Some things real estate agents do not disclose

Monday, March 11th, 2013 By

House for sale

Though most people use real estate agents to buy or sell a house, there might be a lot they aren’t telling you. Photo Credit: the truth about/Wikimedia Commons/CC-BY

Lots of people get involved with real estate at some point, buying a house or selling one and many people utilize real estate agents in pursuing those ends. One might want to keep a close on eye on their agent, because there are things real estate agents won’t tell you.

Most use real estate agents

Most people that buy or sell a house likely uses real estate agents. The National Association of Realtors reported For Sale By Owner or FSBO sales accounted for only 10 percent of home sales in 2011. Agents seem to get higher prices as well, as the NAR also reports an average price of $150,000 for an FSBO sale compared to $215,000 for agent-brokered sales.

A cynic might opine that of course they would – it’s the National Association of Realtors, they want to look good. Many real estate agents, of course, are fine and upstanding people but there are a few things they won’t tell you before you fill out the application for mortgage loans.

Divergent incentives

The primary incentive for real estate agents is to sell houses since they make a commission, typically 6 percent. Sellers want higher prices, buyers want lower ones.

What if an agent advised against holding out for a better offer? What if they told you not to wait a little longer for, say, an extra $10,000?

Freakonomics authors Steven Levitt and Stephen Dubner looked at 100,000 home sales in the Chicago area while writing the first book; an excerpt is posted on Wired. When agents sold their own homes, the house sat an average 10 days longer and sold for 3.7 percent more than homes sold by agents for a client.

The reason? An extra $10,000 for a home meant only an extra $150 for each agent involved. Assuming seller and buyer have agents, both split the 6 percent commission and half their take goes to their brokerages. Thus, at 1.5 percent of the difference, they have little incentive to hold out longer, whereas the seller is shorted $9,400 by not waiting.

Thus, the first decent offer might be the one they’ll push. The Freakonomics blog further cites a 2008 Stanford University study that found, using data sourced from university staff, agents didn’t net higher or lower sale prices for buyers or sellers, but did result in quicker sales. Faster sales mean less time, effort and money marketing a home, after all.

Other things to know

Many articles are posted around the web chock full of things real estate agents won’t tell you. For instance, according to Yahoo Finance, an open house is worthless. The NAR found only 2 percent resulted in sales. Most of the time, it’s for realtors to meet new clients.

Not only that, but information asymmetry plays a huge role in home sales. A real estate agent might not even tell a seller about every offer. After all, if a client of another agent has an offer, but the seller’s agent has a client that has an offer, the agent may only advise their client of the latter. The reason? They don’t split the commission. According to ABC, it’s called “double-ending.”

Real estate listings, especially online, might also be a bait-and-switch. Just like the incredible discounts offered for Black Friday, it’s meant to get a buyer “in the store,” as it were – namely house shopping and then, whoops! “Oh, sorry, that house is sold – let me show you something else.”

However, there’s no way you’re going to know, since information asymmetry is firmly on their side.

Sources

NAR

Wired

Freakonomics

Yahoo Finance: http://finance.yahoo.com/education/real_estate/article/101456/10_Things_Your_Real_Estate_Broker_Wont_Tell_You

ABC: http://abcnews.go.com/Business/inside-secrets-real-estate-agents/story?id=18677976

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