By Lawrance Morrissey
Contributions by Angie Mager
I recently saw a TV commercial paid for by the National Association of Realtors that claimed homes sold with a Realtor sell on average, 16% higher that those listed by owner. That's one attention-getting claim! This self-derived, self-promoting claim was construed from the "2005 NAR Profile of Home Buyers and Sellers" report.
The report sells for $50. I think the NAR would be better off selling a report that explains how they magically achieved a 5.4% return on their mailing when the national average is only 1.5%. I would gladly pay $50 for that information! Next time, I sincerely hope they use an outside company to compile their statistics.
This is line in which their statistic derives from: "The median home price for sellers who use an agent is 16% higher than a home sold directly by an owner; $230,000 vs. $198,200."
So in reality, the statistic simply shows that MLS listed homes have a higher average cost than by-owner homes. It does not mean a homeowner can get 16% more money for the same home. That's a big difference in the notion they're trying to sell.
Let's use some common sense for a brief moment and think about this: If by-owner homes sold on average $31,800 less than MLS listed homes, who in the world would continue to purchase MLS listed homes? By-owner homes would sell the day the sign was put up in the yard!
I find it disturbing that the NAR is comfortable marketing commercials with the fraudulent premise that by-owner homes can sell for 16% more money if listed with a Realtor. Sadly all the press I've seen or read on the subject takes the NAR's statistic as blind fact. What's worse, is that rather than reiterating it's only a MEDIAN home price statistic to Realtors who question the bogus price anomaly, the NAR has decided to try and sell the misinterpretation of its own statistic to these same Realtors since it's such a powerful sales tool! Below is what they've officially come up with and I couldn't resist adding my comments in parenthesis.
1. Many homes sold directly by their owners are never placed on the open market, so they don't attract a market price offer. These include homes sold to relatives, friends, neighbors, etc. (Hey, who wouldn't discount on average, $31,800 to a friend or neighbor?)
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2. Even if homeowners place their home on the open market, they often have problems marketing the home effectively. These homeowners typically use methods such as newspaper ads and word-of-mouth, which have limited reach. (From our experience, limited reach = significantly longer time on the market, not a 16% price cut.)
3. Homeowners have difficulty pricing a home appropriately for the market. Homes that are priced too high don't sell, and after a certain time, are ignored by buyers even after the price is dropped. Homes that are priced too low create a loss for the seller. (Realtors are notorious for making this mistake also. Now imagine having to price too low and paying 7% commission on top of that!)
Being that 4 out of 5 homes sold use a local MLS system, I have no doubt that the average median home price for MLS homes is likely higher than by-owner homes as we don't see many million-dollar by-owner homes. You can thank the law of averages for the statistic, not the National Association of Realtors. When Bill Gates walks into a bar, the law of averages states the average net worth of everyone in the bar is over 1 billion dollars, but we all know better.
So while the national statistics are interesting, we thought we would tell you exactly what's happening in Indianapolis, where the statistics matter to us Hoosiers: Our clients' median home price in the last issue of For Sale By Owner Magazine was $171,450 while homes listed on the MLS during that same time period were $155,518. Using the NAR's logic, MLS listed homes sell for 10% less, not 16% more, than by-owner homes.
We do however agree with a couple of the points that NAR has made. It can be difficult for a homeowner to market and price their home. THAT'S WHY OUR BUSINESS EXISTS: In fact, our mission statement reads: We are in business to advocate the homeowner's right to buy or sell property and to support their efforts with information, education and advertising services so that they may retain the equity in their home.
We won't insult your intelligence by claiming by-owner homes sell for 10% more than MLS listed homes, (based on our very own statistics) but we will tell you that our product saves on average, over 93% of your equity that would normally be spent on real estate commissions. No matter what the home price is.
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