The NAR Tackles Freakonomics

Much has been made of the book Freakonomics and its commentary on real estate. For instance, from the Washington Post‘s review:

Freakonomics presents the notion that homeowners and real-estate agents may have conflicting monetary incentives as big news. Memo to the University of Chicago Economics Department: Everyone who has ever sold a house already knows this.

Authors Steven D. Levitt and Stephen J. Dubner make the case that brokers close quick sales, rather than doing more work for higher prices that have only a marginal effect on commissions.
On its new blog, the National Association of Realtors takes its turn responding.

The authors argue that real estate agents could get higher prices for home sellers by urging them to keep their houses on the market longer. But they don’t because agents would not make enough in additional commissions to justify the extra time on the market.
Levitt and Dubner assume real estate businesses are built around one-time transactions. In fact, successful professionals build relationships with customers for life. Homeowners move once every seven years on average and are likely to use an agent they have used before. Consumers also rely on referrals from friends and relatives to find real estate representation. Wise real estate professionals build their business on endorsements from their satisfied customers. According to NAR’s 2005 Profile of Home Buyers and Sellers, 63 percent of home sellers would definitely refer a friend or relative to the agent they used and another 19 percent would probably do so. Among buyers, 97 percent report they were satisfied with their agent.
It’s clear that real estate professionals must do the best possible job for the consumer if they intend to build a successful business.

I am pleased that that the majority of brokers no doubt view each transaction as an opportunity to establish a relationship with a client for life–that will result in continued business and referrals long after a transaction is complete.
But it’s not always the case. The broker who does very few transactions per year is going to be less likely to encourage a seller to be patient with the sale of their property as their livelihood may depend on that specific transaction. I see that first hand now. The masses have entered the real estate industry and are desperate to sell whatever they can in desperate attempts to remain in the industry.
That doesn’t mean it’s always good to keep a property on the market for a long time. We can not ignore statistics showing that property sells for a better price earlier in the marketing process and selling prices tend to slide as the property spends more time on the market.
Now more than ever, it is imperative to have a knowledgable agent whom you trust to guide you in this decision of patience vs. selling early in the process. In a softening market, it could be that the “perfect” buyer who appreciates all of the qualities of a property doesn’t enter the market until months after the property hits the market. There is no exact science to this and patience in a softening market could be either an asset or a liability.
Sellers usually have very good instincts about prospective buyers and when teamed with a savvy and knowledgable agent, a positive experience is almost certain.
How do you find a good broker? I’m sure we’ll talk about that plenty in the months to come, and we have talked about it a little bit already. There’s a new little gizmo worth watching, however. To find an agent/broker who has been rated… check out Brownstoner’s new Brokerate site allowing anyone to rate brokers with open comments. No doubt those who have had negative experiences will be quick to say their piece so it’s imperative that those with positive experiences also chime in. This might turn out to be a helpful little tool in choosing an agent to represent you with a sale or purchase. Should be fun to see how this shakes out.

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