If Dave Ramsey Says So, It Has to Be True. NOT!!!
- Many use the NAR stat on FSBO's selling for less
- FSBO's sell for less because on average they are less expensive homes
- FSBO's have significantly more mobile homes and rural homes.
- Collateral Analytics Research did a much more scientific study
When agents are talking to a “For Sale by Owner” (FSBO) they often trot out the statistic about agents selling homes for $55,000 more than FSBO’s.
People might have even heard the well respected financial advisor, Dave Ramsey, use this to promote the use of a REALTOR®, especially one of his Endorsed Local Providers who pay him a hefty referral fee.
The research says that the average home that sells for sale by owner (FSBO) sells for $65,000 cheaper. That’s the average. The average home in America sells for a little over $200,000, and the average FSBO sells for around $150,000. That’s the average nationally. The point is many, many, many, many percentage points less. Why does a FSBO sell for less? One reason is it simply doesn’t have the exposure of the Multiple Listing Service (MLS). Were you with a good real estate agent, the property is exposed on the MLS in the computer, and that gets it tons and tons of exposure.
I saw an article on Realtor.com with this sage advice.
Statistics show that selling your home with the assistance of a professional real estate agent will garner you a higher profit, enough to cover the commission as well as put more money in your pocket. According to the National Association of Realtor®'s 2016 Profile of Home Buyers and Sellers, the average FSBO sales price was $185,000, while the average price for a home represented by an agent was $245,000. That's a difference of $60,000!
It's just standard practice to reference the National Association of REALTORS® Field Guide Book. If a REALTOR® can't trust the NAR, who can they trust?
“In 2015, the typical FSBO home sold for $185,000 compared to $240,000 for agent-assisted home sales."
WOW!!! That's unbelievable.
Agents will tell prospective sellers that they are crazy to try to sell it themselves when it’s a proven fact that an agent can sell it on average for $55,000 more. List your home with an agent and get 30% more. Don't you want to be smart? You'd be stupid not to pay a 6% commission in order to make 30% more.
They act like these are scientific studies, and if you doubt them, then you are some kind of science denier. You are a "flat-earther" or one of those crazy climate change deniers. So they make it seem like a no-brainer to hire an agent to sell your home.
But is it? Is that statistic a good representation of reality?
Digging Into the Details of the Report
I always wondered about that number. It just seemed too unbelievable. So like a doubting Thomas that I am, I dug a little deeper to see what that number is actually based on.
There are probably only a handful of agents who have ever taken the time to try to evaluate the basis for this number. The biggest reason that stops them in their tracks is the price of downloading the entire NAR Field Guide. The darn price to the public is $149.95 and the REALTOR® cost is $19.95. Very few are going to pay. Why should they when the NAR puts out a summary for free?
I had always accepted it on blind faith because it comes from high on up, the supreme National Association of REALTORS®. The real estate gods wouldn't distort the truth, would they? They are REALTORS® who must abide by a Code of Ethics. They are the freaking National Association of REALTORS®.
But sadly, I have to say that even the National Association of REALTORS® will stoop to the level of using statistics to distort reality. Maybe distort is a little strong but they sure don't go out of their way to make sure agents have a correct interpretation of what their numbers actually mean.
Here’s how the data set distorts the final numbers. Did you know that 9% of FSBO sales are mobile homes and only 2% of agent assisted sales are mobile homes? You really have to dig deep to find that information, and that is the key to everything. It's there, but you have to take time to study their tables.
Mobile homes are significantly cheaper than regular homes. So on average, FSBO’s just happen to be lower priced homes. Try to find an agent willing to list a $10,000 mobile home. It's next to impossible.
Also in one of the tables, you will see that only 13% of agent assisted sales were in rural areas whereas 22% of FSBO's were in rural areas. What homes are more expensive? Rural homes or suburban homes?
Making an Absurd Claim
So think about it. I sell homes in Sandy Springs Georgia where the average price is $600,000. Another agent sells homes in Stone Mountain Georgia where the average price is $150,000. Can I tell a seller that they should choose me over the other guy because I can get them $450,000 more than the other agent? That would be absurd but that is what many agents are doing when they use that statistic from the NAR.
When I discovered these details, I was pretty ticked off. The freaking National Association of REALTORS® promoting such a misleading stat. Why trust them on anything else?
A More Scientific Study
Recently a new study by Collateral Analytics Research came out on FSBO vs agent sold homes. It controlled for several factors that weren't controlled for in previous studies. Their bottom line was that agents on average sold homes for 5.5% more than FSBO's. Instead of taking average prices, they took the deviation in price from this company's automated home valuation number. So this would be dependent on how good and consistent their pricing algorithm is. The good thing is that they looked at over a million homes in 13 different market areas around the country.
So maybe it is a wash as far as saving money by going FSBO. You might save 6% in commissions but you might end up selling for 5.5% less.
It Can't Be Proved Definatively
There's really no good way to answer the question of who sells a home for more. The problem is that every home is a unique product and is sold at a specific time. You really can't do a controlled experiment.
You can't sell it FSBO and then come back and sell it with an agent. The time is different. You can't split the home and sell one half FSBO and the other half with an agent.
Sure, every agent has anecdotal evidence about FSBO's. But let's not confuse anecdotes with scientific studies.
Who Can You Trust?
Personally, I wouldn't trust an agent who used that NAR stat in order to make a case for using an agent vs. going FSBO.
I'm also saddened to see Dave Ramsey using the stat. I used to listen to him and think highly of him. But now I see that making a buck might be more important than giving people the full story. Would his story be the same if he wasn't making money off of his Endorsed Local Providers?