During the last 50 years there has been an oft-repeated broker/agent’s narrative which claims that FSBOs inevitably lose substantial money without them. During that same time period, the number of FSBO sellers has been reduced by half – even though the tools for FSBO sellers have increased dramatically.
This suggests three possible systemic scenarios: 1. The difficulty of selling has doubled, 2. The structural rewards for using brokers, or punishing FSBO, has doubled, and/or 3. The self-resiliancy of FSBO sellers has been cut in half.
With more information and tools available to FSBO sellers than ever in the history of real estate, #1 presents as deeply implausible. As for #2, if the way things work inherently rewards brokers and punishes FSBO sellers, then reform is the order of the day. But #3 may be the most insidious. To be in an environment which sways the mindset of people such that they feel intellectually incapable of negotiating, for themselves, the sale of their home – without substantial loss, is wrong. Indeed, with all due respect, if you want to feel more confident about selling your home, meet more real estate agents. They are generally good people, but you can probably figure out how to navigate their duties.
So as a small antidote to this situation, please find below some studies and views which suggest a radically different picture. That said, research in this area (especially recent research) is difficult to source such that the bulk of material comes from the real estate establishment itself.
#1 DIFFICULTY BIAS
Is there really any doubt that people have access to vastly greater measures of real estate information and tools?
#2 STRUCTURAL BIAS
Key Finding: Properties with buying commissions below 2.5% are 5% less likely to sell and take 12% longer on market, due to buyer agent steering rather than price offsets or listing agent effort differences. Issued August 2015 by the National Bureau of Economic Research (NBER), Cambridge, MA. Analyzes 653,475 residential listings in eastern Massachusetts from 1998-2011, focusing on buyer agent commission rates.
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“Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly.” American Economic Review: The Impact of Commissions on Home Sales in Greater Boston. Levitt, S. D., & Syverson, C. (2005). Market Distortions When Agents Are Trusted: The Case of Real Estate Agents “Agents are incentivized to close quickly rather than maximizing the sale price for clients”
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=942348
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Do Real Estate Brokers Add Value When Listing Services Are Unbundled? “a seller’s use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent” https://www.nber.org/system/files/working_papers/w13796/w13796.pdf
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“Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers’ agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all agents and offices prefer properties with high commissions, firms and agents with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical e empirical support for regulatory concerns that steering reinforces the uniformity of commissions.” Conflicts of Interest and the Realtor Commission Puzzle, Panle Jia Barwick, Parag A. Pathak, and Maisy Wong, NBER Working Paper No. 21489. August, 2015. https://www.nber.org/system/files/working_papers/w21489/w21489.pdf
#3 FEAR BIAS
“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.” Stanford Institute for Economic Policy Research: How Much do Real Estate Brokers Add? A Case Study https://ideas.repec.org/p/sip/dpaper/06-041.html
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The authors find that using a broker reduces the typical home’s selling price by 5.9% to 7.7%, suggesting agency costs outweigh expertise benefits.
The NBER working paper “Do Real Estate Brokers Add Value When Listing Services Are Unbundled?” by B. Douglas Bernheim and Jonathan Meer analyzes a unique Stanford University housing market where all sellers access a free, open listing service regardless of broker use. This setup isolates the impact of non-listing brokerage services like pricing advice, marketing, and negotiations. Study Methodology: Data covers 755 home sales from 1980 to 2008 in Stanford’s faculty/staff housing, with brokers involved in 133 cases. Regressions control for home features (size, age, pool), neighborhoods, time trends, and fixed effects for homes and sellers to address selection bias, such as pricier homes attracting brokers. Broker use correlates with lower sale prices even after these adjustments, with statistical significance at 90-95% confidence levels. This supports unbundling MLS listings from other services to avoid forcing unwanted agency costs on sellers.
https://homepie.com/articles/fsbo-homes-sell-for-less/
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https://insight.kellogg.northwestern.edu/article/the_superfluousness_of_realtors