Three academics from Northwestern University have just published a study comparing for-sale-by-owner sellers with sellers who used a Realtor. The researchers started with the hypothesis that a good Realtor might make up some of the commission that he or she is paid by helping the seller to get a better outcome – either in terms of higher price or a quicker sale.

They tested this by evaluating sales in Madison Wisconsin from 1998 to 2004. The dominance of a single local FSBO website makes Madison an ideal location to compare results – working with the local MLS and www.fsbomadison.com the authors of the study were able to access nearly every sale that occurred during the period.

The results are surprising: the average sale price of FSBO homes is higher than the average price of homes sold by a Realtor.

This directly contradicts a claim made by the National Association of Realtors that using a Realtor results in a 16 percent increase in average sales price. The NAR does not detail their methodology or the assumptions that they used to reach this number.

The Northwestern University study, however, is meticulous and transparent. The authors discuss the consistency of their data sets, study methodology, and their approach to resolving biases in the data sets.

But…the gig isn’t up for Realtors…yet.

1. The study was conducted in a relatively special place – Madison, Wisconsin – a region which has, for reasons not discussed in the study, developed a special culture in which FSBO sales have captured a significant percentage of the market. This fact, in itself, might skew the results. FSBO penetration hasn’t reached these levels in most other markets, and an FSBO seller is more likely to be viewed as an oddball, and that matters.

2. There’s a self-selecting factor which the study doesn’t adequately address. Negotiating a sale isn’t for everyone. Logic dictates that a) sellers who are good negotiators are more likely to get a higher price whether or not they use a Realtor and, b) sellers who are good negotiations are more likely, on average, to sell FSBO. The study addresses this, but not to my satisfaction (if anyone cares about this you can ask in the comments…)

FSBO conditions haven’t spread nationwide, and FSBO isn’t for everyone. The later condition won’t change, but the first one will.

So…who cares? What does this mean to me?

You’re an investor and this trend will impact you. Thoughtful studies like this one will continue to demonstrate that paying a Realtor $18,000 to sell your $300,000 house isn’t good value. FSBO listings will proliferate, and that’s a good thing for the investor market. A commission is a classic transaction cost, and transaction costs decrease liquidity and pull profit out of every trade, both for the buyer and the seller.

Realtors, however, will continue to be an important part of your business as a real estate investor. To respond to market pressures the real estate industry will have to start offering a suite of products that meet your needs and price them accordingly. As an investor you don’t need help finding your dream home, you don’t need a negotiator, and you don’t need to have your hand held through the transaction. What you do need is a competent business partner to supervise the paperwork drill and help make sure the deal closes efficiently.

That’s not $18 thousand worth of service that you’re asking for. Realtors who understand this and tailor their offerings and pricing will have investors beating a path to their doors