Do NAR Statistics of “For Sale by Owner” Sales Mislead People?
You’ve heard it quoted hundreds of times…
"The median home price for sellers who use an agent is 16.0 percent higher than a home sold directly by an owner; $230,000 vs. $198,200;”
This figure comes from the NAR 2005 Buyer and Seller Profile. This figure is quoted religiously by the real estate and the media.
In fact the National Association of REALTORS even has a TV commercial about it.
This is a pretty bold claim. 16% is a big number so let’s analyze this a little more using different figures. Here is what a home buyer would be led to believe hearing this statistic.
FSBO $300,000 / REALTOR $348,000 – 16% would be $48,000 more
FSBO $400,000 / REALTOR $464,000 – 16% would be $64,000 more
FSBO $500,000 / REALTOR $575,000 – 16% would be $75,000 more
These numbers would make everyone consider selling with an agent… but how true are they?
Now I’m sure that this claim has caused thousands of FSBO’s to go out and hire a real estate agent to sell their home costing them millions in real estate commissions.
What is interesting to me is that the data set used to make this claim is not available anywhere. I have looked for it and cannot find it. If you have it great, let’s make it public so we can see how the NAR arrived at this statisic.
Everyone seems to believe this number and no one seems to want to question it? At the same time no one appears to understand what it really means. Could it be a fairly creative use of a statistic created to try to protect millions in real estate commissions?
Here is why. The report states that the “median” price is 16% higher not the “average” (or mean) price. Most people don’t understand the difference between a “median” and “mean”. Here it is:
Median - the middle number in a sorted list.
Mean - The value obtained by dividing the sum of a set of quantities by the number of quantities in the set. Also called average.
The difference between median and mean can be significant.
Here is two random data sets of 5 numbers to demonstrate the difference of median and mean why it’s important for the NAR to release the data set used to calculate this statistic. These are grouped by FSBO and REALTOR.
FSBO - 129,000, 156,000, 198,200, 297,000, 345,000
REALTOR – 121,000, 154,000, 230,000, 290,000, 330,000
So let’s view the “median” value of each of these data sets. Remember “median” is the middle number in a sorted list. Therefore the “median” numbers would be the third numbers in the above data sets.
FSBO median = $198,2000
REALTOR median = $230,000
(It’s no coincidence that there is a 16% difference between the two and these are the same numbers quoted by the NAR for display purposes)
So all the other numbers in the data set don’t matter, just whatever the “middle” number of the data list is. Does this seem to give an accurate estimate?
Now lets take the time to discover the “average / mean” of this same data list above.
Again, the average is dividing the sum of a set of quantities by the number of quantities in the set.
FSBO Total = $1,125,200 divided by 5 = $225,040 Average
Realtor Total = $1,125,000 total divided by 5 = $225,000 Average
Interesting that the FSBO average sales prices was actually $40 more and overall the customer would possibly save the 6% real estate commission or $13,500.
So in this example data set… the “median” for REALTOR properties was in fact 16% higher but yet the actual “Average” price was nearly identical.
So let’s play with this median / mean a little more.
FSBO data set: 100,000, 320,000, 350,000, 600,000, 800,000
REALTOR data set: 150,000, 300,000, 331,000, 600,000, 750,000
FSBO Median: $350,000 / REALTOR Median: $331,000 = FSBO Median is 6% higher
FSBO Average: $434,000 / REALTOR Average: $426,000 = FSBO Average is 2% higher
So as you can see, it’s fairly easy to skew the numbers. This statistic is so loosely quoted that the interpretation of the “median” is gone. Again look at the actual quote from the TV commercial…
“REALTORS® have the experience to price your home effectively, so it can sell for up to 16% more than selling it yourself.”
Does that statement paint a clear picture to the customer? Especially since the “median” statistic is provided by the NAR for NAR members.
The fact is most people (including agents) probably don’t understand the difference between “median” and “mean”. The median can be skewed easily because it entire number is basedd on a ONE number in a list. It’s not too difficult to pick a number that would make it favor the other direction.
Could this become a problem for the NAR?
Possibly, look at Federal Trade Commission Act, Section 5 that pertains to interest of all consumers to prevent deceptive and unfair acts or practices. The Commission has determined that a representation, omission or practice is deceptive if it is likely to:
- mislead consumers and
- affect consumers' behavior or decisions about the product or service.
In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:
- Substantial
- not outweighed by other benefits and
- not reasonably avoidable
Now you be the judge if this fits under the bill…
A) Does the 16% mislead consumers?
B) Does it affect the consumers decision to sell using an agent?
C) Is the cost substantial?
Let’s see how common this statistic really is. If you actually know of a property that sold FSBO for 16% less then other REALTOR listed properties, please send the address and date sold?
"The median home price for sellers who use an agent is 16.0 percent higher than a home sold directly by an owner; $230,000 vs. $198,200;”
This figure comes from the NAR 2005 Buyer and Seller Profile. This figure is quoted religiously by the real estate and the media.
In fact the National Association of REALTORS even has a TV commercial about it.
"Don't Try This At Home", targets unrepresented sellers (the FSBO market). The commercial features a hard-hitting message: REALTORS® have the experience to price your home effectively, so it can sell for up to 16% more than selling it yourself.
This is a pretty bold claim. 16% is a big number so let’s analyze this a little more using different figures. Here is what a home buyer would be led to believe hearing this statistic.
FSBO $300,000 / REALTOR $348,000 – 16% would be $48,000 more
FSBO $400,000 / REALTOR $464,000 – 16% would be $64,000 more
FSBO $500,000 / REALTOR $575,000 – 16% would be $75,000 more
These numbers would make everyone consider selling with an agent… but how true are they?
Now I’m sure that this claim has caused thousands of FSBO’s to go out and hire a real estate agent to sell their home costing them millions in real estate commissions.
What is interesting to me is that the data set used to make this claim is not available anywhere. I have looked for it and cannot find it. If you have it great, let’s make it public so we can see how the NAR arrived at this statisic.
Everyone seems to believe this number and no one seems to want to question it? At the same time no one appears to understand what it really means. Could it be a fairly creative use of a statistic created to try to protect millions in real estate commissions?
Here is why. The report states that the “median” price is 16% higher not the “average” (or mean) price. Most people don’t understand the difference between a “median” and “mean”. Here it is:
Median - the middle number in a sorted list.
Mean - The value obtained by dividing the sum of a set of quantities by the number of quantities in the set. Also called average.
The difference between median and mean can be significant.
Here is two random data sets of 5 numbers to demonstrate the difference of median and mean why it’s important for the NAR to release the data set used to calculate this statistic. These are grouped by FSBO and REALTOR.
FSBO - 129,000, 156,000, 198,200, 297,000, 345,000
REALTOR – 121,000, 154,000, 230,000, 290,000, 330,000
So let’s view the “median” value of each of these data sets. Remember “median” is the middle number in a sorted list. Therefore the “median” numbers would be the third numbers in the above data sets.
FSBO median = $198,2000
REALTOR median = $230,000
(It’s no coincidence that there is a 16% difference between the two and these are the same numbers quoted by the NAR for display purposes)
So all the other numbers in the data set don’t matter, just whatever the “middle” number of the data list is. Does this seem to give an accurate estimate?
Now lets take the time to discover the “average / mean” of this same data list above.
Again, the average is dividing the sum of a set of quantities by the number of quantities in the set.
FSBO Total = $1,125,200 divided by 5 = $225,040 Average
Realtor Total = $1,125,000 total divided by 5 = $225,000 Average
Interesting that the FSBO average sales prices was actually $40 more and overall the customer would possibly save the 6% real estate commission or $13,500.
So in this example data set… the “median” for REALTOR properties was in fact 16% higher but yet the actual “Average” price was nearly identical.
So let’s play with this median / mean a little more.
FSBO data set: 100,000, 320,000, 350,000, 600,000, 800,000
REALTOR data set: 150,000, 300,000, 331,000, 600,000, 750,000
FSBO Median: $350,000 / REALTOR Median: $331,000 = FSBO Median is 6% higher
FSBO Average: $434,000 / REALTOR Average: $426,000 = FSBO Average is 2% higher
So as you can see, it’s fairly easy to skew the numbers. This statistic is so loosely quoted that the interpretation of the “median” is gone. Again look at the actual quote from the TV commercial…
“REALTORS® have the experience to price your home effectively, so it can sell for up to 16% more than selling it yourself.”
Does that statement paint a clear picture to the customer? Especially since the “median” statistic is provided by the NAR for NAR members.
The fact is most people (including agents) probably don’t understand the difference between “median” and “mean”. The median can be skewed easily because it entire number is basedd on a ONE number in a list. It’s not too difficult to pick a number that would make it favor the other direction.
Could this become a problem for the NAR?
Possibly, look at Federal Trade Commission Act, Section 5 that pertains to interest of all consumers to prevent deceptive and unfair acts or practices. The Commission has determined that a representation, omission or practice is deceptive if it is likely to:
- mislead consumers and
- affect consumers' behavior or decisions about the product or service.
In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:
- Substantial
- not outweighed by other benefits and
- not reasonably avoidable
Now you be the judge if this fits under the bill…
A) Does the 16% mislead consumers?
B) Does it affect the consumers decision to sell using an agent?
C) Is the cost substantial?
Let’s see how common this statistic really is. If you actually know of a property that sold FSBO for 16% less then other REALTOR listed properties, please send the address and date sold?
posted by Jessie B at 9:46 PM
13 Comments:
I think it's also very possible that people with homes in a higher price range are more likely to use realtors. This would also skew the median (and mean) prices artifically lower.
joe daverin
(blog: http://daverin.com/serendipity/)
My statistician friends do suggest I track the median rather than the mean (average) when following year/year price trends. I'm a Realtor in Ohio. I think FSBOs and listed property end up selling for about the same with a few exceptions that usually are in the Seller's favor when a buyer comes along without any representation and pays above the current market. There are some very capable cross-over sales people who do great selling their own home but most (as you probably know) are not successful. The tone in your critique seems to assign the very worst to the real estate industry. The median, assuming a large enough 'n' ( number in the study), is a better tracking number to watch. Ask a statistician please before making your point again and again with only 5 data points.
anonymous...
As indicated in my post. I indicated that these were "random numbers" to show how the figures can be skewed. You are stating for me to...
"Ask a statistician please before making your point again and again with only 5 data points."
but yet, why won't you ask the NAR should do the same? Is it because the statistic benefits you?
They spend millions to advertise this statistic of 16% more but yet, the data set used is not published or made public? That is the main point of my post.
Additionally, as an agent, even you seem to admit the 16% does not seem accurate with this comment...
"I'm a Realtor in Ohio. I think FSBOs and listed property end up selling for about the same with a few exceptions that usually are in the Seller's favor when a buyer comes along without any representation and pays above the current market."
I understand that if the number is large it's better to use the "median" vs. a "mean" because the "outliers" could skew the mean as well. i.e. 100,200,300,400,5000
median = 300
mean = 1200
The reality is that the NAR "could be" using skewed numbers to affect the general publics perception that agents can get 16% higher sales prices and therefore justifies the cost of using agents but yet no-one questions this?
Im sure you own and operate this site out of your own pure generousity. The fact of the matter is that websites are made to produce a revenue stream... ie affiliate commissions from a credit report, etc. Why dont you be honest about your motivation? You try to slander NAR be recreating statistics to further boost your marketability of your website. The bottom line is this... Real Estate Professionals have been around for over 200 years. There is a need for them just like any other acting agent. FSBO's may be able to make more money by going on their own, but they can also end up costing themselves potential profits from their own ignorance. If you want to point out anything... point out the fact that most FSBO sites and services charge a flat fee for performing nothing more than a website listing. A more informed seller would weigh their options and decide for themselves what is best... "Do I pay a flat fee to buyowner.com of $3000 which is nonrefundable or do I list with an agent for 6% only if they sell my home" The wisest financial decision is easy to see here. And selling a home is purely a financial decision.
They take the ave for the total fsbo sales, vs the ave for total sales sold by agents, then they compare those ave numbers.
I just want to say that the fsbos mess up the market, they sell for minus the commision. Then my grama wants to use an agent cause she cant do it all. And then her top price is now what that fsbos sale price was -the commision, so now she has to list at the sale number and still pay an agent its not fair to the neighborhood these fsbos leave behind. As an agent I hope they move into a neighborhood that does the same to them but at a higher price. What comes around goes around!!!
The bottom line is that MANY fsbo transactions are family-to-family. These types of transactions have a major impact on these averages. It is nothing for a parent to sell their kid a $400,000 for $100,000. FSBO is the way to go, Realtors are useless.
I agree with anonymous. There is an inverse correlation between the amount of disparity between the mean and median, the more numbers you use. You're only using 5 numbers! Try it with 50, then 100, then 1000 sets of numbers. You'll find that the mean and median close in on one another the more sets of numbers you have in random sets. I'm sure the NAR has a few numbers to plug in from their database. I'm not defending the NAR, but there's nothing wrong with using the median on an emense book of data. Go take some math classes.
Joe Schmoe,
My 5 number set is simply as an example of how easily it is to manipulate the figures. And yes, I do understand the math theory between mean & median.
I could take a set of 1000 numbers and if there is a 16% disparity between the 500th number of the REALTOR data set and the FSBO data set, you still get the same results. Sure this is more difficult with a larger data set but when talking sales prices of homes say from the low end of 30K to 3 mil, how many numbers are in between the two? 2,970,000 possible comibinations right?
It's different if the range of numbers is 200k - 225k and you use a 1000 number data set because of there is only 25k numbers so difference will be closer. The bigger the range between the min / max of the data set the bigger the difference "can" be affected.
So if you don't think it would be easy to manipulate the middle number of a 500th number data set by 16% if there is 2,969,999 numbers to chose from, thats fine.
A research paper studied 16K sales came up with the same results.
http://faculty.econ.northwestern.edu/faculty/nevo/research/fsbo.pdf
Properties sold by agents DO NOT get 16% more and that is the point of my blog post.
Additionally, with more research the real reason was found to explain the differences in price. The data set of sellers who sold using a REALTOR had median income that was 10K a higher year than the sellers who went FSBO.
http://blog.inman.com/inmanblog/2007/06/nar_calls_fsbo_.html
Due to the higher income, the homes they sold are more expensive because they initially purchase more expensive homes to begin with due to their higher income.
Again, the NAR does not make this important fact public... it was only found in a REALTOR to REALTOR trade magazine.
If you are going to make claims to the entire world and spend millions of dollars in commercials, then you should support your claim. If this was a weight loss company, that defrauded a few thousands customers with false claims via commericals, they would be shut down (and have been in the past). The NAR gets away with this because of the 20 milion a year they spend lobbying politicians.
WOW! Am I glad I found this blog. I own and operate a moderate size fsbo website but I will not be advertising here (we will be launching a national ad campaign soon so you'll be hearing from us then :)
To sum it up realtors will always be around and so will fsbos. Let me knock realtors for one minute. There WERE so many realtors that came into the game over the past several years to make what everyone was saying was easy money (and during the good days it was easy money and little training/talent was needed. For the most part (and this is dumbed down) a Realtor did little more then post the ad on MLS/Realtor and it would sell rather quickly. Cha-Ching. This led to fat dumb realtors and when the market started to turn, so many didnt know what the hell to do or how to sell. I personally know a Broker that has been in business for decades (through it all so to speak), he is the best of the best and can sell in any market, but some of his employees were quickly fired when the market turn around because they couldnt sell for a damn. This was a common problem and led to many people being dissatisfied with service for the large fee. What we are seeing now is a surge in FSBOs because people cant a) afford the commission because they are facing foreclosure and need a quick sale b) tried a realtor, it didnt work and now (frustrated) are going fsbo or c) just want to sell it themselves to save a few bucks and offer a lower price. While many realtors offer a great service there are always going to be people that want to pocket the commission, go on the market at a lower price to compete, feel they can perform the same duties as a realtor given the help available "out there".
Bottom line, there are realtors who dont do their job and anyone could do it better, there are fsbos that will waste their money and time because they arent motivated enough to perform the duties needed to properly advertise, follow up and just arent salesman. If youre a realtor, be the best, be aggressive and really earn your fee. If youre a FSBO do your homework, train yourself to be a salesperson, know how to interact with people and learn to close that sale and be prepared to spend some money on advertising (a yard sign and newspaper ad will in just about every case waste your time and money) Go big or get a realtor, you too need to earn that 6%.
By Blake
This article is about as useless as the debate from it. The only proof is in the average not the median. There is more than substantial date to support that Realtor based transactions sell for more than the average non-Realtor based. The issue is dissecting which non-Realtor based ones are preforeclosures and family to family.
FSBO's are only practical if the home owner has years to wait or can get themelves marketed adequately. It's all about the number of people that see your homes information, especially in this market. If your home is invisible it won't sell. Realtors still have a huge upper hand over the fsbo sites.
As far as the "Realtors are useless" comment, thats extremely vague without any support. Unless that person can back up their claim they get delegated to the category of full of... lets just call it useless opinions.
To quote Samuel Clemens (Mark Twain for the less literate):
There are 3 types of lies:
1) LIES
2) DAMNED LIES
3) STATISTICS
All statistics can and are usually skewed to benefit the position of the citer. This goes for the FSBO Industry as well as the NAR.
There are many good arguments on both sides for using or not using a Real Estate professional, not the least of these being the relative level of sophistication of the Seller, and the extremely low standards by which they accord the term "professional" to not only REALTORS®, but the members of all self-desginated "professionals."
While the most applicable definition I can find in Merriam Webster's for the term "profession" is:
"a calling requiring specialized knowledge and often long and intensive academic preparation"
the plain fact is that for REALTORS®, while there is a great deal of specialized knowledge to be had in the field, precious little of it is required to get a license and "practice" the trade.
All professions use the term "practice" because that is what self-regulating entities do, practice on the back of the customer to learn their trade. The only truly distinguishing feature of all the professions is that, for the most part, they get paid whether they do a good job or not. (See lawyers & doctors vs. a car mechanic for example).
Fact is it's a crap shoot. A GOOD real estate agent will earn his commission through hard work. Any FSBO who's sold their own home would have to candidly admit that there is alot more to it than just hanging a sign and posting an ad.
As with anything, finding a good one is the key.
Character, Integrity and putting the Client's interests before your own are the hallmarks of a good one and count for alot more than all the Alphabet Soup one has on their business card.
The best business is word of mouth. Asking others who did a good job for them is a good place to start, if you don't want to go it alone.
But if you do go it alone, don't buy all the baloney on the other side either. It's no picnic if you don't know what you're doing.
Stats are great, but we use them as a jumping off point only. They can be skewed in many different directions. I can use stats to show a client why he/she should list at $500K. Then again, I could choose another set of stats to show why the same person should list at $450K. At some point integrity and relevance come into play. Put stats aside and speak about real world application. There is a reason 100% of my clients who have tried FSBO have come back to list with me...not 80%,90% or even 99%....100%. Most recently was a federal court judge determined he could sell on his own. He recently wrote me a letter in disbelief that he ever tried to sell on his own. He said had no idea what "good" realtors really do! After 1 week on the market we got 3 competing offers driving the price up $65K. Try that FSBO...the FSBO market is over...it is called exposure folks...how many FSBO's get one offer, let alone competing offers in this market. When the market was hot, a FSBO could put their home up for sale and benefit from the buyer traffic of their selling neighbors...now they just get lost in all the signs! Good luck...
@ Anonymous...
"After 1 week on the market we got 3 competing offers driving the price up $65K. Try that FSBO...the FSBO market is over...it is called exposure folks"
Thanks for the comment. So when you say "on the market" I will assume the MLS... and "it is called exposure" is also a reference to the MLS.
Keep in mind that for $300 - $500 and 2-3% co-broker commission most sellers can get the same exposure you mention but make their property stand out even more by discounting their price by 3% making them the lowest priced listing. Or for free they can post their home on sites like ours and Craigslist and get lot's of inquiries but sellers must be prepared to follow up.
FSBO is not for everyone but those that understand how to price the home correctly and do their homework can reap some financial benefits.
As mentioned before... the point of the post is that using an agent does not directly translate to a 16% higher sales price as claimed by the NAR and that these claims are misleading to the public.
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