Earlier we saw how a fresh new listing gets more traffic, and that buyer interest dies off quickly:
Yet historically about 3/4s of the sellers insist on testing the market for weeks or months, just to make sure. Buyers don’t mind waiting, because they usually get a better price when they do.
Realtors get criticized for just wanting a quick sale, but the data shows that selling earlier in the listing period means getting closer to the list price.
The first group here are those houses that sold during their first 10 days on the market, and the second group are those that sold after 11+ days:
NSDCC detached-homes sold between September 1st and October 31st:
Buyers are demanding a slightly larger discount today, plus sales are also down 15% YoY so a few sellers aren’t budging – but they’re not selling either.
It’s probably never been so important to be sharp on price. Just don’t add any extra mustard!
But couldn’t this data also just mean that homes that are listed as underpriced or fairly priced sell more quickly and homes that are overpriced take longer? It’d be really interesting to know whether homes that are on the market for longer get a higher or lower price vs the “true market value,” but that’s not so easy to figure.
One of the articles in the original “Freakanomics” book was about the agency paradox – how someone you hire to do something inevitably has a different incentive than you would have if you were to do it yourself. And they notoriously used real estate brokers as an example. They claimed their stats showed leaving a house on the market longer got a better price, though, in general, agents encouraged selling ASAP.
But couldn’t this data also just mean that homes that are listed as underpriced or fairly priced sell more quickly and homes that are overpriced take longer?
Yes, I think that’s my point, and the trend is the story. Buyers expect more discount the longer the house has been on the market – so price it so it’s attractive immediately.
But there is the added variable that in a rising market, the over-priced home eventually sells as prices are rising – they will catch up eventually. Literally, every other house that is better-looking and/or better-priced has to sell first, then the OPT finally has its day. But now, that day may never come – at least in the near-future.
Here is the Freakonomics excerpt that ignores the fact that realtors have the insider shot to buy the best homes before they hit the open market. The superiority of location alone is worth the $10,000 higher average, so their ‘controlling for any number of variables’ is suspicious. But I would also include that realtors are notorious for over-pricing their own home too:
First of all, 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 os $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience and a few more newspaper ads, she could have sold it for $310,000? After the commission, that puts an additional $9,400 while she earns only $150, maybe your incentives aren’t aligned after all. (Especially when she’s the one paying for the ads and doing all the work.) Is the agent willing to put out all the extra time, money, and energy for just $150?
There’s only one way to find out: measure the difference between the sales data for houses that belong to real-estate agents themselves and the houses they sold on behalf of clients. Using the data from the sales of those 100,000 Chicago homes, and controlling for any number of variables—location, age and quality of the house, aesthetics, whether or not the property was an investment, and so on—it turns out that a real-estate agent keeps her own home on the market an average of ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. When she sells her own house, an agent holds out for the best offer; when she sells yours, she encourages you to take the first decent offer that comes along. Like a stockbroker churning commissions, she wants to make deals and make them fast. Why not? Her share of a better offer—$150—is too puny an incentive to encourage her to do otherwise.
So why not negotiate a sliding scale commission sale? I.e. for every 10 k extra over the list price 2.5k extra commission?