If life weren’t hard enough right now for Realtors with the housing slump and rising interest rates, the New York Times reports that yet another study by economists casts doubt on the role Realtors play in residential sales. This time, two economists at Northwestern University say that a comparison of Realtor-sales with those that were done via a Website that charges a small fee, FSBOMadison.com, shows that Realtors got no more money for sellers than they got for themselves through the Web site.

The study seems to contradict the National Association of Realtors’ research and claims that their members get 16 percent more for sellers. That figure, of course, is important because it’s a big jump up on the standard fee of 6 or 7 percent that most agents charge and, if true, would mean that it’s more profitable to use the Realtors’ multiple listing service.

The new study says that Realtors are quicker to sell the house than those who use the "for sale by owner" method. But that’s to be expected: owners are looking for the bigger price and are willing to wait. That phenomenon was noticed by Freakeconomist Steven Levitt in this study and in his best-selling book.

It works like this: a Realtor’s main interest is in getting a sale and they’re willing to settle for less than the optimum price because they will get a reduced commission but the difference is so marginal, their interest is in sealing the deal quickly and moving on to the next sale. Realtors selling their own homes, this study showed, took much longer but got better prices because they realized what they could get if they waited. The study blamed the difference on a disparity of market information. But plenty of Realtors are willing to slice a percent off their commission if that will bring buyer and seller together. And that’s the same principle Levitt noticed - five percent of a few hundred thousand is a whole lot more than 6 percent of failed deal.

And just while Realtors are down for the count, another protege of Steven Levitt has published a paper showing that sellers, realtors and mortgage brokers have an incentive to inflate asset valuations and give cash back to the buyer to ensure that he or she can get finance. The property looks more valuable and the seller gets the price he really wanted. And the beauty of all this, according to economist Itzhak Ben-David is that it’s very very hard to detect. 

You can read the new study about Madison, Wis. here and listen to one of the authors here.

Maybe those Chicago economists don’t hate real estate agents. They’re just onto some undeniable mathematical truths.