In most things, experience is at best an asset. Real estate is no exception. Now, research from the National Bureau of Economic Research published a paper in September of 202 confirms that the level of experience of your real estate agents does in fact have a monetary effect on your outcome. Let’s break it down.
From the Study
A professor of real estate and a professor of finance at Yale School of Management looked at data from 8.5 million transactions between 2001 to 2014 and found that homes listed by inexperienced agents were less likely to sell. What’s more, the flat commission structure meant the industry had a high amount of inexperienced agents that actually stunted the market, both in good times and in bad.
“Using micro-level empirical evidence and a dynamic model of entry and exit, we show that listings of inexperienced agents are less likely to sell than those of experienced agents, and that the ubiquity of these inexperienced agents has aggregate implications for the average sale probability of listed properties, which we call housing market liquidity.”
In short, listings with agents who had experience in the bottom 10% are 10% less likely to sell a home when compared with agents who have experience in the top 10%. Homeowners working with inexperienced agents were also less successful. During the Great Recession, houses listed with these agents were 0.9% more likely to foreclose.
The study highlights the effect real estate agents have on the average sale probability of a listed house. Essentially, the more experience an agent has, the more likely a home is to sell. Interestingly, homebuyers and sellers alike often hire inexperienced agents: 70% of buyers and 74% of sellers signed a contract with the very first agent they interviewed.
Of course, every industry has professionals with years of experience and those who are just learning the ropes. But between the low entry costs—which can be as minimal as 30 hours of training, an exam and some licensing fees— real estate tends to have a disproportionately high population of inexperienced agents. That means they’re entering the complex world of real estate with some level of familiarity with industry terminology and relevant state laws, but they’re lacking insight into the local market and the best ways to create and manage transactions.
First, I’m going to steel man the premise that experienced agents are always better than a newbie. When I train newer agents on how to compete against any seasoned veteran, my advice is simple…you say you’re going to work harder because you’re hungrier. New agents are not yet jaded enough from experience to have the belief something can’t be done. So while the seasoned veteran is saying “it’s not going to happen,” the new agent is going ahead and doing it. I’ve definitely seen that play out in dramatic fashion over the years, and it’s your best-case scenario when you work with a newer agent. The flip side, one that the metadata from this study bears out, is that an experienced agent knows how to keep a deal together, doesn’t let their ego get in the way of handling bad actors, knows how to appeal to the appropriate buyer, has contacts to pick up the phone and try to bring in an offer when none are coming in and has contacts to get sticking points fixed in a home that may not have been selling.
There’s a reason my tag line is “experience matters.” Have a real estate related question? You know where to find me.