For Sale by Owner: Top 5 Pro’s and Con’s
Written Sep. 19, 2018 by Conor Green
The percentage of FSBO’s (for sale by owner) has continuously declined since 1985 from 21% to 8% in 2017. However, it is still an alluring option for many first-time home sellers who are looking to save money on the commission. I break down the top factors on both sides of the argument so that you can have a better understanding of both options and make the best decision for your individual situation!
1. Saving on the Listing Agent’s Commission
Most sellers consider FSBO because the real estate agent’s commission seems too high to justify. If you are selling your home at $400,000 the standard 5-6% commission would be $20,000-$24,000. It is worth noting that your listing agent does not make that entire commission. It is split between them and the buyer’s agent first, then they must pay their broker, and cover all of the marketing and travel costs incurred during the sale.
When you are considering the weight of the savings from not paying the commission, you have to consider that it may only be a 2.5-3% saving instead of a 5-6%. In order for you to attract other REALTORs and their buyers, you will need to provide a competitive commission for the buyer’s agent. Would you consider working for free? Probably not, and neither will the buyer’s agent.
87% of buyers purchased their home through a real estate agent or broker—a share that has steadily increased from 69 percent in 2001 — National Association of REALTORS® Study
Another factor of your bottom-line savings is how utilizing a real estate agent affects the ending sale price of your home. According to the National Association of REALTORS®, the median price of a FSBO was $210,000 in 2014. When the seller knew the buyer personally, the median priced dropped 27% to $151,900. Meanwhile, the median price of homes sold by agents is $249,000, which is over 14% greater than a standard FSBO sale and 63% greater than a FSBO sale where the seller knew the buyer.
In a separate study at Stanford University, they did not find a definable difference in the price of homes sold by agent versus FSBO after analyzing faculty housing statistics. However, they did find that the use of an agent does lead to a more rapid sale, which provides inherent value. Different data sets can yield different results because of many changing variables. One of which that is most important is the quality of the real estate agent.
Does this mean I am going to lose money by going the FSBO route?
There is no definite answer, but without proper pricing, exposure to obtain multiple offers, and knowledge of the negotiation process, it is very challenging for a FSBO to obtain the same price as a trained REALTOR. It is not a black and white answer, because a subpar real estate agent may not competently fulfill those tasks for you and your home. In turn, the higher sales price advantage they should be able to provide would be negated.
2. Full Hands-On Control
You have full control over the scheduling of open houses, where you market the property, what the message is to those who see it, pricing, and more. Especially for home buyers and sellers who have had negative experiences with agents in the past, myself included and why I decided to get my license, it is difficult to trust an agent to put the time and care into selling your home that you would.
3. Personal Knowledge of Your Home
Whether you have been in your home for 1 year or 20, there is probably no one else that knows it better than you! You are knowledgeable about the home and the surrounding neighborhood including nearby restaurants, schools, and facilities. It is difficult to separate your emotional connection to your home from the pure facts when speaking with potential buyers because they will likely assert various objections or complaints that you do not agree with. However, all FSBO’s must become comfortable with minor insults/objects to their home and property, in order to be able to move past those and onto the next step of the negotiation.
1. Experience in Contracts, Negotiating, & Liability
If you are considering undertaking a FSBO, you will need to do significant research into contracts and liability when selling your home. For example, failure to disclose known plumbing issues or a leaky roof could put you in serious liability issues after the sale when the buyers eventually find out about it.
Without a full grasp on the contract, its conditions, and its implications can get you in serious trouble! Not to mention, some con artists are drawn to FSBO’s in an attempt to take advantage of them. If you are going the FSBO route you will definitely want to hire a real estate attorney to consult and handle the legal aspect. They can also give you guidance on the title transfer process. Check out this semi-comprehensive guide for some process and legal issues FSBO’s need to be aware of.
2. Properly Pricing Your Home
A comparative market analysis (CMA) is an examination of comparable properties that have recently sold in that same area. For example, “comp’s” or comparable for a 3 bedroom 2 bath house in St. Petersburg, FL would be other 3/2 houses that have recently sold in that same neighborhood in St. Pete over the last few years. REALTORS have access to extensive aggregated MLS data, sales history, tax records, and CMA software that can help analyze the fair market value of your home based on its attributes, location, condition, and more.
18 percent of FSBO sellers polled said that 'insufficient knowledge of the paperwork' was the most difficult part of selling their home without an agent — Statistic Brain
Without the tools to properly price your home, you run the risk of pricing it too high or too low. If you price it too high you will undercut the attractiveness of your home and the likelihood that you will receive one or multiple offers. A lack of offers means a lack of competition and higher days on market for a home can progressively spook potential buyers (some assume there must be something wrong with it). Conversely, if you price it too low you are leaving money on the table, which could be used to invest in your future. Achieving a balance between the two is an art, but one that can be perfected with practice.
3. Limited Exposure & Appeal
The most popular mediums FSBO’s leverage to advertise their home are friends/relatives/neighbors, online classified ads, open houses, and for-sale-by-owner websites. According to a study conducted by NAR on where buyers found the home they purchased, 51% found it on the internet and 30% through their real estate agent. Traditional FSBO advertising methods simply are not enough.
By using a REALTOR who is experienced in digital marketing, you can get your home listed in the MLS where all buyer’s agents are searching, as well as on Facebook via targeted ads at prospective buyers. Unfortunately, while I am a seasoned digital marketing veteran, the large majority of real estate agents do not have a digital marketing background.
The inability to post your home on the MLS is one of the biggest handicaps exposure wise for your property. With over 10,000 agents in Pinellas County and about 5 current buyers per agent, you have 50,000 prospective buyers for your property. When you cut that out by not using a REALTOR, it reduces the viability of many prospects, decreases your competition, and in turn reduces your potential for higher priced offers.
4. Higher Days on Market
Without being able to properly and fully advertise your home to potential buyers, show the house to interested parties each day, and organize open houses, it’s no surprise that FSBO’s spend a longer time on the market. Infamously the founder of ForSaleByOwner.com had to resort to using a real estate agent after trying to list and advertise his home himself. Higher days on market can make your home undeservingly less attractive as new potential buyers assume there must be something wrong with the home. It can be difficult for you to start planning on a move or time the transition to your new house if you are having a difficult time selling your home.
5. You and Your Family’s Safety
I am not a proponent of fear-mongering, but it would be negligent to not mention the safety aspect of going the FSBO route. Would you let a random person into your house? Maybe someone who’s not even from your neighborhood? Would you let your wife or spouse be with this person alone while you are at work? With no way of identifying them?
Unfortunately, some terrible circumstances have happened over the years due to improper screening, where an individual with malicious intent disguised as an interested home buyer was let into a FSBO home to tour it. Real estate agents are all fingerprinted and can effectively screen and show the home to prospective buyers for you to ease this safety hazard.
As with most decisions, whether or not to hire a real estate agent to sell your home is a balance of what you value most. Is potentially saving money on a commission worth it for you to invest a considerable amount of time and energy into educating yourself and marketing your home? Is it worth the stress, potential safety issues, and the possibility that your home will not be properly advertised and receive an offer? These are just a couple of the overarching questions you have to reflect on yourself and discuss with your family.
If you have any questions or comments, leave them below and I will do my best to read and answer each of them! Feel free to reach out via email as well at Invest@conorjgreen.com. Best of luck with your decision!
Buy, Sell, or Invest?
Hey, I'm Conor. I'm determined to provide an elevated real estate experience. My only question is will it be yours?