Does choice of Real Estate brokerage firm matter?
Beyond the obvious of engaging a good real estate practitioner, the choice of brokerage firm does impact the Time On Market (TOM).
If the price of properties account for different characteristics, then the TOM should be the same for all properties according to the market efficiency hypothesis. The results only partially support this argument. The variables determined to be significant in the TOM model are insignificant in the price model and vice versa.
An accurately priced property has an initial list price that is +/-3% of the final sale price. The range of +/-3% probably accounts for the fact that real estate has qualitative characteristics that may be difficult to value. Interestingly, there is no impact on TOM from the initial list price/sale price ratio for low or high priced homes. Over pricing and under pricing does not influence the TOM. I suspect the low priced homes are seen as a generic product in a large supply. The list price doesn’t necessarily signal the seller’s reservation price. The high priced homes are limited in supply. They have many more unique characteristics.
For medium priced homes, accurately pricing the property from the start has an impact on TOM. The smaller the percentage difference between the initial list price and the final sale price impacts the TOM and selling within the average number of days on market. Overpricing medium priced homes can result in a buyer perception of stale or shelf worn listings. When finally priced correctly buyers ask “What’s wrong with it to sit on the market?” Such overpricing can result in a final sale price discounted more than 10% from the FMV. That is 7% points from the +/-3% range for property initially priced correctly. In addition, with the Time Value of Money the longer TOM has as an economic oppurtunity cost to the seller. The proceeds could have been invested elsewhere at a higher yield.
Also, seasonality and brokerage firm choice impact the TOM. TOM is influenced by the season in which the property is listed for sale, the size of the brokerage and the number of listings.
Is it possible the large brokerage firms enjoy a competitive advantage from an economy of scale with general marketing and advertising cost? It seems plausible the large brokerage firms enjoy a cost advantage listing high priced homes and a large number of low priced homes. Strategic spending increases brand awareness.
Source: Yavas and Yang, Real Estate Economics, 1995.
Then I guess we should mention that with RE/MAX Metro Realty and RE/MAX Eastside office owned by our brokers, we are in the company of the highest volume RE/MAX offices in the Seattle/Bellevue area. The company overall has the largest brand awareness internationally and nationally along with the only website that provides access to a national database of property for sale.
Comment by Reba Haas — April 30, 2008 @ 5:38 pm
Yes, I know, gratuitous self-promotion in my comment above but it is true and it helps to get exposure for clients. It’s one of the big reasons I joined this firm over any other 5 years ago.
Comment by Reba Haas — April 30, 2008 @ 5:39 pm