Options
Special Report
Part 1:
1. Why do estate agents sell homes for an average of 3.7% less than they are worth?
2. Just how expensive are estate agents, really?
3. Why do estate agents deliberately overvalue homes (before they undersell them)?
4. Why do estate agents take 50% longer to make a sale than private sellers do?
5. How much poorer will using estate agents make you in retirement?
6. What are the other hidden costs of selling through an estate agent?
Part II: The 7 Things to Look For When You Sell
Methodology
1. Why do estate agents sell homes for an average of 3.7% less than they are worth?
2. Just how expensive are estate agents, really?
3. Why do estate agents deliberately overvalue homes (before they undersell them)?
4. Why do estate agents take 50% longer to make a sale than private sellers do?
5. How much poorer will using estate agents make you in retirement?
6. What are the other hidden costs of selling through an estate agent?
Part II: The 7 Things to Look For When You Sell
Methodology
1. Why do estate agents sell homes for an average of 3.7% less than they are worth?
Why would an estate agent, who is paid on a commission basis, sell your home for less than it's worth? It doesn't make sense until you realise that the commission structure creates a powerful incentive to do just that.
This is exactly what was found by a University of Chicago study, the results of which were published in the 2005 best-selling book Freakonomics. The study looked at 100,000 home sales and found that estate agents routinely sold their clients’ homes for less than they were worth to get a quicker sale.
On average, estate agents were found to sell their own homes for 3.7% more than they would have sold the same property for if they had been selling it for a client.
In other words, when an agent sells their own home they market it fully and hold out for the best offer. When they sell yours they push you to take the first decent offer that comes along.
On average, estate agents were found to sell their own homes for 3.7% more than they would have sold the same property for if they had been selling it for a client.
In other words, when an agent sells their own home they market it fully and hold out for the best offer. When they sell yours they push you to take the first decent offer that comes along.
The reason, the study found, was a "misalignment of incentives". Let's look at a typical £200,000 house to show how this works:
If it sells for £200,000 then, based on the results of the study, it could have sold for £207,400. To us as the home seller that's a big difference — an extra £7,400 of equity and a real incentive for us to push hard for the best deal.
Unfortunately, the same is not true for the estate agent. For the extra effort that's required to get the best price the estate agent's personal take is only £111 or 1.5% of £7,400.
(HMRC, Countrywide plc)
The study shows that for such a small amount of money the estate agent is not incentivised to arrange extra viewings, pay for extra advertising or go the extra mile to promote your home.
In fact, it's quite the opposite: It's in the estate agent's interest to get you to take the first reasonable offer that comes along even if that means pressuring you into accepting less than your asking price.
The result? The estate agent actually ends up better off. Why? Because the sooner your property is off their books the sooner they can work on their next commission.
