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.
"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?
