I knew something was amiss when my wife and I bought our first home way back in 1993. We had a “buyer’s agent” represent us. That means in theory that the agent was representing us, not the sellers. But when a problem with the inspection surfaced, our agent wanted us to eat the cost of repairs.
It wasn’t much, about $500 as I recall. But for us (read, my wife) it was the principle of the matter. So we held our ground. Eventually, the real estate agent took the $500 out of her commission. But she made it abundantly clear that she thought we were being ridiculous. What become clear to us, however, was that the real estate agent was first and foremost looking out for herself.
Fast forward almost 20 years and the folks at Freakonomics have reached the same conclusion, as you can see in this most excellent video:
Sales commissions for residential real estate brokers historically average nearly six percent of a home’s closing price. Do brokers add sufficient value to justify those commissions? We address this question using a unique data set pertaining to sales of faculty and staff homes on the Stanford University campus. 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.
And that brings me to a great business idea if you are so inclined – Start an FSBO (for sale by owner) website in your area. That’s exactly what Christie Miller and Mary Clare Murphy did as reported by Jeff Bailey of the New York Times. Their site, www.FSBOMadison.com, brings home buyers and sellers together without the cost of a real estate agent. For just $150, a home owner can list his or her home, and FSBO Madison even throws in a for sale sign.
Once again, we see an example of the Internet cutting out the costly middleman. Power to the people!