Business is Different for Investment Properties Than Primary Residences
The best-selling book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner argues that REALTOR®-owned homes sell at a higher price than others because they stay on the market longer, and the authors suggest that somehow REALTORS® do a better job of selling their own properties than they do for their customers.
The fact is that a large percentage of the REALTOR®-owned properties the Freakonomics authors studied were investment properties, not primary residences. With investor properties, the seller can wait out a bad market and wait for the prices, not worrying about the timing of a job transfer or the start of school year. In the Freakonomics study, the data sample consisted of 3,300 REALTOR®-owned sales out of 98,000 total sales. That is, REALTORS® engaged in 3.4% of all home sales. Yet REALTORS® represent only 0.8% of the general population. That percentage is much larger than would be expected out of the general working population. Clearly, the high percentage of REALTOR®-owned homes can only be attributed to investment properties.
Freakonomics assumes that the longer a property is on the market, the higher the price at which it will sell. In fact, the opposite usually occurs; price concessions become deeper the longer a home stays on the market. For sellers needing to move, they have to concede lower price with each passing week. Investors, on the other hand, have less incentive to concede. So the fact that REALTORS® are selling a client's home with fewer days on the market is a value-added contribution.
Comments
This article is interesting. I am a Realtor and have sold many of my own properties over the years. I generally priced them below market and sold them fast. Of the Realtor owned/listed homes I helped others buy, I think those have generally sold below market value as well.
Occupied homes sell for more than vacant homes, at least they do in the analysis I did from the Austin MLS, so nothing reported in the Freakonomics study jives with what I know and have experienced.
Posted by: Steve Crossland | May 10, 2006 10:19 PM
Your post assumes that investment properties will sell for more than personal residence properties. There isn't any substance behind this assumption.
Freakonomics explains its data-driven analysis through the incentives a realtor has in a property transaction. When selling client property, a realtor is incented to churn through as many transactions as possible to generate the largest number of transactions. Leaving some money on the table with each transaction is more than made up in volume. When the realtor becomes a seller, the incentive for the realtor changes and they work hardest to get top dollar on that particular transaction.
Posted by: D. Rowe | May 15, 2006 07:54 PM
We can prove virtually anything with statistics. There is no magic system for any transaction and we as brokers are responsible for meeting our clients' needs. If they want to command price as their top priority then we must create an action plan to accomplish the highest price. Let's not try and lump the entire process and industry into a few, harsh generalizations. It gets old. For the record- I have a copy of Freakonomics and I look forward to reading it.
Posted by: Jason B. Graves | May 23, 2006 08:50 AM
We can prove virtually anything with statistics. There is no magic system for any transaction and we as brokers are responsible for meeting our clients' needs. If they want to command price as their top priority then we must create an action plan to accomplish the highest price. Let's not try and lump the entire process and industry into a few, harsh generalizations. It gets old. For the record- I have a copy of Freakonomics and I look forward to reading it.
Posted by: JB | May 23, 2006 03:07 PM
A shorter time on the market could indicate a focused and more efficient sale, or a careless too-quick priced-too-low sale. Simply noting that times on market are longer is not sufficient to determine why they are so.
Posted by: Homes | June 13, 2006 01:42 PM