We rarely use travel agents to book vacations given easy access to information online, thus saving money. Selling your home without using a real estate agent is just as doable, writes Eden McDonogh.
MOST PEOPLE would never think of selling their home without a realtor or don’t even realize it’s possible.
Anyone can negotiate, fulfill and exchange the necessary contracts. Even better, you can have an attorney or solicitor draft the contracts and make sure all the legalities are followed for a flat fee of around $1,000. So why is everyone still using real estate agents?
Once upon a time, real estate agents helped market your property to a wider audience and connected you with buyers. In addition, the agents had knowledge and expertise in the industry.
Today, the Internet offers unlimited access to the market. Buyers and sellers are connected like never before. Moreover, the once-possessed informational agents have rapidly eroded. Anyone can now go online and find everything they need to know about availability in their area, sales trends, median prices, mortgage rates, and more.
These days, you’re more likely to hear a real estate agent touting their negotiating skills as the main reason for hiring their services. Realtors handle all the conflict and discomfort of negotiation so you can get the best price.
An obvious problem with this is that a real estate agent has about as much expertise in negotiating as anyone who has read Donald Trump’s article. The art of the market. Keep in mind that real estate agent training is usually done online and can take as little as a month complete.
But that’s a moot point because getting the best price for your home isn’t even in a real estate agent’s best interest. This may seem counter-intuitive. After all, the more an agent sells for your home, the higher their commission.
However, the economist Steven Levittprofessor at the University of Chicago and co-author of the infamous book Freakonomics: A rogue economist explores the hidden side of everythingdemonstrates that the incentives of real estate agents and sellers are not necessarily aligned.
Consider this example. You sell your house for $500,000 through an agent who will take a 5% commission, or $25,000. About half of this commission will go to the agency and the other half is usually split between the agent who lists the house and another agent who finds a buyer and makes the sale.
This could mean that your agent only takes 1.25% of the sale price or just $6,250. Now imagine that your agent is a “good negotiator” who fights to get you the best price and sells your house for $50,000 more. He or she will only take home a paltry $625 for all that extra effort.
Plus, getting the best deal often means keeping the home on the market longer and showing it to more people. So smart agents will pressure you into accepting a bad deal so they can make a quick sale without serious effort.
For the same amount of time and effort, an agent is better off closing two or three cheap deals instead of working to get a good deal. So even if real estate agents were expert negotiators, they’re probably more likely to negotiate with you to sell for less rather than get the buyer to pay more.
Levitt led an ingenious study prove that real estate agents are not getting the best prices for their clients.
He reviewed public real estate records and gathered a dataset of over 100,000 property sales in the Chicago area. In this data set, he found that around 3,300 of the sales were made by agents selling their own properties.
Levitt then looked at how much these agents sold their homes for and how long they kept them on the market compared to the homes they sold to clients. The study found that agents kept their property on the market for an average of ten extra days, waiting for the best deal, and selling their property 4% more than the average customer’s, even after controlling for all imaginable factors related to home and in the neighborhood.
For the hypothetical $500,000 home we talked about above, that’s an extra $20,000 in the agent’s pocket that wouldn’t go in yours.
You could easily save 90% or more of the money you would have given an agent on commission. Even if you pay to get a professional appraisal, have professional photos taken, pay a company to post your listing online, and hire a lawyer to sort through all the contracts, you’re only paying a fraction of the cost.
That’s not to say selling without an agent is for everyone. Just that it is possible and something to consider if you are a savvy and confident seller.
Eden McDonogh is completing a bachelor’s degree in psychology (with distinction). He is passionate about neuroscience, evolutionary psychology and behavioral economics.
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