Real estate transactions typically involve two agents:
1. the listing agent: represents the seller
2. the buying agent: represents the buyer
These agents provide a service and need to put food on the table, so compensation in the form of commissions are involved. In residential real estate, commissions for the transaction are usually 3% to the listing agent and 3% to the buying agent. If listing agents can find a buyer without a buying agents help, they get both commissions (a conflict of interest you should try to avoid, as a side note). Real estate commissions are negotiable and can vary, but rarely do. The real estate company to which the agent attaches their name usually takes a small cut of the commission as well.
It’s been this way for a LOOONG time.
But times have changed. And the need for such agents (particularly listing agents) is less now than ever before, with the rise of internet and all of the data it provides. Sites like Craigslist, Zillow, and Trulia have made buying or selling “for sale by owner” (FSBO) much easier. Information is no longer a barrier to being able to buy or sell by owner.
Buying agents can shuttle you around and get you in to homes outside of showings, which can be valuable. And if you are interested in a home that is being sold through a listing agent (vs. FSBO), you might as well work with a buying agent to get representation. But listing agents? Unless you’ve already relocated to somewhere far away or don’t have time to do showings (which they would kick you out of your own house for anyways), I just don’t see the value. And in markets like we have right now where homes are selling almost as soon as they are listed, due to limited supply. If you are under-water still or worked hard to gain equity in your home, why give away 3% or 6% on a platter?
Selling FSBO is Not as Scary as it Seems
I bought my first home for sale by owner. Three years later, I sold FSBO as well.
I had a bit of equity in the home – about $13,000 (on a $140,000 home). I got asking price within a few months, in a slow market (about a year before the 2008 crash), from a buyer who was not represented by a buying agent. Had I decided to go the traditional route and paid real estate agents 6% of the purchase price, instead of walking away with $13,000, I would have paid the realtor $8,400 and only netted $4,600 on the sale. For them to put a sign in the yard, list my home on a MLS, and doing an occasional showing, I would have lost about two thirds of the equity I had gained through the work that I put in to the home!
So learned how to sell FSBO. And it wasn’t that hard:
- I looked at resources like forsalebyowner.com
- I cleaned up my home
- I researched local purchase prices (Zillow and Trulia provide this information, and it’s available through public record)
- I put a sign in the yard with printed off flyers
- I built a free 1-page website on Blogger with nice big pictures and interesting information on the home and lifestyle benefits of the location (even today, this is more than most listing agents do – their websites usually suck!)
- I listed the house on Craigslist and put a link to the website I had built
- I did a showing every other Sunday
- When I started getting offers, I printed off proper contracts, which I found online
I received a ton of interest and two offers. The title agency (whose fee is paid for by the buyer at closing) took care of the rest.
The process (both when buying and selling FSBO) was so seamless that I could not imagine going the agent route, again, unless I was already out of town.
The average home sale price in the U.S. is $390K. That means that the average seller is handing close to $24K to real estate agents. And if you’re doing this every 5 years or so, the price for being average can be exceptional.
For Sale By Owner Discussion:
- Have you bought or sold for sale by owner (FSBO)? What was your experience? And how much did you save?
- What fears do you have about selling your home for sale by owner?
Related Posts:
The common retort to this is often “but the Realtor will get you 6% more for your house than you can!”. This sounds reasonable until you look at the stats.
The Freakonomics guys debunked this by comparing how much a Realtor sells a client’s house for vs. how much they sell their own. The Realtor waits longer to sell their own house at a higher price.
The reason probably comes down to this: As a Realtor would you invest more time in a new client where you will get several thousand dollars in commissions, or in waiting for more and higher offers with your existing client which could translate to an extra few bucks because you waited for a 2% higher offer? In other words, the incentive simply isn’t there for a Realtor to sell your home for a higher price rather than faster. Even listening to local Realtor commercials, the emphasis is on a faster sale and Realtor “success” is on volume.
Yep – it’s a volume game for realtors, for sure. That is, unless you market yourself as the “luxury” realtor.
I always think it’s interesting how individual realtors take out full page print ads or even radio ads to market their own properties. Not cheap to do!
I think there is a lot more to this topic. Many factors arent being considered and I say this as a Realtor. I agree, a simple house, without any issues, a clean ownership can be easy to sell FSBO. But, not all homes or owners are like this. Some houses have nasty ownership issues, shorts, divorces, trusts, liens, issues with neighbors, easements that may be roughly documented, the list goes on and on. If you represent yourself and also end up not using an attorney you can be held responsible for findings later on that werent properly disclosed since you didnt know any better. Realtors are held to a higher standard as they have the privilege of knowledge. If we make a mistake, the agent is usually sued, not the home owner who hired the agent. If you represent yourself and an issue arises, you take that burden on yourself.
Common theme of all the blog is always cost savings. Neglects that not everyone has the skill or time. Also, if the buyer is repped by an agent, what then? 3% commish? Is it worth it then? I’m not a realtor, but I recognize I probably wouldn’t get the best deal if I had to negotiate with someone that does it everyday. Unless I wasn’t accepting negotiations, seems like I might not get the best price if I was up against a pro.
The entire summer of posts on the blog is called “Summer of Saving”: https://20somethingfinance.com/summer-of-saving/
But yes, in general, I am a fan of in-sourcing. That is one of the best ways to save money vs. handing it over to others.
Real estate agents are not going to hard-core negotiate a lower price for the buyer – they’d be cutting their commission. And if you don’t feel like you’re getting a good offer, you can always wait for others.
This is a common misconception by people that have never sold real estate. Of course we are going to negotiate as hard as we can for a buyer and not worry about a commission. Take for instance a house is asking $180,000. Lets say fair market price is 178,000. We put in an offer and it gets accepted at 170,000. $8,000 x.03 (common split) is only $240 dollars difference in commission with that being eaten up too with the broker split. Do you really think i’m going to risk not getting a sale/commission for a measly 240 dollar difference in commission from the purchase price, when Ill be saving my buyer $8,000 dollars? Another point, I think printing contracts online is laughable. When, even on a FSBO home a Realtor will usually take the offer, make sure the paperwork is good to go and submit it to the title company for around $500-750 dollars. I mean I understand not wanting to go for the full commission but its worth the 500 dollars to make sure the contract is right. Another point would be having a house that is not in perfect condition and having a buyer that is using FHA or other government financing. Talk about a headache if you don’t know whats going on. Anyway I enjoy you blog don’t get me wrong but I’ve seen way too many of these FSBO posts lately and a lot of them get a lot of facts wrong. I agree that many Realtor’s aren’t worth the crap but working with a good one you wouldn’t believe how good of an experience it can be. Real estate isn’t any different than any other profession you have good ones and bad ones.
G.E.,
Who pays the buying agent his or her commission on an FSBO transaction? Would that still come out of the sale price? If so, presumably as an FSBO seller you may want to only sell to unrepresented buyers.
Yes, it would be part of sales price and could be negotiated. The FSBO sellers I’ve met typically want to work w/unrepresented buyers.
If you are comfortable with your title company and all of the permits and regulations in your area fsboing is doable. However, it may turn out to cost you about the same if you get screwed in fees and title costs without representation by someone who can guide you. I know when I bought a home, there were dozens of questions I had to ask my realtor about home warranties, inspections, and terms my seller wanted me to agree to. Had I been on my own these unneccesary costs would have come out to about what I paid the realtor.
We’re going to be selling our home, likely within the next year. Being a professional web developer and hobby photographer, I’m fairly confident about marketing our home FSBO.
One thing that would be useful is a link to, or search term for, the contracts / paperwork needed. Homes in our area haven’t fluctuated in price in the last 5 years nearly as much as more populous areas, so we won’t have much equity to share with a listing agent to begin with.
Thanks for the vote of confidence, though.
D
Your states Bar association should have “lawyer” approved contracts for free.
Excellent timing!
I have been thinking about this same issue. I am currently working hard on paying down my condo so that it is no longer under water. If I add an agent’s commission, it’s just that much more money I have to come up with in order to be able to afford to sell.
I have been intimidated by the process of FSBO, but I did actually purchase my condo from an owner and did not use a real estate agent on the buyer side either. It went very smoothly. I just worry about any hiccups in the process. But the help of a site like for sale by owner would be great.
I think the biggest part of advertising these days is getting listed on the MLS anyway. FSBO might be in my future.
Only members of the local board (realtors) have access to the MLS. They’re the only ones who will see your listing. Rather defeats the purpose if you don’t want to cooperate with a broker, right?
Here’s my take on it, because I’m a licensed real estate agent and an investor buyer myself it’s necessary to see both sides of the coin including the hidden third side few people notice.
My experience gives me an unfair advantage… So, here’s my thoughts… The creator of ForSaleByOwner.com Colby Sambrotto failed to sell his own condo after six months, then he decided to hire a broker and pay 6% commission… The broker not only sold the house, but the broker sold the house for $150,000 more than the original FSBO price.
I do agree sites like trulia and zillow have made searching for a home easier. I believe more brokers should offer rebates to buyers who do their legwork and homework online. This subject of buyer rebates and the legality of it are covered in-depth on my blog.
But, here’s what scares me. Every single real estate investing class and seminar I attend teaches its students to target for sale by owners and for rent by owners. What most of these seminars teach its students is to find easy targets, and ask for seller financing with the seller being subordinate, ask to take over payments, ask for lease with option, rent to own, etc.. See these creative purchase methods in themselves are good to some extent if you know what you’re doing as the seller.
One big obstacle most FSBO’s face is to properly qualify the caller before showing their house to them. Agents won’t work with anyone with out qualifying them financially.
Hey.
It’s nice to have an alternative perspective. Your website could use a bit of work so that it doesn’t look like a scam, though.
“One big obstacle most FSBO’s face is to properly qualify the caller before showing their house to them.”
Ok, we hear you. So then what? Require potential buyers to have been prescreened? What’s common: a letter from the bank?
I hate it when people give “teasers” about a topic they claim to be experts on in order to amass followers, subscribers, or customers. If the layman can do your job by reading a few articles, then you’re not very good at what you do.
Instead, I prefer sites like this, where the author gives 100% of what they know in order to help people – no strings attached. I wish everyone did the same thing. In all likelihood, it’ll feel like too much of a task for the average person, and they’ll seek professional assistance.
Imagine: a group of real estate agents that give away ALL of their information in order to help people feel comfortable buying or selling their own homes, for free. That would get a lot of publicity.
But that’s all beside the point. You’ve given the beginnings of good information in your comment. Care to finish it up?
No problem.
Yes, every professional agent puts their customer in front of lender to get a pre-approval or pre-qualification letter before showing the customer any homes. If the customer can afford a $150,000 home why take them on a tour of $375,000 home? For sale by owners should do the same, because if the caller can’t make you a solid offer why show them through your home?
For a business to be viable especially the business of a real estate agent it’s important to be open and honest. Yes, I agree more agents should give their information away to help the customer feel comfortable.
The fact of the matter is that I agree with the author and more people should try to sell their home by owner before hiring an agent. Hey, if you can’t sell it on your own at least you tried and you feel better if you need to hire an agent down the road to get the job done.
That’s good to know regarding the preapproval or prequalification letter. I remember my wife and I had to go through that process when buying a home. However, I do not believe we got lender-preapproved until we found a home we liked – then we got preapproved for that amount. Until that point, our agent was showing us homes based solely on the price range we came up with.
So it may vary state-to-state, or perhaps just agent-to-agent. But I wouldn’t want to sound like an ass for telling someone they couldn’t look at our home because they didn’t have a letter from a lender. I understand the efficiency, but if the goal is to sell the home, you don’t want to turn away valid potential buyers.
Thanks for participating, Chris. Good stuff.
A preapproval letter does a lot more than tell you the buyer has the money to buy. It also proves that the buyer is really a buyer and not a criminal. Agents are frequently murdered. Homes for sale are frequently burgled. You’re opening your home to a STRANGER. So feeling like an “ass” should be the last thing your worry about f it keeps you and your family safe.
We are looking to do FSBO after working with a luxury home listing realtor. How stressful she was! And we do not have much wiggle room with our equity either. Our agent of 30 days brought buyers who confessed, with their offers, that they didn’t qualify for our list price, thus, they made low ball offers at the price they did qualify for! Waste of our time and energy!! That 30 days schooled us a lot!
We are going to put our best foot forward and try it FSBO as professionally as we can.
Hi G.E. – I’m a long time real estate agent myself, and I can tell you that you handled your FSBO the right way. There are plenty of places on the web to market your home, including the social media, so that you aren’t tied to the MLS when you sell.
Everyone should at least try to sell on their own for two or three months before considering listing it. If you price it right, stage the house, take care of basic maintenance, and know where and how to market the property you should be able to sell it. After all, no one is a better salesman/woman for your home than you are.
While the professionals representing parties in the transaction should get paid for the work that they do, fees and commissions are rarely cast in stone.
The home seller should always keep in mind that they are free to negotiate commission terms with listing agents. A 6% commission may be typical, buy you can certainly ask about or offer a lesser commission; the agent is free to turn it down.
Sellers should consider their home’s place in the market as well as market conditions when deciding how to proceed in the sale. If the market is hot and homes selling very quickly, you might not need the marketing skills of a local real estate broker, especially if your home is in a great location and in good condition. Conversely, if you’ve improved the home to the point where it is no longer in the same character as others in the area (you did all high-end upgrades in a lower-end neighborhood), or if homes in your price class face new challenges due to changes in tax law, it may be that the expertise of a local representative can improve your chances of selling in a reasonable time frame at an acceptable price.
Great read :)
I have been intimidated by the process of FSBO, but I did actually purchase my condo from an owner and did not use a real estate agent on the buyer side either. It went very smoothly. I just worry about any hiccups in the process. But the help of a site like for sale by owner would be great.
For Sale Buy Owners,, it’s a good Idea to hire an attorney to help you close on your home. You don’t need to do everything. You just saved 6% of the sales price, be smart. I have been buying and selling for over 30 years as a owner and I can say give yourself 30-60 days to sell by owner without any agent, cash buyer company, paid website, MLS etc. Planned right there is no hurry to save that big 3-6% of a sales price. Real Estate agents do have value, but only after you are not successful. Planned FSBO sales in 2019 will be successful. LT