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The landmark antitrust lawsuit settlement agreed to by the National Association of Realtors (NAR) in March has put the practices of real estate agents in the spotlight for both regulators and clients alike.
Now, with agent commissions starting to decline, agents naturally want to convey the value of their services to buyers and sellers. New research from the Federal Reserve Bank of Atlanta attempts to answer one question — can my agent get a better sale price on my home than a competing agent?
The answer is, almost certainly not. The study shows that there’s considerable homogeneity in the price outcomes of real estate agents. Although there are agents who consistently outperform on price relative to others, they are very rare.
In fact, the study found that flat-fee listing agents — agents who do little more than post a client’s listing to the local multiple listings service (MLS) — get 1% to 4% more on the final sale price than a more involved agent who is compensated with a percentage-based commission.
“The purpose of our paper was not to say the real estate agents do not deserve their commission,” said Lily Shen, a finance professor at Clemson University and co-author of the research. “We simply wanted to document the distribution of the price effect for both buyer and seller agents. We pretty much compare transactions that are not listed by a real estate agent, and we find that those houses were sold for a higher price.”
The researchers used MLS data in Charlotte, Minneapolis and Houston between January 2000 and December 2019. The dataset includes 2.3 million single-family home sales. They define a flat-fee broker as one who posts a listing to an MLS for a small fee. Shen said to think of this as a for-sale-by-owner transaction.
And while the results are clear with flat-fee listing agents, the inverse isn’t true. Homebuyers who weren’t represented by an agent weren’t able to buy their house at a discount, but it is unclear why.
Shen was quick to point out that the paper does not conclude that agents do not provide valuable services. The service aspect of an agent’s performance is qualitative, and the paper is a quantitative study. Particularly for first-time buyers and sellers, the process of a home sale is complicated and dense, which leaves most clients happy to pay an agent to decipher it for them, even if the agent isn’t getting them a better deal in the end.
“[RealTrends] found [in polling] that well over a third of all sellers considered using for sale by owner before they went with an agent,” said Steve Murray, the founder of RealTrends and a HousingWire consultant. “Why would they do this? It turns out that people perceive that using an agent to deal with the complexity and possibility of making a stupid mistake is better than if they did it themselves.”
Another important variable in the study is market conditions. The paper finds that the agents who consistently outperform others are more valuable in a cold market, as their skills are more needed. In a hot market, even mediocre agents will get multiple offers on their listings, which erases much of the value of a typically outperforming agent.
And for the agents who do get better prices for their clients, the market rewards them. The data shows that agents who demonstrated high performance in the first half of the sample attracted more clients than those in the second half of the sample.
There are a number of potential caveats to the research. Arman Javaherian — co-founder of Homa, a startup building a large language model to automate the role of a buyer’s agent — said that one of them is that buyers and sellers who use a flat-fee broker are likely self-selecting.
“If I’m trying to sell my house and I don’t know what I’m doing, an agent is going to come in and help you out,” Javaherian said. “The type of person who’s using these flat-fee, low-cost agents are probably the type of people that actually know how to do things already.”
