Research: Discount Brokers Don't Affect Homes' Selling Prices

UNIVERSITY PARK, PA (January 25, 2006)—New research from Penn State's Smeal College of Business may lend support to the Federal Trade Commission's stance that discount real estate brokers do not harm consumers. The Smeal study finds that discount brokerages, which often cost several thousand dollars less than traditional real estate agencies, get the same selling price for homes as their full-service counterparts.

However, sellers have to be willing to wait about one week longer for their homes to sell.

Abdullah Yavas, Elliott Professor of Business Administration and research director of the Institute for Real Estate Studies at Smeal, and Professor Ron Rutherford of the University of Texas at San Antonio examined nearly 300,000 single family home listings on several Texas Multiple Listing Services. They found no impact of discount brokerages on the selling price of the home.

Discount brokers charge up to 70 percent less than the commission paid to traditional real estate agencies. They often offer a la carte services, so sellers pay more for more service. Traditional agents provide a bundled pack of service, such as listing, advertising, and the staffing of open houses, for a 6 percent industry-standard commission.

While Yavas and Rutherford found no effect on the home's selling price, they did discover that homes listed by discount brokers took about 5 percent—or five days—longer to sell than those listed by traditional real estate agencies. Additionally, they found that discount brokerage listings are about 12 percent less likely to sell.

Despite strong objections from the FTC, intense lobbying efforts by the National Association of Realtors (NAR) have led to laws in 15 states making it difficult or impossible for consumers to use discount brokers.

Additionally, the Justice Department recently filed an antitrust case against NAR, claiming in a news release that the organization "obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers."

"By selling through a discounted broker, an individual can potentially save tens of thousands of dollars and get the same price for his home, if the seller is willing to accept a slightly higher risk and can tolerate having it on the market a little longer," Yavas says. "Not every seller requires all the service that traditional agencies provide. Discount brokerages offer a choice, without sacrificing the price of your."