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A recent study shows that the for-sale-by-owner home sellers ended up with a significantly enhanced net sale price because they didn't have to pay the brokerage commission that real estate agents charge.

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by Pat Vaughan Tremmel

EVANSTON, Ill. --- A provocative new study shows that sellers who joined a for-sale-by-owner (FSBO) Web site got at least as much for their homes as sellers who did their real estate business through the use of an agent and the Multiple Listing Service (MLS). Houses sold through the MLS were more likely to sell faster.

The recent study shows that the FSBO sellers ended up with a significantly enhanced net sale price because they didn't have to pay the brokerage commission that real estate agents charge sellers, generally six percent of a house's sale price -- $12,000 for a $200,000 home.

There was no gain in price in selling a home through MLS vs. by owner, at least when it comes to Madison, Wis., during the relatively strong housing market in the period analyzed, the study concludes. (Though the research suggests national implications, the findings, at this point, cannot be generalized beyond the specific Madison housing market.)

While the MLS does not deliver a higher price, it does offer a higher probability of a quick sale, within 60 or 90 days. In addition, roughly 20 percent of FSBO listings end up re-listing in the MLS, which translates into a longer time on the market, roughly 68 more days. Thus, one of the advantages of MLS is a shorter time to sale, which translates into savings (on mortgage, taxes and insurance).

“For most people, the sale of a home is the largest financial transaction of their lives, and, accordingly, the question of whether or not to use a realtor is of great concern,” said Igal Hendel, professor of economics at Northwestern University.

“Realtors undoubtedly can offer value, saving sellers time and helping them through a stressful and sometimes difficult period,” said Aviv Nevo, professor of economics at Northwestern. They provide expertise with setting the listing price, preparing the house, checking potential buyers' qualifications, showing the house, bargaining the terms of the deal and handling the paperwork.

But the realtor cost is significant, compared, for example, with using FSBOMadison.com, which charges $150 for its no-frills services and listings for six months. 

Hendel, Nevo and François Ortalo-Magné, Robert E. Wangard Chair in Real Estate, University of Wisconsin-Madison, are co-investigators of the study and co-authors of the paper, titled “The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com.”

The study was made possible because of rich data provided by the South Central Wisconsin Realtors Association and FSBOMadison.com, as well as data from the City of Madison and Dane County. The merging of these data sets provided a complete history of events that occurred for virtually every single family home listed in Madison between January 1998 and December 2004.

FSBOMadison.com started in 1998, and by 2004 it had a 25 percent share of Madison's listings, by attracting listings from both the MLS and from other more traditional for-sale-by-owner channels.

The data offer an unparalleled opportunity to compare outcomes for selling a home by owner vs. through a real estate agent and the MLS. The outcomes compared include price, time on market and probability of sale within a given period after initial listing.

In computing the differences across platforms, the study controls for changes in market conditions over time, differences in house characteristics, differences across neighborhoods (FSBO is much more popular in some areas) and differences across sellers.

The research suggests that some sellers seem to be better at getting a favorable price. They might be better at marketing and bargaining or are more patient; they also are more likely to choose to use FSBO.

“Sellers in Madison appear to sort themselves as expected across platforms, the more patient and astute ones going to FSBO, and those who need more help or a quick transaction going to MLS,” said Ortalo-Magné.

“Our results are good news for buyers,” he said. “The price buyers pay appears to be driven entirely by the characteristics of the property and of the seller. Whether the property is sold through FSBOMadison.com or a realtor appears to make little difference in terms of purchase price.”

“Realtors undoubtedly can provide value to sellers,” Nevo concluded. “But our research shows that for-sale-by-owner Web sites increasingly are making selling your own home more appealing and offering a viable alternative to realtors.”

View the full study: “The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com.” (PDF)