Thoughts on Real Estate Pricing

Some observations on pricing of single family homes — or "real life examples of the principal / agent dilemma."

As a career pricing geek, I wanted to share some observations on pricing of real estate, specifically single family homes in light of the August 2024 NAR settlement on Realtor's compensation. For context, I spent a good part of my career running a pricing analytics company, focused on pricing mortgages and financial products. This is a lengthy post, so grab your favorite relaxant and settle in…

As CEO of Ownify, I've now been actively involved in buying single family homes in partnership with our Ownis since 2022. Ownify creates co-investment partnerships for qualified first-time home buyers, enabling them to purchase their home with a lower down payment and more attractive monthly payments compared to a mortgage. As co-investors in every deal, we have a vested interest in lowering the purchase price (unlike every other party to the transaction, as we shall see).

Pricing single family home transactions

A single family home transaction is generally triggered by the seller listing their home, usually with the help of the listing agent. To set a list price, the listing agent provides a Comparative Market Assessment (CMA) which is effectively an analysis of comparable sales in the neighborhood over the last 90–180 days. Seller and listing agent make adjustments based on the unique characteristics of both the comparison properties and the home up for sale until a "list price" is determined. Various pricing methodologies across the "real estate pyramid" are amply discussed on social media and YouTube influencers targeting real estate agents.

All incentives up to this point are aligned with creating the highest market-clearing price possible — to net the seller the highest possible proceeds and the listing agents the highest possible commission. Once the home is listed, listing agents market the property to potential buyers.

Saving time beats optimizing client outcomes

Given this dynamic, both agents have a much higher incentive to find the market-clearing price rather than optimize the outcome for their side at the expense of incremental time spent. For example, a buyer's agent spending 5 hours researching market conditions and creating a strong argument to negotiate a $20,000 price reduction for their buyer has a net effect of lowering the agent's hourly earnings from $131 to $119 ($10,080 downward revised commission divided by 85 hours spent) — effectively a negative return on effort. Similarly, for the listing agent to spend an extra 10 hours hosting another open house to realize a $20,000 increase in price lowers their hourly earnings from $350/hr to $273 ($10,920 upward revised commission divided by 40 hours spent), again a negative return on effort.

Given a limited supply of time, the commission structure motivates both seller's and buyer's agents to find the market-clearing price as quickly as possible. And given that both seller's and buyer's agents have access to the same online Comparative Market Assessments only a mouse click away, both parties quickly arrive at the same price point, with limited or no negotiation. Lest this surprise anyone, I refer to ample analysis going back to Levitt & Dubner's Freakonomics (2005) as well as prior and subsequent writings.

The National Association of Realtors confirms this lack of price negotiation — perhaps even a bit proudly — in the 2024 Profile of Home Buyers and Sellers: "This year, sellers sold their property typically at 100 percent of their asking price and sold their home within three weeks."

Surely someone must negotiate price on behalf of the buyer?

We've already established that the buyer's agent's return on effort to negotiate a better deal is negative. The seller's agent's return on effort to lower the price can be positive (fewer hours spent). So what about the other people in the transaction?

1. Mortgage Loan Officers. After the buyer and seller agents, the biggest earner on the transaction is the mortgage loan officer working with the buyer. While loan officers are not involved in pricing negotiation, MLO compensation is generally 1%–1.5% of the loan amount. So a similar incentive structure is in place: primary incentive is closing the deal, with a secondary incentive to provide as large of a loan as the customer can afford. MLOs are also incentivized to roll as much of the incidental costs (closing costs, mortgage insurance, commissions, etc.) into the loan amount as possible given the appraisal cap. Completing the picture: real estate agents often receive a kickback from the lender for the referral of the transaction. Of course it's no longer called a kickback since those are illegal under RESPA. The preferred terms in the industry are "Marketing Service Agreements" or "Agent appreciation events." ;)
2. Appraisers, home inspectors, title companies, escrow, lawyers, notaries, etc. Largely paid a fixed fee regardless of the purchase price and not involved in any price negotiations.

So we have yet to find anyone who will help the buyer get a better deal…

Are prices negotiable?

So if NAR is proud that "sellers sold their property typically at 100 percent of their asking price and sold their home within three weeks," are prices truly negotiable? Ownify's experience (and that of other cash buyers) suggests that prices can be negotiated downward for the benefit of buyers — and even sellers.

Across Ownify transactions (2022–Q1 2026) the average sale-to-list ratio we were able to negotiate on behalf of buyers was 96% — i.e., a 4% discount from list price. The average sale-to-list ratio for the markets we were buying in over that time period was 99%. That market average comprised ~40% cash offers and ~60% mortgage-financed offers, with the former likely being lower and the latter likely being higher. Assume the average mortgage-financed offer was at 101% of list price. Compared to the average market offer, an Ownify offer generated a net benefit of ~5% savings to buyers. Why is that?

1. Speed to close. A cash offer from Ownify can close in as little as 10 days. The average mortgage-financed transaction takes 44 days. Given the incentive structure outlined above, most listing agents will strongly recommend accepting a cash offer to their sellers — even if it is lower than a competing mortgage-financed offer.
2. Certainty to close. An average of 5% of transactions fall through according to NAR. This can be due to appraisal or inspection contingencies, or because of buyer life events happening in the 44 days to close. A stronger likelihood of closing — supported by a higher earnest or due diligence amount — increases the attractiveness of the offer even if the purchase price is lower.
3. We pay our agents to negotiate a lower price. Ownify's agent commission structure is unique in that we pay agents who represent an Ownify customer a 2% base commission plus 10% of whatever price reduction the agent negotiates. This effectively creates an incentive for our agents to lower rather than increase offer prices.
4. First-time homebuyer offers are less competitive. Generally, first-time buyers have weaker offers, whether because of an FHA inspection contingency, a down payment assistance program, a less experienced agent, or hesitation to put down a stronger earnest or due diligence amount. A strong Ownify offer puts first-time buyers to the front of the line.

A new model for buyers & their agents

In anticipation of the NAR settlement, we introduced our 2+10 commission plan. We pay our buyer's agents a base commission of the larger of 2% or whatever the seller is offering. In addition to that base commission, we pay 10% of any price reduction the agent negotiates. The effect has been better deals for our customers and higher commissions for our agents. An illustrative example is a recent transaction on the "Irving" — a home a first-time homebuyer secured with Ownify in Durham, NC.

Assuming a traditional transaction, a buyer would have contracted on a purchase price of 99% of the list price (the market sale-to-list ratio in Durham at the time of close), or $292,000 — effectively securing a discount on the purchase price of $2,900. Both buyer's and seller's agents would have received $7,300 (2.5% each). After closing costs, the seller would have received $268,600.

Using Ownify as a co-buyer of the property, the Owni was able to make a cash offer at a significant discount, closing — after several rounds of price negotiations — at a purchase price of $274,000 rather than the market average of $292,000. That's a 6% discount below market and 7% below list price:

The Ownify cash offer realized $16,100 in savings for the Owni, and increased compensation for the buyer's agent of $8,940 ($6,850 base commission plus a $2,090 bonus for negotiating a $20,900 price reduction). The seller's agent commission went down by about $500 in return for a faster and more certain transaction. Given the economic model of a listing agent outlined above, this was a good outcome. After closing costs, the seller received $252,100 — about $16,500 lower than the potential "market rate" transaction.

Why did a lower cash offer make sense to the seller?

1. Carrying cost of this property was about $2,000/month. A 10–15 day close vs. a 44-day close was effectively worth $2,000 to the seller.
2. Certainty. A conservative NAR estimate is that 5% of all deals fall through after offers are accepted. Expected value of a market-rate offer was $292,000 × 95% = $277,400. Minus carrying costs of $2,000 = $275,400. A certain offer in hand of $274,000 is a good deal — which is why the seller accepted it.
3. The seller in this case was a consummately rational financial advisor familiar with time value of money and risk.
4. The buyer's agent was experienced and used market comps and risk/return analysis to explain the Ownify offer to the seller and their agent.

The net take-away of our experience working with hundreds of first-time home buyers is that while agents do a great job helping first-time home buyers navigate the mechanics of the purchase process, they are ineffective at negotiating better financial outcomes for their clients. This is consistent with academic research over the last 25+ years and supported by data NAR publishes.

However, with the right incentive structure and a strong cash offer, buyer's agents can step up to be true financial advocates for their buyers in addition to being effective transaction coordinators. Ownify cash offers can generate significant savings for first-time buyers while increasing commission potential for their agents — and creating faster, higher-certainty closings for sellers.

Until recently, it was a closely guarded secret among real estate professionals that the buyer actually pays for both the seller's and buyer's agent commissions. Agents generally use lines like "the seller pays for my commission." That sophistry might be technically true in that the seller pays the buyer's agent commission out of the proceeds of the sale — but only after the buyer has agreed to provide those proceeds. If every real estate transaction were concluded with sequentially numbered $100 bills, it would be harder for the buyer's agent to explain how 3% of those bills ended up in their wallet. At least the NAR ethics code was changed to prevent agents from telling buyers "their services are free" subsequent to a consent decree with the DOJ in November 2022.