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.