Study shows Private Sellers make more than those who list on MLS

A study by researchers at Northwestern University found that people who used a For Sale By Owner website similar to saskhouses.com made approximately 11 percent more on the sale of their home than people who sold similar homes through the MLS System.

The study focused on the city of Madison, Wisconsin, where a single website, www.fsbomadison.com has become the dominant for-sale-by-owner platform.

With the co-operation of FSBO Madison, the researchers gained access to all FSBO listings since the start of the platform in 1998.

They combined the FSBO data with data from two other sources. First, from the South-Central Wisconsin Realtors Association they got access to all MLS listings in the city. Second, they matched every listing with data from the city of Madison. The city of Madison assessor office maintains a database with the full history of transactions on every property together with an exhaustive set of property characteristics. By merging these data sets the researchers got a complete history of events that occurred for virtually every single family home for sale, over 15,000 observations,between January 1998 and December 2004.

After controlling for houses and seller heterogeneity, the researchers say they found no support for the hypothesis that the MLS delivers a higher sale price than FSBO. The study did find that houses sold slightly faster on MLS than through FSBO Madison.

A related study complements the findings of Northwestern University. A study by Bernheim and Meer (2007) compares non-MLS listings with and without an agent. They look at sales of faculty and staff homes on the Stanford University campus with and without an agent. They found that brokers accelerate sales but do not deliver higher prices.

The Madison study found that approximately 20 percent of homes for sale in the Madison area were advertised on FSBO Madison, with the remaining 80 percent advertised on MLS, a similar ratio between private listings on saskhouses.com and MLS in the Saskatoon Area. And the study found that given similar terms, buyers were indifferent to which platform was being used by the seller.

The results suggest that on average there is a large positive premium for selling on FSBO, roughly an 11 percent premium or 14,800 dollars. Since the dependent variable is the sale price, and not the sale price net of commission, this premium is on top of the saved commission.

The study also found that sellers that initially list their houses on FSBO but then move to MLS also command a significant premium relative to initial MLS listings.

As for success rate, the study found that the properties initially listed on FSBO tend to have a higher probability of eventually being sold (87%-86%), although some of them are eventually sold through MLS.

The researchers reported that sellers who originally list on FSBO should expect to take 20 days longer to sell. This was largely driven by houses that originally listed on FSBO but then switched to MLS.  Houses which were listed and sold on FSBO took 1 day longer to sell than those listed and sold on MLS. For houses that listed on FSBO but eventually sold on MLS the time to sell is almost 69 days longer. Finally, for houses that listed on MLS but that were sold through FSBO the expected time to sell is 115 days longer.

The study concluded by saying that "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 agents. Thus, despite the 6% commission rate, agents are going to continue to maintain a high market share. An alternative view is that FSBOMadison.com is still diffusing. As more people become aware of it, and realize that there might not be a price penalty associated with FSBO, its share of the market will increase."

Note that the study was based on data between 1998 and 2004, and in the five years since, the internet has become an increasing effective and accepted platform to market your home.

You can read the full report by Northwestern University by clicking here.