According to a study by the author of Freakonomics, Realtors market their own homes longer and net more money than their clients realize, giving Professor Steven D. Levitt good reason to suspect that Realtors simply don't have enough incentive to do the same for their clients.

The study was performed in Chicago using data from 100,000 transactions catalogued by the local MLS, which found that Realtors "get 3-4 percent more for their own houses and leave their own houses on the market 10 percent longer. This suggests to us that at least some agents do not share the views of the NAR that it is in their own self interest to look beyond immediate profit opportunities," wrote Levitt on his site's blog.

Is it true?

Unfortunately, there isn't a study that disproves Levitt's assumption. The NAR says that while there is plenty of information on brokers and agents from their semi-annual member profiles, the question of what real estate members owns and how they sell it has never been asked.

Steve Cook, vice president public affairs, outlined a few reasons why the assumption is erroneous.

"Most clients are obtained through referrals and many buyers will hire the same Realtor for repeat business. Home transactions are not in fact a one-time affair. People move once every seven years on average, and referrals and repeat business are an important source of business for real estate agents. It's in an agent's economic self-interest to look beyond the immediate profit to a long-term relationship."

He continues, "They also said that agents often advise sellers to accept an early, unnecessarily low offer to close the sale quickly so the agent can move on to other properties, but that agents tend to hold out for better prices when selling their own property. However, in the case of the average consumer transaction, it's frequently to the advantage of the consumer to make a transaction in a timely manner, due to family and personal factors. It is a fact that price concessions often become deeper the longer a home stays on the market. Sellers needing to move may have to make a price concession with each passing week. In the practical world, if agents were trying to make a higher commission, seems to me they'd leave the property on the market longer to get the higher price Levitt thinks is forthcoming."

"Professor Levitt overlooks the obligation of real estate agents to exercise due diligence on behalf of clients. Doing due diligence is an agent's legal obligation, as well as a moral and professional one," he adds.

Lawrence Yun, senior economist for the National Association of Realtors, says that the high number of Realtor-owned homes that sold in the study suggests that the homes were likely investments, and that Realtors, as professionals in the real estate industry, know how to handle real estate investments for extra income.

But there are more arguments to put forward, even if the evidence is empirical at best.

Realty Times' reader Stefan Stackhouse suggests, "Another factor I have not seen discussed anywhere -- Realtors do not tend to relocate at nearly the rate of the general population. Our markets are local, and relocating to a totally different market exacts a very high toll on any Realtor that attempts it. Most Realtors have a strong incentive to stay put and not move. They might change from one house to another within the same community. Because these are not relocation moves, they usually are not "under the gun" and therefore have the flexibility to leave their homes on the market longer and to hold out for a higher price. I believe that this one factor is probably sufficient to account for most of the differentials that the authors observed in their data."

Realty Times has also compiled a few reasons why Realtors sell for more:

1. Realtors know how to evaluate property. Knowing which features turn buyers on or off, real estate agents are more likely to buy homes they can resell easily or improve to have features buyers want. While it can't be proven, it could be that Realtors' homes are more desirable than that of the general marketplace.

2. Realtors know to keep the home show-ready. In addition to keeping a home clutter-free and attractive, Realtors know how to be accessible. The home that sells is the one that can easily be shown with as few showing restrictions such as times, pets, etc. as possible.

3. Realtors know what price to accept. Homes sell because the seller has accepted a price. Realtors, if they are selling their own homes, accept offers just like other sellers, and can't be held responsible for accepting higher offers than others.

4. Realtors don't have to deal with themselves as unreasonable sellers. Unlike many sellers who don't want to listen to what the marketplace is telling them, Realtors take their own marketing advice. They know how to improve drive-up appeal, enhance space, eliminate odors and other tasks that improve the sellability of a home.

5. Realtors can hit the ball back in Levitt's court. Levitt can't prove that Realtors don't get as much or more for their individual clients as they get for themselves. It's all in the success of the individual agent when representing clients. Some will net more for their clients than others. There's also no reason to believe that Realtors are incentified to withhold their strategies for success from their clients. While one seller may have followed his/her Realtors strategies to the letter, another may not have had that luxury because of time constraints or financial pressures.

In the end, it's all about variables that can't be quantified in any study - and that's what occurred between individual sellers and their agents, their homes, available buyers and the local market, and each of those variables is unique.

Published: August 2, 2005

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