Now that home prices have outstripped affordability for nearly a decade, perhaps it shouldn’t surprise us that some people are ready to blame real estate agents. According to a 2006 Harris poll, real estate agents are among the least-trusted professionals — second only to stockbrokers. Both professions have tapped into the American piggy bank in unprecedented ways; both have the potential to earn oodles of money without years of schooling — simply by closing a few deals.

Of course, the slick picture of gleaming Bimmers and easy money is far from the reality for most agents, but that’s a topic for another column. When people begin to complain about real estate agents and their fancy cars, at some point I want to interrupt the conversation with the question: What’s the alternative? If people don’t like working with real estate agents and paying them tens of thousands in commissions, why don’t they take their business elsewhere?

The answer is that they do, but in far fewer numbers than one might think. Limited-service and discount brokerages such as Redfin and HelpUSell account for only a small slice of overall sales. And according to the National Association of Realtors, homes being sold by their owners (”For Sale By Owners” aka FSBOs) comprised only 12 percent of the 2006 market with only 7 percent of those available to the general public. (The other 5 percent were transactions between people who knew one another — probably including many discounted sales like those between family members and friends.) In affluent urban areas such as San Francisco, the numbers are even smaller because overextended homeowners in the Bay Area tend to have more money than time.

But the paucity of FSBOs doesn’t make them any less controversial. Since 1981, the National Association of Realtors has kept data on such sales as well as producing a steady stream of tip sheets on how to turn owners trying to sell on their own into clients. The industry research has always shown that even after the commission, people who use a licensed Realtor sell their homes for far more than their those who go it alone.

According to Realtor.org (the trade association’s Web site), “Homes sold with the help of a real estate professional in 2006 sold on average for 32 percent more” than those sold by owners. With numbers like that bandied about, it’s hard to argue that real estate agents aren’t worth a 5 or 6 percent commission, no matter what they do or don’t do. Hey, these guys bring home the bacon!

But last month, the first academic research on sales by owners suggested that the Realtors’ data might not tell the whole story. In studying all sales (not a voluntary survey) from 1998 through 2004 in Madison, Wis., three economists from Northwestern University found that owners sold their homes for at least as much as those sellers with agents who used the multiple listing service.

Without paying commissions, sellers in Madison who did not use agents pocketed an average of $12,000 more than other sellers.

The study did find some advantages for agents with access to the multiple listing service. In general, homes listed on the MLS sold faster than those simply listed by owners online. The researchers also cautioned that data from a specific region might not reflect the nation as a whole. Madison — a university town with a contrarian, highly educated population and relatively moderate home values (median price just above $200,000) — has attracted a fairly large number of owners doing their own selling since a Web site was created that caters to such sellers in that city.

What’s more, the study doesn’t account for the fact that not all homes listed on the site are sold. According to the Web site, the average sales rate is 72 percent. Still the difference between the study’s findings and the trade group’s professed success rates begs the question: How to account for the discrepancy?

For the industry, it’s a case of taking the tree for the forest. “We do see variations in many of the survey findings geographically,” says Walter Molony, the group’s trends and statistics expert. “So it wouldn’t be surprising to see a market where there are higher levels” of selling by owners. But for people in the owner-seller business, the answer is clear.

“We’ve never believed the (Realtors’) research, but we didn’t have firepower to refute them,” says Colby Sambrotto, chief operations officer of ForSaleByOwner.com. “They’ve always put out their own numbers which promote their services.

“There’s no transparency in their studies — you can’t look at their data and how they analyze it. Now we have independent research that vindicates our position.”

One important distinction is that the Realtors’ inclusion of private transactions between friends and family taints their conclusions considerably. With 40 percent of sales by owners involving someone they knew, that’s a whole lot of discounts. This also suggests that nationally, owners doing their own selling do far better than the National Association of Realtors might like to admit.

The evidence suggesting that these sales can be more profitable than working with an agent is especially interesting in the wake of Federal Trade Commission hearings, which concluded that the real estate industry and their legislative friends have sometimes dampened competition by passing laws that prevent businesses from offering lower-cost services.

But Realtors’ spokesman Molony suggests that when considering whether to hire a real estate agent, sellers should look beyond the bottom line. “I think sellers should ask themselves three questions: Are they willing to take the risk in dealing with unscreened people coming through their home? Do they have the time? Do they understand all the paperwork, required disclosures and laws and regulations in their area? Selling a home without a real estate agent is like representing yourself in court.”

Indeed, if this sounds like scare tactics, it’s also sometimes true. When real estate sales by owners get complicated, buyers and sellers can find themselves in a world of real estate horror with no one to blame but themselves.

Next week: How agentless transactions sometimes turn into royal nightmares.

Online Resources

Harris poll links.sfgate.com/ZKP

Facts on sales by owners links.sfgate.com/ZKQ

Northwestern University study links.sfgate.com/ZKR

FTC hearings links.sfgate.com/ZKS

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/07/13/carollloyd.DTL&hw=real+estate&sn=010&sc=1000