The amount of information you can get scanning the internet for a new home is incredible and is rapidly eroding what was once the exclusive domain of the real estate agent. So, what are the skills that the agent needs to focus on to remain relevant?
Today is the second in a series of conversations that I am having to drill down on the dramatically changing landscape for the residential real estate industry, particularly as it pertains to the agent function. My guest today, Paul Anglin, is professor in the college of business and economics at the University of Guelph in Canada whose research into the relationship between listing price and time on market first drew my attention. There are some key findings that he discusses that are consistent with other findings I have discussed in prior podcasts at www.nreforum.org – such as the percentage difference between target selling price and list price. But as my conversation with Professor Anglin progressed we migrated towards the question of agent contribution to the sales process.
Incidentally, in future episodes I speak to several other experts who have conducted similar research, each challenging the idea that the status quo can be maintained – in fact challenging the idea that the real estate sales agent role is relevant in its current form. Just think, if you will, of what happened to the travel agency industry. Subscribe to the series at the national real estate forum dot org website, or www.NREForum.org , to be sure you do not miss any of the provocative conversations coming up.
We tend to think of the relationship between time on market and price primarily in the context of setting the asking price – if we set it too high, it’s going to take longer to sell, or maybe not sell at all, OR if we set that price too low and a buyer pops up immediately maybe we set the price too low. In fact it never fails to astonish me that brokers brag about having sold within a week… doesn’t that just mean they underpriced the house? I don’t get it. There’s this built in conflict, that I discuss in future episodes, that while it may be in the Seller’s best interest to wait longer for a higher price, broker’s prefer to sell quickly because the increase in commission that they get just isn’t worth the wait…
But the question of when to say Yes to an offer – is now too soon, or should I wait longer - is not unique, of course, to real estate transactions. The background to this quandary from an analytical perspective helps to set the foundation upon which we can better understand the problem…
So let’s review… we hear that the optimal list price is between 3-4% above market and this is consistent with other studies, most notably that conducted by Darren Hayunga, my guest last week. Tying into this is the apparently intuitive finding that the higher the list price, within limits, the longer it takes to sell - less intuitive, and certainly more pertinent for agents, is that the higher the list price, the higher the sale price is also likely to be – even if it takes longer to sell. So, while Professor Anglin and I did not discuss this, the question of incremental income for the agent in squeezing out the last dollar for the client – isn’t that a fiduciary responsibility? – comes into focus. Are agent and client interests aligned if the extra effort to maximize sales price results in a really small commission increase for the agent?
In an upcoming episode I discuss a study that examines this idea directly and that reinforces the idea that agents are motivated to sell quickly and for less than they would otherwise yield for their clients, if only they were to persevere and market the property longer. What do you think about this? I would love to hear your thoughts so please leave a comment on linkedin book, or contact me directly at www.nreforum.org
My takeaway from Paul Anglin’s research is that it sheds light on the idea that the agent skillset has changed in the sense that they must now be more media and internet savvy. They have to understand how to stand out online, rather than being just the gatekeeper of information about a property as they used to be. Nowadays online accessibility to information is plentiful and almost provides a full enough understanding of a property for a buyer without actually having to visit the property itself. Not only that but the key components of what go to making up the agent role – provision of photographs, legal paperwork, market information, staging, appointment setting, even pricing and negotiation – each of these are being offered independently of the agent. And as each component of the agent function becomes more easily accessible to the home seller or buyer, the pricing for those functions goes down.
The challenge to the agent system as it currently exists is that the sum of the costs of buying each component of the sales process is very significantly less than the commission the agent charges and so it becomes inevitable to start to ask: how relevant is the agent role – especially at 5 or 6% of the total sale cost – in an age of technology and increasing access to information? Isn’t it just as easy to do it yourself now, for less money and, as the research seems to be suggesting, with a better financial result.
As the millennial generation comes of age and starts to demand housing in greater numbers, they are going to start buying and selling real estate without agents if agents cannot redefine themselves to accommodate the tsunami of changes that are sweeping over every other industry.
Food for thought, and fodder for future episodes at the www.nationalrealestateforum.org , www.nreforum.org Listen in, subscribe, and let me know what you think by using the contact form at the website.
How do we set listing price when we sell our homes and what value do agents bring to the process?
Today’s discussion covers familiar ground for most of us because it relates to those times when we are selling our home and how we come to that most important of decisions: the list price. My guest is Darren Hayunga who is professor of real estate at the University of Georgia. In his first paper on the subject, professor Hayunga begins to look at the relationship between list price, how it is set, and how that relates to the amount of time a home remains on the market before selling. Sellers typically try to set asking price around 3-4% above market price in order to allow for some flexibility during negotiations.
REDUCING LIST PRICE MAY NOT BE THE BEST STRATEGY TO GETTING A QUICK SALE
Discussing ‘urgency’ as the idea that a seller wants to sell quickly, professor Hayunga discovers that if you are in a hurry and set sale price lower than you otherwise might do in an attempt to sell quickly, it will take you just as long to sell and you could end up selling for less.
As our conversation unfolded, professor Hayunga started discussing some results he and other researchers are finding that have very serious implications for the real estate brokerage industry – is the real estate agent becoming obsolete; are we seeing a decline in agent effectiveness as their relevance diminishes? Stay tuned for the latter part of my conversation today to hear more on these topics. And be sure not to miss future episodes as I delve into this important vein of research by going to the www.nationalrealestateforum.org website, www.nreforum.org and subscribing through any of the links I have provided there.
YOU MAY END UP SELLING FOR LESS AND TAKING JUST AS LONG TO DO IT
The takeaways today are that, top line, most people set their asking price 3-4% above market to allow for some negotiation flexibility. If you are not in a hurry to sell your house, set the price higher than this and wait for the right buyer to come to the market. However, if you set the price too high, you may have to reduce the asking price and provided you don’t do this more than once, you should still be able to gain a decent price for your home. On the flip side, if you do want to sell quickly, and you don’t set enough extra price in to allow for some negotiation, not only might it take you just as long to sell anyway, but you may end up selling for less than you need to.
My conversation with Professor Hayunga continued, however, when I asked him to clarify a point regarding agent input in setting sales price and it was there that we started to address the question of agent effectiveness.
We have data showing that agents do not contribute meaningfully to the list price decision when comparing homeowners who use agents against those who do not; we hear that agents sell their own homes for more, and buy for less than when they represent clients; and we also learn of studies that show that using an agent can actually result in a lower sales price – by 6-7% less??
What is going on here? In discussing this particular study – which, incidentally, I am working on including in a future podcast – the conclusion is that the only advantage that an agent has is access to proprietary data through the MLS.
These are serious findings. What happens when the advantage of having access to proprietary data becomes eroded by increasingly free and open access to the same data on sites such as Trulia or Zillow? Are agents really doing everything they can to squeeze out the best sales price for their clients by working harder and waiting longer for the right buyer, or are they giving up quicker, not caring for the incremental commission, but preferring instead to avoid having to conduct m ore open houses and marketing? And why is it that when agents buy for themselves, they buy for less than they do when representing clients, and why do they sell for more when selling their own homes? Do they not have a fiduciary responsibility to put their clients first?
DOES TECHNOLOGY POSE A THREAT TO THE REAL ESTATE AGENT INDUSTRY?
The big question is: is the agent function becoming obsolete? do these data indicate an industry that is facing the disruptive influences of technology. Why shouldn’t we sell our homes online without an agent? What value do agents bring and is that value enough to compensate for lower prices and steep commissions? Did you know that in London, agents typically charge 1% of sales price to sell your home, not 5 or 6% as is the norm here?
If you have any thoughts on this subject, please twit about it, or chime in on linkedinbook or facechat where I will be posting articles and links to this podcast. And don’t forget to subscribe to the podcast series by going to the national real estate forum dot org website, nreforum dot org, where you can also email me directly any thoughts you may have. I will be investigating the subject of agent effectiveness in future episodes and would value your input and thoughts.
For now, thank you for tuning in and thank you Professor Darren Hayunga for providing some stimulating and interesting insights into how we set list price when we sell our homes.