DON’T Sell Your House with a Realtor in Fargo, ND…
Are you going to sell your house in Fargo?
If you’re thinking about selling your house, everyone will tell you the same thing: be sure to get a good realtor. They take care of staging open houses, fielding offers, and marketing the property. Your friends and family might even recommend a realtor who helped them buy or sell, swearing that it saved them time and money. It’s such conventional, tried-and-true advice that you’d be crazy to think about selling your house any other way, right?
But is it possible that, on average, everyone gets it wrong? That selling your house isn’t actually as complicated as professional realty agencies want you to think it is?
Surely, with their expertise in negotiation and marketing, realtors bring in much more than they charge?
If you put your house up as a FSBO (for sale by owner), you’re going to lose money, right? And if you explored some other paths to selling, you’re just going to end up making a costly mistake? Right?
Well, no. That’s not right — at least on average. There are always exceptions to every scenario, but we want to lay out our reasoning for why you shouldn’t sell your house with a realtor in Fargo, ND (or maybe anywhere).
It’s worth looking at the research before you make any serious decisions. We’re going to summarize that research — and provide you with the links to the original studies so that you can evaluate whether or not our conclusion is accurate.
At the very worst, it doesn’t hurt to ask your realtor if they can guarantee you they’ll make you more money than they charge.
Why You Shouldn’t Sell Your House with a Realtor in Fargo, ND
The reasoning is simple.
Realtors charge anywhere from 3-6% for closing costs, but they don’t actually produce enough value to offset their price.
Your house, after all, is producing almost all of the value. Having your home listed on the MLS with gorgeous professional photos, interior-design-expert staging, and wonderfully written descriptions doesn’t carry as much weight as most people think it does. (And, with Zillow and Redfin and Trulia being so easily accessible for the average seller, it’s easier than ever to market your house yourself; you can even look into sites that will buy your house outright, as-is, if you don’t want to make repairs).
As of the time of this writing, the average sales price of a home in Fargo, ND is about $240k. On the low end, your listing agent will charge about 3% when that home sells, making them roughly $7,200.
It would make sense, then, that listing agents increase the sales price of homes by at least 3%, right? Otherwise, the transaction wouldn’t make any sense.
Only that’s just the thing: according to all of the available research, realtors don’t increase home sales by 3%…
The Research: From Stanford to the American Economic Review
American Economic Review
- In 2009, Igal Hendel et al published a study in the American Economic Review that reviewed two home-selling platforms: the MLS (multiple listing service, the typical platform realtors use) and FSBOMadison.com, a for-sale-by-owner website for sellers in Madison, Wisconsin (which has a housing market that’s eerily similar to Fargo). They concluded,
- “After controlling for differences in house and seller characteristics, we find that the MLS delivers no price premium (even before netting commissions).” However, they did find, “MLS transactions do involve a shorter time to sell.” This is an important point that we’ll consider below.
Freakonomics
- In their best-selling book Freakonomics, Stephen J. Dubner and Steven Levitt explore real estate transactions, specifically why realtors are incentivized to take the first decent offer they receive rather than hold out for the best possible offer:
- “a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back roughly half of her take to the agency. Which means that only 1.5 percent of the purchase price goes directly into your agent’s pocket. So, on the sale of your $300,000 house, her personal take of $18,000 of commission is $4,500… If she put in more work, then maybe she could have sold it for $310,000. After the commission, that only earns her an additional $150.” The extra work isn’t worth the slight bump in pay for her ($150), even though it might earn you an additional ~$9,000 in take-home pay.
Stanford Institute for Economic Policy
- In 2007, two Stanford economists, B. Douglas Bernheim and Jonathan Meer posed the question, “Do brokers add sufficient value to justify their commissions?” in a case study. They concluded:
- “We find no evidence that the use of a broker leads to higher average selling prices, or that it significantly alters average initial asking prices.” Similarly to the American Economic Review study, however, they found, “those who use brokers sell their houses more quickly.” Unfortunately, as we saw above, that isn’t necessarily a good thing.
- In 2008 (with a revision in 2012), the same researchers followed up on their earlier conclusions with a more detailed paper, titled, “Do Real Estate Brokers Add Value When Listing Services Are Unbundled? published in the journal of the Western Economic Association International. This time they found:
- “Our central finding is that, when listings are not tied to brokerage services, a seller’s use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers’ knowledge and expertise by a wide margin.” In some cases, in other words, realtors are taking a chunk 6-8% chunk out of a possible home sale, roughly on par with the cost of their commissions.
Possible Confounding Factors and Caveats
So, does this mean that realtors are all awful people who are just tricking you into selling your house for less than it’s worth so that they can walk away with a fat commission? Of course not. First off, most realtors aren’t aware of this data; they don’t know, on average, their marketing efforts don’t create enough value to offset their costs. Even if they did, just like the 76 percent of Americans who claim they’re above-average drivers, they wouldn’t believe it applies to them, in particular. Those stats might apply to bad realtors, but not them.
And maybe some of them are right. Exceptional, after all, is exceptional. The top performers in any field will produce more than enough value to offset their costs, but if you’re going to use a realtor, make sure you’re getting a top performer (or at least someone significantly above average). They won’t be upset by the question, “Do you produce enough value to offset your cost?” and, in fact, they’ll be willing to provide you with the testimonials and data to show it.
Also, it’s possible that the type of person who sells their house through a FSBO is a tougher, smarter negotiator. Realtors might know a thing or two about negotiation, but if someone has the confidence to list his or her own home and field offers, bucking the traditional wisdom that realtors are the best people to do it, they might command a higher price. However, it’s also likely they just hold out longer than the average realtor.
Conclusion: Why You Shouldn’t Sell Your House with a Realtor in Fargo
Realtors in Fargo are going to charge about $7000-$9000 for their services if you have an average home, but as we’ve seen, they might not produce $7000-9000 in added value through their marketing.
So, what’s this mean for you? If you insist on going with a realtor anyway, make sure to ask them this simple question:
- “Do you produce enough value to offset your costs?”
If he or she is an above-average performer, the answer will be an unequivocal and confident yes.
Besides that, feel free to explore other options of selling your home, because they might offer you just as much value as other, more traditional methods.