Two economists have taken on the question: Who gets the better deal — the home seller who uses a real estate agent and the local multiple listing service or the seller who does it on his own? Their conclusion is that the for-sale-by-owner does. At least in one Midwest city.

A new study based on data in Madison, Wis., concludes that sellers in the city do not get a higher price for their homes when using an agent and the local multiple listing service. But with a relatively low FSBO market share, that could mean that either more sellers are willing to pay agent commissions regardless of the sale price or that homeowners aren’t aware of the FSBO Internet option.

The study, “The Relative Performance of Real Estate Marketing Platforms: MLS versus,” became public today and has already received a fair amount of attention from an article in the New York Times.

The authors — Igal Hendel, Aviv Nevo and Francois Ortalo-Magne — say the results imply two things for the brokerage industry in Madison:

“If one believes that sellers are aware of the FSBO option, and know that there is no premium associated with MLS, then our results suggest that a large fraction of the population is willing to pay a significant amount for the services provided by realtors,” the report concludes. In which case, they say, Realtors will continue to maintain high market share.

The other view of the study’s conclusion is that the FSBO Web site is still relatively unknown, and as more people become aware of it and the finding that there may not be a sales price disadvantage to using it, its share of the market will increase, the authors note.

In looking at the measurements used, the authors say, “The actual cost of hiring a realtor is the commission minus the price premium that the agent might generate and the financial savings from a faster sale.” They also take into account time on the market and overall probability of sale for the alternative channels.

One finding in agents’ favor was that homes sold via the MLS sold faster than homes sold by owner.

The study uses data for homes listed in the city between January 1998 and December 2004, and combines data from, the dominant for-sale-by-owner Web site in the city; the South-Central Wisconsin Realtors Association; and data from the city of Madison’s assessor’s office, which maintains a database of full transactional history and property details.

“We find that the average sale price of homes that sell on FSBO is higher than the average price of homes that sell with a realtor,” the authors state. While the characteristics of homes across the platforms are different, the study still finds that the FSBO prices are higher.

The findings go against national data from the National Association of Realtors, which finds that houses sold via the MLS get 16 percent higher price on average over those not sold on the MLS.

A NAR survey of home buyers and sellers also found a downtrend in the number of for-sale-by-owner transactions nationwide, falling from 13 percent of market share in 2005 to 12 percent in 2006. The trade group began tracking the FSBO market in 1981; the record high was 20 percent in 1987.

In Madison, the average market share of FSBO listings during the economists’ study period was 20 percent of a total of about 12,000 properties. Of the properties that eventually sell (87 percent), 95 percent sell through the initial listing platform, while 5 percent switch from FSBO to MLS, and only 0.3 percent switch from MLS to FSBO, according to the study.

The authors note that the FSBO Web site they received data from launched in 1998 and that the share of FSBOs increased from 6 percent that year to more than 27 percent by 2004. The success rate of sale via FSBO also increased from 63.1 percent in 1998 to 71.2 percent in 2004, but the authors say there is no clear trend in the years between.

The success rate of FSBOs also varies by neighborhood, they said.

Housing markets across the country were booming during the period studied by the economists. What isn’t known is whether these same results would hold during a cooler housing market, and the authors currently are studying data for 2005-2006.

“The importance of the additional data is that they allow us to study a market during a more difficult time … We could see if the cost or, returns to, using a realtor vary with the cyclicality of the market,” they wrote.

While the study concludes that in Madison, the MLS offers no advantage in the sale price of a home, the authors note other advantages to using an agent. “This is not to say that using an agent is not valuable,” the authors write in their conclusion. “Realtors can save sellers time and generally help through a stressful and maybe difficult period.”

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