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Real Estate By the Numbers

Is a Discount Broker really a bargain?

According to the MLSPIN records, home sellers who pay their listing agent a 5% commission have put more in their own pockets at the closing table than those who used a discount broker in 2013. I know what you're thinking; a real estate agent pontificating about the virtues of higher commissions, truly ground breaking.

I undertook this project as a way to see for myself if there was statistical validity to the claim that home sellers do indeed net more money at closing by using a full-service agent and paying full commission. To do this I broke down the differences in time on market, original listing price, sale price and list-to-sale ratio of sold properties which listed for a 5% commission, and those which listed at a lower commission. Discount brokerages began taking a major foot hold a couple years ago and have since begun popping up more and more as brokers engage in more commission slashing to gain business in today's uber competitive market. As someone who is active in the market each day I wasn't entirely sure how wide the statistical chasm would be between listings which paid a higher commission and those which used a discount broker, and whether this disparity would be enough to counteract the discount in fees.

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**Within this article you’ll find an infographic which illustrates our findings fully, click on the image in the article or click here to see a larger version.**

In an attempt to make the results as meaningful as possible we have done a few things. First of all, we have removed short sales, foreclosures and entry only listings. Each of these property types have their own reasons for being removed; for instance, shortsales typically sit much longer on the market which would have skewed our average days on market. Secondly, we have removed multi-family homes from the sample as well, so we are looking at strictly single family homes and condominiums, listed by an agent, and sold in Boston, Brookline, Cambridge, and Somerville in 2013. Lastly, we've broken these samples into price ranges in an attempt to correlate comparable properties. In total we have used a total of 4,808 sales in our study.

Below we'll look at a few trends we find interesting from the infographic to the left:

- The average original list price for properties between is $200-$399k was actually less in 5% listings than the original list price of those offering a reduced commission, the opposite of the other two ranges we studied. This suggests that sellers in this range are being wooed by agents selling unattainable listing prices alongside a discounted fee, a recipe for longer time on market and a lower sale price. Even with this lower average original list price the 5% commission listings still ended up selling for a higher average price than their discounted counterparts and put $405 extra in their sellers pockets at closing.

- Only 14.03% of properties between $600-$899k were listed with under a 5% commission. This number represents the lowest of the three price ranges we studied, much lower than the 20.63% of properties listed at a discount between $200-$399k. There is an undeniable trend from our report, as the price point increases the percentage of reduced commissions decreases.

- In all three price points studied, the properties which were listed with a 5% commission sold faster. While beginning this research I was fairly certain this would be the case, due to reasons we will quickly tackle next, and the numbers ended up supporting this hypothesis in the end. These findings help to illustrate an inherent flaw in the industry as a whole. Real estate agents have a responsibility to their clients; however, it is also ultimately a source of income and how they support their own families, which can create a conflict of interest.

Let's assume for a second that a buyer’s agent named Joe Smith shows a client two properties which are comparable. One is offering him a cobroke commission of 2.5% and one is only offering him 2%. His clients like both properties and ask Joe for his advice, which is he likely going to recommend to his clients? All other things equal it is quite likely that Joe would recommend the property which made him a higher commission for no reason other than that he would make more money. By agreeing to a 5% listing commission you are enabling your agent to offer a higher commission to buyer's agents. The increased incentive for a buyer’s agent to bring clients will result in increased exposure and will help get your home sold faster and for more money.

- We are in a seller's market right now. You will not find many folks who will argue with that assertion. Properties are selling in record time as buyers line up to purchase homes as soon as they are listed. These current conditions make the results of this study even more impactful, as with inventory as low as it is citywide one would expect the statistical differences between 5% listings and discounted listings to be mostly nullified because of the increased demand for each listing. In markets such as this many think a simple MLS listing with no real marketing will sell a property as quickly and for as much as a full service agent could. The statistics thus far from 2013 have shown that this is far from the truth as we can see from the data in the infographic provided that even in this voracious seller's market listings with 5% commissions are selling faster and for more money.

The clearness of the numbers from this study are a bit surprising as statistically we'd expect that in at least one metric discount commissions would perform better than 5% listings, due to nothing else than shear mathematical chance. However, as you can see from the graphic, the results were unanimous across the board. It is clear that when hiring an agent to sell your home you really do get what you pay for. In the end all this should be food for thought when listing your home and interviewing agents. Remember there is more to selecting the right agent for your home than simply selecting the agent with the lowest fees or highest suggested listing price. Make sure to press any agent you interview to sell your home on their specific plan for your property, specific information on how they arrived at their pricing suggestion, and how they will handle your specific situation.

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