5 tricks realtors use to get more for their homes!
Figured it’s high time to move to clickbait post titles.
The idea that realtors sell their own homes for a few percent more than those of their clients has been well published. Most famously it was featured in Freakonomics, where the authors made the point that realtors shortchange sellers by pushing for a quicker sale rather than holding out for the best price.
The key figures from the book being that realtors sell their own homes for an average of 3% more than comparables and they leave them on the market for 10 days longer. The theory being that the discrepancy is due to mismatched incentives causing the realtor not to act in the best interests of the seller.
- buy homes that are attractive to a wider group of potential buyers,
- choose renovations and updates that have a higher impact on resale,
- time a sale for better market conditions, or wait for the spring selling season,
- price appropriately for the market and,
- take a gamble by holding out for better offers.
There’s your promised 5 “tricks”, and you didn’t even have to page through a slideshow to read them.
But where is this data really from? It seems the paper all this is based on is “Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions” by Steven Levitt (note: author of Freakonomics) and Chad Syverson. They looked at 100,000 property sales near Chicago from 1992 to 2002 and compared the 3300 that had been realtor-owned to the rest. Note they also discussed the likelyhood of the arguments above as the cause for the sale price discrepancy and found them unconvincing.
Levitt and Syverson propose that the degree of informational advantage that realtors have over others determines the amount of additional money they can get when selling their own house. They found that in neighbourhoods where the housing stock is the most diverse, realtors got 4.3% more for their own homes, while in homogenous neighbourhoods where houses can be more easily compared they only got an extra 2.3%.
Interestingly, they also saw a trend of decreasing premiums over time, with realtors selling their own homes for an average of 5% more between 1992 and 1995, while the premium was only 2.9% 10 years later. They believe that the increasing information availability from the Internet contributed to this decline in the advantage that realtors posses.
So 10 years on, with vastly more information available to sellers and buyers online than ever before, can realtors still obtain higher prices for their own properties? How could contracts be structured to avoid realtors being incentivized to shortchange sellers?