New York Times works hard to put the fizz in FSBOs . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

My own personal experience with For-Sale-By-Owner sellers is pretty limited. I’ve never farmed them for listings, so I know nothing of that part of their lives. I’ve called a bunch of them to try to show their homes, but only once have I successfully gotten into one with my buyers. Mostly my experience consists of unreturned phone calls. Not a huge tragedy: The houses I’ve called on were almost always insanely over-priced. Actually, I have seen quite a few FSBOs — after they were listed by professionals and professionally-priced.

This has led me to believe that newspaper reporters live in a different universe. I’m pretty sure that most FSBO stories have unhappy endings, but you’d never guess that by reading the papers.

The New York Times coughs up another example today, this one based on a study done in Madison, Wisconsin. The story doesn’t concern FSBOs, but, rather, an alternative discount listing service, essentially an MLS-less real estate brokerage. The claim of the study is that sellers willing to sell into an artificially limited pool of buyers do as well or better than the sellers of Realtor-represented homes.

Is it true? Who knows? There’s not enough data to judge. Apparently the study measures sold homes. What about the homes that didn’t sell, or didn’t sell until they were listed by a Realtor? The authors of the study claim they were able to account for differences among properties, but this is simply an invitation to endless quibbling. In the end it doesn’t matter. Value is at once a matter of subjective perception and a practical, real-world trade-off. If you believe your time is best spent changing your own oil, you’re probably not my ideal client.

As you might expect, the study was done during the boom, when you couldn’t get a yard sign posted before the home sold. It is also reasonable to expect that newspapers all over the country will pick up the story, since it offers such amazingly bad advice in the current market.

More: Galen Ward speculates on agent skill sets, Glenn Kelman finds still another foot to shoot: Redfin is useless for less — even though it charges a 1000% premium over FSBO-alternative listers, and Freakonomics has a link to the actual study:

We deal with the potential seller selection issue in several ways. First, we compare the houses that initially listed on FSBO, did not sell, but instead were eventually sold through MLS, to those that listed and sold on FSBO. These two groups of houses sell on different platforms but belong to the initial population that selected FSBO. If we think that the owners of these houses are similar, and that the reason some sold while others did not is luck of the draw, then the difference in price will give us the causal effect of FSBO. We find that houses that listed and sold on FSBO sell for a small, and not statistically significant, premium compared to houses that listed on FSBO initially but that were eventually sold on MLS. Even if moving from FSBO to MLS depends on seller type the selection bias should be reduced, as the group of FSBO listers is more homogenous than the population as a whole. This comparison should at least provide a cleaner, perhaps not completely clean, platform comparison.

Our second approach to deal with seller heterogeneity is to compare FSBO sales to realtors’ own properties sold on the MLS. Levitt and Syverson (2006) find a premium for realtors’ own properties sold on the MLS. They attribute this price gap to an incentive problem. Repeating the analysis in our data we get a premium almost identical to Levitt and Syverson. We compare this to the premium sellers get on FSBO. Both are by owner transactions, thus, do not suffer from the agency problem identified by Levitt and Syverson. Since realtors are professional this comparison should bound the impact of selection. Even if the homeowners who use FSBO are better bargainers than the typical homeowner, it is reasonable to assume they are no better at bargaining than professional realtors. We find that the FSBO premium is similar to the premium realtors obtain when selling their own homes. In line with the previous findings, this suggests no price differences across platforms. The third approach we take to deal with seller heterogeneity is to compare transactions of the same seller using different platforms. We matched seller names across transactions and compare their performance across platforms. We find no price premium across platforms. Namely, the initial FSBO premium vanishes once we add a seller fixed effect. To confirm that the FSBO premium is explained by seller selection, we estimate the price premium of FSBO sellers while selling on the MLS. We define as a FSBO seller those sellers that sell on FSBO sometime during the sample. Then we estimate the hedonic price regression for MLS transactions only. The FSBO seller dummy carries a premium similar to the FSBO premium. The estimate suggest the latter was driven by seller effects rather than platform effects.

Finally, we examine various factors that impact the sellers decision to sell on FSBO as instrumental variables. For example, we used the fraction of previous sales on FSBO in the seller’s neighborhood. The point estimates we find are consistent with a FSBO premium. However, the instruments are very weak and the standard errors are very large.

All the approaches used to deal with selection lead us to the same conclusion: the two platforms deliver the same prices. There is no support in our data to the claim that the MLS delivers a higher price. This is not to say that realtors do not provide value to the seller. The cost of such convenience provided by realtors seems to be the full commission (or half the commission since part of the FSBO transactions involve a realtor).

Comparing other outcomes, we find that houses initially listed on FSBO tend to take slightly longer to sell but have a higher probability of eventually selling. The longer time to sell is driven by two factors. First, a proportion (about 20%) of FSBO listings that move to the MLS after initial failure. The shift from FSBO to MLS entails the risk of staying 68 more days on the market. Second, the probability of a quick sell is larger for houses initially listed on the MLS.

I’ve not read the whole thing. In essence, stipulating this argument without contest, the MLS-less sellers of Madison are saving the 1%, 2% or 3% of the listing agent’s commission, while doing all the listing agent’s work and incurring the corresponding liability. Whether or not someone thinks this is worthwhile will depend on how they value their time — and how well they understand selling houses when houses aren’t selling.

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