Sellers and Realtors disagree on pricing
Filed under: Real Estate
A new survey from HomeGain suggests one of three things: Either home owners are unrealistic about what their homes are worth, or agents are too pessimistic about what homes will sell for, or some combination of the two.The survey found that nearly 50% of homeowners think their houses should be priced 10% to 20% higher than their agents have recommended. Less than 20% of agents nationwide say that home buyers are telling them that homes on the market are priced fairly. Almost 60% of agents say potential buyers are telling them that home asking prices are too high.
So who's right? Of course most real estate agents have far more knowledge of market conditions than home sellers, who also may be emotionally attached to their homes or suffer under the power of the endowment effect. That is, studies have shown that people often want more for something they possess than they would pay for the same object that they don't possess.
On the other hand, real estate agents often have an incentive to push for listing a home at the lowest price possible: The lower the asking price, the quicker they can get it sold and move on to the next thing. The problem is that real estate commissions are structured in a way that the broker doesn't benefit nearly as much as the seller from an increase in price.
For instance, let's say that a home is listed with an agent for a 6% commission -- 2% will go to him, 2% to his broker, 2% to the buyer's agent and 2% to the buyer's agents broker.
If the home sells for $250,000, the listing agent will earn $5,000. If the homes sells for $275,000, he'll earn $5,300. That difference in commission may be too small for the agent to bother with showing the house 20 more times while it sits on the market. "You want to hold out for the best offer," economist Steven Levitt told ABC News. "Your agent wants to churn through the properties and make a quick sale. Levitt found that agents let their houses stay on the market longer when it's their own home.
So what's a home-seller to do? The best bet is to interview a handful of agents before choosing one, and ask each one what price they would list the house at. Don't succumb to wishful thinking and pick whichever one offers the highest price: Try to understand the reasoning behind the different price points, and go with the agent who knows what she or he is talking about.
Reader Comments (Page 1 of 1)
4-08-2009 @ 11:43AM
Donovan said...
Its the Realtors fault our homes have lost so much in value in the first place. Our homes just don't sit and decrease in value. When housing market sales were booming 2006 to late 2007 Real Estate agents put top dollar sale prices on homes. Why? because buyers were willing to pay the prices. Once the market started to slow down, the Realtors lowered home values in order to make a sale. A Realtors income is based on sales. No sale, no commission, no income. What sellers need to do when you have an agent under value your home, or feel the agent is undervaluing your home, just to make a quick sale. The seller needs to adjust the agents commission percentage accordingly. Just because an agent wants 6% commission, doesn't mean the seller has to agree to that rate. As the seller you tell the agent what commission rate YOUR willing to pay them. If the agent doesn't agree with you. Find another agent. A 4% sales commission
is more then enough. Make sure your agent only shows your home to buyers who are pre-qualified for a mortgage. And put a listing time of 6 months max in the sales contract. If an agent can't sell your home in 6 months or less. You need to change agents.
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4-08-2009 @ 3:00PM
Louis Cammarosano said...
You can check out the details of the HomeGain Realtor Home Prices survey here: http://blog.homegain.com/category/homegain-market-data/
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4-09-2009 @ 2:19AM
Ben Goheen said...
Zac,
My basic math skills tell me that 2% + 2% + 2% + 2% do not equal a 6% commission.
@Donovan: it's always someone else's fault - Realtors, mortgage brokers, appraisers, etc. When the market was hot a few years ago no home seller complained that they made too much money. Or many people were also refinancing to pull out cash to pay for credit cards, vacations, cars and the such. So now instead of having a 5 to 10 year debt on a credit card or a 5 year car payment this turned into a 30 year payment. Of course this wasn't the homeowner's fault, they had no idea the market wouldn't appreciate 10% or more every year.
As a selling agent, the commission typically goes to both you and the buyer's agent. In my area it is common for the buyer's agent to make 2.7%. So a 4% listing agent will now only make 1.3% (less what their broker takes) and does the majority of the work to sell the home. Do you honestly think they'll work as hard for 1.3% as they would for 3.3%? That's a $5,000 difference on a $250k home.
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4-12-2009 @ 11:10AM
Bill Petrey said...
Ben is right. The math doesn't add up. The 6% is usually divided up between all 4 parties. It's not always even either. The commission splits are usually weighted towards the broker. Each brokerage is different, but the big named ones I've interviewed with take a majority of the commission split for the first number of houses the agent sells per year and it tapers off with each additional home sold. If this is the case with your agent, they may be more aggressive at year end to get that final sale before their commission split resets the following year.
When determining price, it's very important to do YOUR homework. Home pricing is based on set statistical criteria. All agents have access to that data so make them justify their decision.
If the house is priced too high, it sits. As it sits, it becomes less attractive or stigmatized. If a house has too many Days On Market (DOM) then agents start to think something's wrong with it. What eventually happens is that the buyer must drastically reduce the price below what should have been originally offered.
In times like this, it's extremely important that a seller find a good agent to sell their home. Our company, AgentHarvest, finds those agents by conducting a 5-mile radius search around your house to find the agents that sold the most houses in your area. If you only interview those agents, you really can't go wrong. Our service is free to the homeowner and we'll even pay you a portion of the agent's commission at closing helping you get the best agent while paying less for their services.
We have also published articles that you can use to help you find, interview and hire the best available agents in your area.
For more information please go to http://www.agentharvest.com
Our articles can be found at http://blog.agentharvest.com
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