Tuesday, March 17, 2009

Study: Real estate brokers are almost worthless

From BusinessWeek's Hot Property blog:
Fascinating study by Stanford University economists B. Douglas Bernheim and Jonathan Meer called “How Much Value Do Real Estate Brokers Add? A Case Study.” Bottom line: They don’t add a whole lot. “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. However, those who use brokers sell their houses more quickly,” the authors write.

The study was based on data pertaining to sales of faculty and staff homes on the Stanford campus over a 26-year period. “For the median home in our sample, a 6 percent sales commission totals $34,000, a steep price to pay for the value rendered,” the authors write.

The study closely resembles one in 2007 that covered brokers vs. FSBOs in Madison, Wis., another college town.


  1. It's tough to generalize all brokers. Some of us are worth it, some aren't.

  2. Brandon.

    On the flipside... if you're a "good" broker that is worth it, there's got to be at least one other broker that is actually WORSE THAN NONE so as to even out the statistical relationship.

    And, how is a consumer to know whether someone is worth it? There are no ratings of brokers; and most Realtor's Associations refuse to take action against poor or even malfeasant brokers, so doesn't it stand to reason that the average person is just better off not taking the risk?

    Counterpoint argument.


  3. If you are a broker and are honest hats off to you. I have been reluctantly involved in construction and home sales for over 30 years. I have never been involved in a situation where a broker or an agent has been of value or ever deserved the cut they get here in Minneapolis. As for the reason that broker listed homes sell faster. That is due to the agents steering any potential buyers away from FISBOs. I have first hand knowledge of agents not showing buyers a home they asked to see. In every situation the FISBO homes would have been a better buy and much better fit to what the home buyers really wanted. The agents involved all were quite aware of the quality of the FISBOs and that the FISBOs were more than willing to work with an agent.

    Steve in MN

  4. I must say using a Realtor is extremely important. Most buyers and sellers, myself as one of them, dont know how to navigate the market. I wouldnt have know how to get through the contracts, negotiations and deadlines without my agent....Thats wehy wde have professionals in every business..sure you can buy and sell stocks online on your own, but if you dont have time to follow the market and dont understand it, that is what a stock broker is for. Same goes for a real estate agent. Im one of those people that believes in hiring a professional to do what I dont understand. Time is money.

  5. I agree. As a geneal rule: leave what you don't know or don't do well to the professionals. It's just not worth the headache to nickel and dime, especially if you're a seller in this environment. At the same time, there are plenty of poor "professionals" out there; bad or useless brokers, agents, doctors, attorneys alike...

  6. How about hiring a professional that has no incentive to see your best interests served and instead just wants to see you buy as expensive a house as possible so they can get as big a commission as possible?

    Our realtor system is broken as hell. They aren't there to give buyers useful advice, most of them are just second tier salesmen chasing commissions.

    Thankfully their grip on the MLS is weakening dramatically with all the new real estate websites that are popping up.

  7. Anonymous said...
    "How about hiring a professional that has no incentive to see your best interests served and instead just wants to see you buy as expensive a house as possible so they can get as big a commission as possible?"

    Actually, according to Freakonomics, real estate agents are far more interested in making a quick sale than getting a higher price.

    A homeowner has a lot of incentive to try to sell his $300,000 house for an extra $10,000. An agent does not. The 6% commission on the extra $10,000 would be $600, but that has to be split between the buyer's and seller's agent. Furthermore, each agent's share is further divided between the agent and the real estate agency he/she works for. The $150 that the agent may pocket by haggling for an extra $10,000 pales in comparison to the $4,500 he/she could make by moving on to the next $300,000 sale as quickly as possible.

  8. We are talking about buyer's agents...

  9. Anonymous said...
    "We are talking about buyer's agents..."

    It doesn't matter. Agents on both sides of the transaction have a financial incentive to get a deal done as quickly as possible, so they can move on to the next sale.

  10. I would have to agree with the sentiment against brokers. I have purchased 2 homes, and both times, I found the house, I got the financing, I got the inspections, and I reviewed the contracts.

    The only things agents are useful for are their contacts...they can find houses before being listed, and the ability to pull recent comparibles. Unfortunately, very recent sales are not available to the public to my knowledge.

  11. Real estate agents are worthless IMO. Their main function (setting appointments and paperwork) can be handled by a good administrative assistant. The documents required can be downloaded for free and they are eventually be reviewed by a lawyer at a settlement company. So what do that really add??? Knowledge of real estate? Puhlease! Realtors have created and perpetuated a myth that selling a house is difficult. It's not difficult. It's tedious, but it is not hard. I will never use one again.