Seller Who Used ListWise and Made an Estimated $125,000

Feb 26, 2024
Seller Who Used ListWise and Made an Estimated $125,000

Amber needed to sell her home in Costa Mesa because she had gotten a new job in another city and was looking to be closer to her family. She had a couple of agents in mind that she was interested in using, but she had also read about ListWise and was intrigued by the idea. She reached out to us, and we set up a call to answer her questions and explain the process.

Once Amber was ready to move ahead, we contacted the agents that she had in mind. Both agents were willing to participate in the ListWise process because they wanted to win Amber’s business, and they appreciated that it aligned their financial interests with Amber’s interests. We also found another agent to view Amber’s home who was a well-reviewed local expert. After confirming that Amber wanted to move ahead, we set up appointments for her to meet each of the agents and show them her home.

Following viewing the home, each agent created a written proposal outlining their suggested list price, estimated sale price range, incentive price, and the buyer’s agent commission. A summary of these terms is presented in the table below. “Agent 1” believed they could achieve an average sale price of $1.5 mm, while the other two agents anticipated average sale prices of $1.3 and $1.375 mm.

Summary of Terms from Each Agent Summary of Terms from Each Agent

After receiving and reviewing the proposals from the agents, we conducted a call with Amber to go over the details. During the discussion, we presented her with an overview of the commissions she would pay at different sale prices with each agent. The listing agent's commission is composed of a base amount that is 0.75% of the sale price plus an incentive amount that is 20% of the amount that the sale price exceeds the agent's incentive price.

The table below shows each agent’s commission for a sale price of $1.4 mm. We show just one scenario here for simplicity, and we selected $1.4 mm because it is roughly the average expected sale price of all three agents. Notice that at a $1.4 mm sale price Agent 1 only makes 1.36%. This is because Agent 1 set a relatively high incentive price, consistent with her sale price expectations of around $1.5 mm and requiring her to achieve that result to earn her desired commission. Agent 2 and Agent 3 make a bit under 2.5% for a sale price of $1.4 mm, which is a bit over their own estimated sale prices.

All the agents proposed a below standard buyer’s commission, which would save Amber 0.25 to 0.5% versus the standard 2.5% buyer’s commission for similar homes in the area.

Regardless of the agent that Amber chose to hire, each of the proposals would have saved her many thousands of dollars versus the 5% commission that is typical for homes in her area. The agent with the highest incentive price would have saved her nearly $20,000 versus a traditional 5% commission.

Agent Commissions and Savings for a $1.4 mm Sale Price Agent Commissions and Savings for a $1.4 mm Sale Price

The above is what Amber could expect at an average sale price of $1.4 mm, but Agent 1 thought they could sell the home for $1.475 to $1.525 mm. While normally it can be hard to tell whether to trust an agent’s expected sale price, the ListWise approach helps agents to credibly convey information by making their commission payment a function of the numbers they provide. If Agent 1 could deliver her desired result, she would make her desired commission, and Amber would make a lot more money. However, if Agent 1 doesn’t deliver her desired result, Amber saves a lot of money on commissions. The ListWise structure allows Agent 1 to credibly convey her beliefs while reducing Amber’s risk because she only pays for the results that are eventually delivered.

Amber decided to hire Agent 1 to list her house. The agent ended up selling Amber’s house for $1.475 mm. This meant that Agent 1 earned a 2.35% commission, which she was quite happy with. Amber ended up paying a bit more in commissions than we showed in the table above, an extra $17,250 to be precise, but she sold her house for $75,000 more than the average estimated sale price.

While we can’t know the counterfactual of what would have happened had Amber not used ListWise, we can make some educated observations. First, it’s worth noting that when Amber got in touch with ListWise, she mentioned that she thought her home was worth about $1.35 mm. As such, it is easy to imagine alternative outcomes where she only spoke with someone like Agent 2 or Agent 3, that their expectations were in line with hers, and she hired them and sold her home for close to $1.35 mm and paid a standard 5% commission. As it turned out, she paid 4.6% in commissions, saving her $6,000, and she sold her home for $1.475 mm, $125,000 more than she originally expected!

While this was a great outcome, let’s play the devil’s advocate role and imagine that Agent 1 was overly optimistic in her assessment of the final sale price. If the final sale price was the average expected sale price of the three agents, Amber would have saved roughly $20,000 compared to a standard 5% commission. Had the sale price been even lower, closer to Amber’s own expected value of $1.35 mm, she would have saved even more. Furthermore, the savings on commission, or the extra money from a better sale price, are on top of the other benefits that come from the ListWise process. These benefits include lower variability in after commission proceeds due to risk sharing with the agent, increased trust between homeowner and agent due to aligned financial incentives, and the ability to weed out agents who are less skilled or client oriented.

Amber’s story is a concrete example of how ListWise has helped homeowners realize amazing results, and from it we can generalize the value that ListWise brings. To start, think of a home’s value not as just one single number but a distribution of values, as illustrated by the figure below. For example, Amber’s home had an average value from three agents of $1.4 mm, with some seeing it worth more and others seeing it worth less. Selling a home is a realization of just one possible outcome from that entire distribution. Even if the homeowner and the agent can’t have much impact on what any one buyer will pay, it’s still possible for the homeowner to increase their proceeds by increasing the probability of above average outcomes. The whole ListWise process, from meeting multiple agents so homeowners better understand a home’s value to putting agents in competition so homeowners get the best terms to incentivizing the agent so they work at getting the best results, it’s all about increasing the probability of above average outcomes, and this is how we increase the amount of money that a homeowner receives.

Illustration of Home Price Distribution Illustration of Home Price Distribution
*Names and identifying details have been changed for privacy.
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