The Real Estate Scientist

Sell A Home: The Real Estate Scientist

The Real Estate Scientist is Redfin's program to develop data-driven best practices for buying and selling homes. This guidance is based on the best academic research and our own analyses of listing databases and website traffic. We summarize our findings in periodic reports, share news on our blog and discuss your ideas and questions in our forum.

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Seven Tactics for Selling Your Home

Our first report recommends seven tactics for selling a home more quickly, at a higher price. What matters most of course is the home itself, not how it is sold. But we still believe that these tactics can yield a small but significant improvement in a home-seller's results. We also hope that sharing with consumers, academics and industry peers will open a dialogue about which tactics work and which don't.

You can read the full report Seven Tactics for Selling a Home, or visit our forum to ask the authors a question.

Don't overprice your property: Once a property fails to sell at its debut price, the time it spends on the market can encourage buyers to become more aggressive in negotiating. Price reductions can further encourage aggressive bargaining. In a 2002 study of 3,490 Stockton, California listings, homes without a price reduction sold for 97% of initial list price, whereas homes with a price reduction sold for 88% of initial list price, a difference likely greater than the actual magnitude of the price reduction.
Set your price to show up in web searches: Seventy-two percent of California home buyers use the Internet as "an important part of the home-buying process." The real estate sites used by home buyers typically filter price in $25,000 or $50,000 increments, so a home selling for $350,000 is likely to be seen significantly more than a home selling for $355,00 because the $355,00 home will be excluded by buyers who set $350,000 as their maximum price. According to a September 2007 Redfin analysis of its own traffic in the San Francisco Bay Area and Seattle markets, moving from one price band down to the next can increase online activity by as much as 7.1%. Download the graphs for the Seattle area and for the San Francisco Bay region.
Debut on Friday: According to a December 2007 analysis of Redfin's website traffic for 119,079 listings, homes that debut on the best day, Friday, get on average 7.7% more visitors in their first seven days than those that debut on the worst day, Thursday.
Stay engaged: Several studies emphasize the importance of being an informed, active home-seller. The study most to the point, a 1998 survey of 115 sellers in Columbus, Ohio, found that motivated sellers are able to sell their property as much as 30% faster than typical sellers. Motivated sellers may be more willing to bargain, but the authors also speculate that such sellers motivate agents to be more aggressive on their behalf.
Market the property online: A December 2007 Redfin study of 121 of its own listings from September 1, 2007 to November 30, 2007 found that a craigslist posting about a listing generated an average of 6.8 visits to that listing on Redfin's website. That each visitor navigates from craigslist to Redfin to see the listing in detail suggests that many may be serious potential buyers.
When selling your home, stay put: The pricing study of 3,490 Stockton listings found that vacant homes were 9.5% more likely to undergo a price reduction, which the author speculated was the result of a perception among buyers that the owners were anxious to sell.
If you can, wait to list your property until neighboring foreclosures are off the market: A November 13, 2007 report from the Center for Responsible Lending estimates that a foreclosure costs neighboring homeowners an average of $5,000 when listing their property. The banks selling foreclosed properties are often eager to sell at any price. If you can't wait to list your property until any neighboring foreclosures are off the market, you will have to account for the effect of the foreclosures in your own pricing.

Setting the Most Effective Commission

Does setting a higher commission lead to a faster sale, or a sale at a better price? Our results show that it does not.

What is a higher commission?

To analyze this question, we first had to establish what constitutes a “higher” commission. Traditionally, the seller has offered the buyer’s agent 3% of the final home price and reserved 3% for his own agent. We analyzed commissions paid to buyers’ agents for all broker-listed residential homes sold in King County in 2007, and found that 79% paid commissions of exactly 3% to buyers’ agents. The average commission, factoring in the lower and higher commissions as well, was 2.88%. And, as home prices increased, the average commission decreased: for list prices above $2 million, the average commission edged closer to 2.5% that to 3%.

Results at higher and lower than the typical commission

Because of the difference in commission rate for more expensive homes, we broke our data set into two parts: homes listed above $2 million and homes listed below $2 million. We focus here on the homes listed below $2 million because it’s much larger and the effects are greater than for homes listed above $2 million. This data set included 22,673 home sales.

Table: Home Sales, King County Residential Homes, 2007

	Commission lower than 3.0%	Commisison equal to 3.0%	Commission greater than 3.0%
Sale-to-List Price	99.9%	99.3%	98.5%
Days on Market	89	68	129

Homes offering a commission higher than 3% actually had a lower sale-to-list price than homes offering a 3% commission, by about 0.82%, or the equivalent of $4,095 on a $500,000 home. We had hypothesized that a higher commission would correlate to a better result for the seller. In contrast, homes offering a commission below 3% did get a better result for the seller: they had a higher sale-to-list price, by 0.54% or the equivalent of $2,719 on a $500,000 home.

The real difference between these groups was in days on market: homes that offered a 3% commission took 68 days to sell, while homes that offered a lower commission took about 30% longer, and homes that offered a higher commission took almost twice as long. According to our data, setting a higher commission to get better results doesn't work. The most effective commission is the most typical one.

You can read more about this study in the Redfin Blog. Typical is Boring, But When Selling a home, Effective, or visit our forum to ask the authors a question.

Academic Research

To develop our recommendations, we consulted the following academic studies:

Price and Time on Market

Anglin, Paul M. , Ronald Rutherford, and Thomas M. Springer. "The Trade-off Between the Selling Price of Residential Properties and Time-on-the-Market: The Impact of Price Setting." Journal of Real Estate Finance and Economics, 26, 2003, 95-111.

Herrin, William E., John R. Knight, and C.F. Sirmans. "Price Cutting Behavior in Residential Markets." Journal of Housing Economics, 13(3), 2004, 195-207.

Knight, John R. "Listing Price, Time on Market and Ultimate Selling Price: Causes and Effects of Listing Price Changes." Real Estate Economics, 30, 2002, 213-237.

The Center for Responsible Lending. "Subprime Spillover: Foreclosures Cost Neighbors $223 Billion; 44.5 Million Homes Lose $5,000 on Average." November 2007.

Be Informed, Stay Engaged

Glower, Michel, Donald R. Haurin, and Patric H. Hendershott. "Seller Time and Selling Price: The Influence of Seller Motivation." Real Estate Economics, 26, 1998, 719-740.

Hendel, Igal, Aviv Nevo, and François Ortalo-Magné. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com." National Bureau of Economic Research Working Paper No. 13360, 2007.

Levitt, Steven D. and Chad Syverson. "Market Distortions when Agents are Better Informed: The Value of Information in Real Estate." National Bureau of Economic Research Working Paper No. 11053, 2005.

Marketing Your Home

California Association of Realtors. "Internet vs. Traditional Buyer Real Estate Research Report." 2007.

Palmon, Oded, Barton A. Smith, and Ben J. Sopranzetti. "Clustering in Real Estate Prices: Determinants and Consequences." Journal of Real Estate Research, 26(2), 2004, 115-136.

Thomas, Manoj, Daniel H. Simon, Vrinda Kadiyali. "Do Consumers Perceive Precise Prices to Be Lower Than Round Prices? Evidence from Laboratory and Round Data." Johnson School Research Paper Series No. #09-07, September 2007.

Redfin Blog Posts

The Redfin blog also discusses some of our data-driven research.