It seems that every year, a new study comes out which highlights WHY real estate commissions should be lower.  This one was written by academic researchers from Stanford University. The conclusions were: 

"the typical commission paid for the average real estate transaction does not impact the initial price offering for a home or the sale price.  However, the home does tend to sell more quickly.  In the estimation of the researchers, the average Commission of $34,000 (6% was the number quoted) on the average home they researched was too steep a price to pay for the efficiency gained in time."

In a related article, NAR Chief Economist Lawrence Yun, provides some additional insights about the conclusions reached in this study and others like it such as the conclusions in the book Freakonomics which indicated similar findings. 

According to Yun, many of these studies are often debunked later due to issues relating to methodology or new data which was not available to the researchers at the time.  Unfortunately, these findings are rarely publicized with the fanfare and aplomb with which the initial report is.

Yun makes some important observations about consumer perceptions.  The most revealing being this:  CONSUMERS ARE NOT STUPID.  They are more likely to do what makes sense for them. In fact, Yun indicates that consumers are like Royalty. They know what they want and why they are willing to pay for it; something that research conducted within the petri dish of an academic survey may be unable to capture...because it is an "unquantifiable" intangible.

CASE IN POINT.  In spite of the fact that consumers have always been able to sell their own homes, and in recent years been able to advertise them on the MLS for a few hundred dollars, most home owners still prefer to list their homes with Realtors when they decide to sell them.  The percentage of home owners utilizing the services of real estate agents to Sell their homes has remained around 85 ~ 87% for years despite increased options & opportunities for self-promotion by home owners.

Yun also points out that although the public perception of Realtors is one of suspicion, in general this attitude changes dramatically when consumers are asked about THEIR SPECIFIC dealing with THEIR REAL ESTATE PROFESSIONAL.  In this case, consumers overwhelmingly indicate that they appreciate and hold dear their OWN REALTOR.  One wonders how much of this "general suspicion" towards Realtors is media driven.  The vast majority of my clients are repeat and referral clients.  Hardly, an indication of deep loathing for the profession.

In addition, it is highly instructive to look at the sorts of homes which are Sold by Unrepresented Homeowners.  Over the years, I've noticed that a larger percentage of these homes tend to be in the lower price ranges.  This is also a trend that NAR's economist observes.  When you drive into neighborhoods in Grand Rapids that are in the higher price ranges, well, you see very few For Sale By Owner Signs.  Why is this?

According to Yun, this is because

"Time is evidently money, and many well-to-do people prefer not wasting their valuable time trying to sell a home - even though some may actually have the skills to do so."

I would agree to a certain extent with this observation.  But, I would add that there are additional issues which may less obvious, but are no less important such as: 

PROTECTION: Real Estate Agents provide a very critical barrier of protection in screening potential buyers by determining a buyer's ability and motivation in purchasing a home.  It is unwise and unsafe to have buyers for whom you cannot verify their authenticity exploring your home in detail without independent verification and oversight.

TRUST:  A trusted professional is a source of valuable "insider" information.  The vast majority of consumers indicate that they would definitely or probably use their Realtor again. (approx 87%)  Real Estate Agents who garner loyalty and repeat and referral business don't do it by accident.  It's a result of providing extraordinary service and Results!  If it was easy to sell homes, everyone would be doing it. 

EXPERIENCE:  Experience matters!  In his widely read book about excellence, 'The Outliers', Malcolm Gladwell points out that the time to become really skillful is about a decade...that's 10 years! This also holds true for competent professionals in the real estate industry.  Selling real estate is a complex transaction and increasingly so in a challenging market.  Working with a seasoned professional can save time, money and the hassle of being a part of someone's 'learning curve.'

When Consumers are Treated Like Royalty, they respond by giving Loyalty and Referrals.  Consumers are NOT FORCED to use real estate agents, they do so because it makes good sense to do so.  Nor, are they forced to pay any commission.  The Value of Service is determined by the return on the investment. 

So...If it makes sense to:

Spend money to save Time,

Protect the Value of my Investment,

Protect the Safety of my family,

Protect My Privacy & Secure Authorized Access to My Premises,

Access a network of Qualified Potential Buyers for My property,  

Benefit from the Vast Experience gained through numerous sales,

Market my Home Professionally on a Worldwide basis

AND...

Sell More Quickly...

Well, Being Treated LIKE Royalty and paying a small commission may be deemed well worth it.

This blog post was modified and updated from a post written in February of 2008 & is a part of the 'Oldies but Goodies' series. Copyright 2008  Audu Real Estate  All Rights Reserved

photo courtesy of crown: lincolnian(Brian) photostream on flickr.com

photo courtesy of Dr. Yun: tboards photostream on flickr.com