Monday, February 22, 2016

Possibly the Biggest Trend in Real Estate You'll Never Read About, Until Now...

The number of residences sold without the assistance of real estate agents appears to be growing but relatively few know about the trend because it's not been widely reported, and those who have noticed aren't publicizing it.  In fact, the National Association of REALTORS (NAR) has reported a decrease in the number of for sale by owner (FSBO) transactions despite evidence contradicting that conclusion.
I've personally witnessed a surge in FSBO transactions over the last year or two, and there's been a corresponding growth in the number of home purchasers without agents.  My observations are unscientific but nonetheless are evidence of the shift away from agent-assisted transactions.  To back up my own observations I've discussed the topic with title company closing agents, residential appraisers and other home inspectors who've observed the same.  Each person I've discussed the matter with described a substantial increase in residential transactions closed without the assistance of real estate agents in the last year, and some speculated non-agent transactions have doubled as of late.  One appraiser told me 25% to 40% of the appraisals she'd performed in the last few months were on FSBO transactions when in prior years the number was less than half that.
Real estate transaction data and trends are recorded by and publicized through organizations that exist for the advancement of real estate agents and affiliated groups who rely on real estate-related commissions and fees, thus they aren't likely to publicize stories describing the ease at which these transactions are successfully facilitated without agents because it might empower homebuyers and sellers considering going without agent representation.  The NAR and other real estate entities discourage individuals from buying or selling homes without an agent.  Type "Should I sell my house FSBO" into an internet search and you'll likely discover most of the results are posts by real estate agencies or organizations trying to sway people into using agents through fear and subjective statistics.
The number of persons buying and selling homes without agents is unknown.  There's not an independent organization tracking these statistics, and local register of deeds offices aren't a good resource because they don't always differentiate the demographics of the parties to transactions and/or whether the properties are residential homes, lots, commercial buildings, or multifamily dwellings.  The numbers publicized by the NAR and the affiliated Multiple Listing Service agencies (MLSs) overseen by the NAR are recorded by those agencies using information culled from their clients and reported by real estate agents.  Subsequently, statistics of home sales transacted without agents are purely anecdotal, and the research is less than scientific. 

The NAR has published this information on their website, presumably to discourage FSBOs:
FSBOs accounted for 8% of home sales in 2014. The typical FSBO home sold for $210,000 compared to $249,000 for agent-assisted home sales."
From the 2015 Profile of Home Buyers and Sellers, National Association of REALTORS®
These statistics are misleading:  First, the NAR doesn't actually know how many transactions were FSBO because they're using subjective and partially fabricated data - the NAR's stats are not derived from objective or independent sources (they do sell their data for $249.95 on their website if you want to check it).  Second, NAR's data doesn't compare the price of identical houses sold both with and without agents, rather they compare the comprehensive sales of all residential properties minus those sold by agents.  Their numbers exclude low-dollar residences, such as trailer homes and dilapidated properties that are generally far more likely to be sold without the assistance of agents, which skews the statistics significantly.
Independent studies have shown FSBO properties and those sold by agents generally sell for the same price.  A report published in 2009 for American Economic Review by Igal Hendel, Aviv Nevo, and François Ortalo-Magné revealed virtually no difference in sales price of agent-listed homes versus those sold without agents.  From the report's conclusions:
"We have compared the performance of MLS and FSBO platforms for the sale of single-family residential properties. After controlling for differences in house and seller characteristics, we find that the MLS delivers no price premium (even before netting commissions)"
Independent research, such as the study cited above, raises doubt to the legitimacy of the NAR's claims.  To make matters worse for the NAR, it has been determined agents have been providing inflated and inaccurate sales numbers to the NAR's affiliated MLSs from which the sales data is sourced.  A January 27, 2016 article in the Washington Post by Kenneth Harney reports independent researchers discovered inflated or inaccurate sales prices provided to the MLS by agents 8.75 % of the time.
The FSBO trend hasn't gone entirely unnoticed.  A May 2015 article cited statistics from Eddie Tyner, president of, who claimed seller traffic to its website was up more than 200% for the first quarter of 2015 over the same period in the prior year.

The shift towards buying and selling real estate independently is likely the result of unprecedented opportunities to market or search for properties via Zillow, Trulia, Craigslist, and other online services.  These resources offer buyers and sellers the opportunity to both publicize and seek properties without an agent's assistance, and at little to no cost.  Advancements in technology and free access to real estate listings have provided most homebuyers and sellers with many of the same resources and tools that weren't available to non-agents in the past.    
Another reason home buyers and sellers might forego using an agent is poor customer service.  According to the 2015 National Association of REALTORS Profile of Home Buyers and Sellers, only 67% percent of home sellers would definitely use the same agent again.  This is an abysmal number for an industry so driven by customer service.  A 67% satisfaction rating indicates many agents aren't doing a good job in the eyes of their clients. 
The worst home buying or selling horror stories I've heard are from people who felt they were misled or underserved by their agent.  Of all the persons I've worked with who've bought and/or sold both with and without agents, almost every one that expressed a preference said they'd rather go without. 
To be clear I am an advocate of real estate agents in many cases.  I'm friends with many agents and I've seen first-hand the benefits of using a good agent.  There are some very good reasons for enlisting the assistance of a real estate agent to help home sellers and buyers conduct residential sales and purchases, and there are a number of excellent agents that have to ability to make the process easy and expeditious.   However, diligent persons considering the sale or purchase of a home without an agent shouldn't be intimidated by the fear tactics used by some in the real estate industry.  Title companies, mortgage lenders, home inspectors, lawyers and appraisers are available to help independent buyers and sellers navigate through the process without an agent's assistance.  Documents for buying / selling homes are available at title companies, office supply stores and on the internet. 

Buying or selling homes can be done independent of real estate agent assistance, and it appears a growing number of people are discovering that fact for themselves despite what some are publicizing.  

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