purchase. Not all of them, but many still. ”

    Wow, I don’t know how anyone could buy a house on a whim like that. When my parents moved us to Austin decades ago, we lived in apartment during the 3mths of summer while they looked for houses. My dad did look at houses for almost 2mths before we all moved here.

    My parents did find plenty of houses they liked, but none they were exactly right. The additional time allowed them to get to know the city, the strengths/weaknesses of school districts and drive times. A realtor can summarize these things, but in some cases cannot give blunt critizism for fear for steering buyers into communities. Furthermore, all Realtors have areas that they know, and will be somewhat out otheir element outside of those areas. Plus, new properties come and go all the time. Sometimes it pays to wait and investigate (did in my parents case – found a new home in July right before school started). Mind you, this was all back when listings were in books.

    Maybe the buyer’s mentatlity you gave as an example is some of what’s wrong with America.


  17. > Wow, I don’t know how anyone could buy a house on a whim like that.

    It’s anything but a whim. Prior to showing up, we’ve often previewed many properties, reviewed listings online, narrowed down candidate properties, and therefore the buyer has an efficient and detailed tour once they arrive in Austin, because much of the weeding out has already happened.

    Of course not all buyers do it this way, and we work with buyers at their pace, not ours, but I frankly think it’s a much smarter way to buy a house than to spend months (or years) looking.




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