24% of 2005 Home Buyers Bought Real Estate Found on the Internet According to 2005 National Association of Realtors Profile of Home Buyers and Sellers
Today the NAR released its 2005 National Association of Realtors® Profile of Home Buyers and Sellers and there some great underlying facts that seem support the FSBO movement.
Here are some highlights and some comments regarding the facts from the survey:
- 77% of home buyers used the internet during the home buying process. This means that advertising your home on the internet is probably the single best marketing you can do.
- 24% of buyers found the home they purchased via the internet. This would indicate that home buyers using the internet and making inquiries regarding your home for sale by owner are serious and willing to buy.
(Important Note: this is a 62.5% increase from just the year before - so this year, if using the same number it will be over 39%!)
- 15% of buyers indicated that a yard sign was who they found a home they purchased but 71% identified the yard sign as the second most important way to find homes behind the internet. This is important as it supports that fact that FSBO should put a yard sign up to help market the property.
As I previously noted in my NAR response post to the NYTimes / FSBOMadison article, my theory of was in fact, that a reason why some of the homes sold by owner sold for 16% less. As they stated that "39 percent of those FSBO transactions were "closely held" between parties who knew each other in advance".
What is also interesting is that the survey data regarding price differences was not explained by the survey. So instead of facts, the NAR offers "some context"... "Agents know best how to prepare a home and maximize value, agents provide broader exposure to the market and are more likely to generate multiple bids, and the portion of sales that are between private parties are likely to be at a lower price than those on the open market."
As always, the NAR indicates that the amount of FSBO transactions are at 13% or so percent of the all real estate transactions with the highest number of FSBO sales occuring in 1987 at 20% but I think that this figure may be a matter of preception as to what is a FSBO?
Lastly, the survey made it a point to indicated FSBO's as; "we believe that "unrepresented sellers" would be a much more accurate term to describe this segment,"... now if we could just get the figures for how many real estate transactions were flat-fee "fsbo" transactions that are being counted as "REALTOR represented" transactions. I'm sure if the NAR will not release this number as they do not want to give any credence to the discount model.
I also find it interesting in their survey the NAR indicates that 81% of home buyers on the internet used REALTOR. This is an easy number to believe considering that the use of a "buyers REALTOR" is free... but why does the report negelect to show what percentage of home sellers use a REALTOR and of those what percentage are using a discount real estate model?
So, will the FSBO market grow? We think so, especially if housing prices "normalize" and rates of appreciation come back down to a historical 6% level. We think the most sellers who purchased a home today and sold in two years from now, would explore the FSBO option before electing to sell with a REALTOR and net only 1-3% after costs.
Here are some highlights and some comments regarding the facts from the survey:
- 77% of home buyers used the internet during the home buying process. This means that advertising your home on the internet is probably the single best marketing you can do.
- 24% of buyers found the home they purchased via the internet. This would indicate that home buyers using the internet and making inquiries regarding your home for sale by owner are serious and willing to buy.
(Important Note: this is a 62.5% increase from just the year before - so this year, if using the same number it will be over 39%!)
- 15% of buyers indicated that a yard sign was who they found a home they purchased but 71% identified the yard sign as the second most important way to find homes behind the internet. This is important as it supports that fact that FSBO should put a yard sign up to help market the property.
As I previously noted in my NAR response post to the NYTimes / FSBOMadison article, my theory of was in fact, that a reason why some of the homes sold by owner sold for 16% less. As they stated that "39 percent of those FSBO transactions were "closely held" between parties who knew each other in advance".
What is also interesting is that the survey data regarding price differences was not explained by the survey. So instead of facts, the NAR offers "some context"... "Agents know best how to prepare a home and maximize value, agents provide broader exposure to the market and are more likely to generate multiple bids, and the portion of sales that are between private parties are likely to be at a lower price than those on the open market."
As always, the NAR indicates that the amount of FSBO transactions are at 13% or so percent of the all real estate transactions with the highest number of FSBO sales occuring in 1987 at 20% but I think that this figure may be a matter of preception as to what is a FSBO?
Lastly, the survey made it a point to indicated FSBO's as; "we believe that "unrepresented sellers" would be a much more accurate term to describe this segment,"... now if we could just get the figures for how many real estate transactions were flat-fee "fsbo" transactions that are being counted as "REALTOR represented" transactions. I'm sure if the NAR will not release this number as they do not want to give any credence to the discount model.
I also find it interesting in their survey the NAR indicates that 81% of home buyers on the internet used REALTOR. This is an easy number to believe considering that the use of a "buyers REALTOR" is free... but why does the report negelect to show what percentage of home sellers use a REALTOR and of those what percentage are using a discount real estate model?
So, will the FSBO market grow? We think so, especially if housing prices "normalize" and rates of appreciation come back down to a historical 6% level. We think the most sellers who purchased a home today and sold in two years from now, would explore the FSBO option before electing to sell with a REALTOR and net only 1-3% after costs.
3 Comments:
Funny how we can look at the same data and draw vastly different conclusions. While I'd certainly like to hear more on your thoughts, the observation that I make after reading your post is that you're confusing the touchpoints within the Customer Experience Journey with the value proposition of the realtor.
Scott Quick
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Hello Scott,
Thanks for your comment… I’ll try to clarify my position. I think understand what you are saying by the “customer experience journey” vs. the value proposition of a REALTOR, so let me know if I’m correct. Yes, as stated in the report… “81% of home buyers used an agent”… the main reason for this is simple… it’s free. In fact look at the National Assocation of REALTORS code of ethics (Real estate agents have forever marketed their “buyers services” as free (see NAR Code of Ethics and Stardard of Practice 12-1,2 -http://www.realtor.org/mempolweb.nsf/214c1520b27c9ee286256b2600557d81/48598c7d3c807667862570d7005af097/$FILE/EnglishCode2006.pdf ). “Free is a great value proposition.
Now what I do think is that home buyers are NOT willing to pay 2-3% for the services of their REALTOR. As home buyers use the internet more to search for homes (up to 77% in 2005), find their own homes (24% of the time in 2005), I don’t think they would be willing to pay for a REALTORS service.
Here are some reasons why. Using California as an example, average price is $548,000 the home buyer would have to pay $16,440 in buyers agent commission. Do I think that buyers are willing to do this? No way, especially not when they have done most of the work to educate themselves about the home buying, research areas, drive around on their own and last year, 24% of the time, actually found the house they purchased.
Imagine this, if 4 out of 10 buyers are first time buyers and 43% of them purchased their home with no money down and the average one only put 2% down… do you think they have money to pay for the “buyers agent” services?
So, to go back to the “value proposition” for the seller. Home sellers are starting to get tired of paying a 6% commission. As they realize more and more that they are paying to hire those that will be negotiation against them. Here is an example: Would normal people hire an attorney to sue someone, then also pay for another attorney to defend that same person that he / she is suing? Probably not.
REALTORS value proposition is the advertising on the MLS and REALTOR.com… today this can readily be had for $295 and 2%. So why would they pay 6%? If they pay 3% they can get representation… just look at Catalist in California.
Discount brokers will continue to pick up market share and new well funded internet models will have REALTORS compete on price much like what has happened to the mortgage business, the traditional listing agent will continue to discount the listing. The listing agent will slowly continue to discount the “buyers agent” commission first then eventually theirs.
Home buyers, then get frustrated with their buyers agents (who are steering them to the highest available commission listing vs. the best property (especially if it is a FSBO)) as they soon realize from searching the internet that they are not being showed all available homes. Therefore they become less loyal during the home shopping process. To overcome this, buyers agents, will begin to charge up-front fee’s for their services, which will again, push home buyers away from using a buyers agent. As buyers understand the process more they will start contacting the “listing agents directly”.
The real problem with the traditional real estate model is that only one party (the seller) pays for the entire transaction. If the market slows down to just 3% appreciation per year, many of todays buyers will not have enough equity to use a traditional REALTOR for at least 3-4 years. Those that must sell, will have no choice but to look at alternative models.
Don’t get me wrong… everyone is willing to pay for services… just not 6%. I believe that if the traditional real estate model where the seller pays for the entire commission, will come down to about 3% or 1.5% per side. I also think that there are too many other service providers in the real estate transaction that stand to gain from real estate that they are already providing (i.e. Title, Escrow, Mortgage) that they can deliver flat-fee or ala carte service models to both buyers and sellers and fill in the void left by REALTORS forced out of the business.
I think Jessie is right about the homeowners using technology more and more. In the end I think the "listing" costs will come down to this;
- Homeowner lists,prices,advertises,and takes care of their legal fees
- Real estate agents will continue to be conduit for buyers, with the sellers paying the buy side of the commission in exchange for an offer that they accept and close on.(think about it...if you were shopping for a used car would you drive all around town looking for homes with a car for sale in the front yard, or would you go somewhere where there was a selection) I mean the classifieds online and off have always worked for private sellers of autos and the car dealers are still around for those who want to see variety - with convenience. If someone sees a for sale by owner property, and doesn't like it, then it's back to square one. With an agent it's what are we seeing next. In addition, when a buyer is aware that the seller is saving all of this money in brokerage fees on the sale of their home - guess who's going to want some of that savings...the buyer of course. The only problem there is they can't both save the commission - buyers will still graviate towards realtors to provide selection, because people with only one home to sell can't. A realtor can provide insight into the market for a buyer that most homeowners cannot, because real estate is their hobby, not their business...
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