There seems to be a lot of buzz these days about the alternatives to selling your home with a real estate agent or through a broker like myself. This idea of “for sale by owner” – often referred to as a FSBO – seems to have merit on the surface in that there appears to be all kinds of money to be saved in commissions. When one digs a little bit deeper, the reality of the situation is quite different.
People are often very caught up in commissions and they shop agents based on commissions charged and then calculate what they would save if they chose to list their own property. The problem is that there is an assumption that the seller will keep all of this money that is being saved for themselves. The challenge is uncovering all the unknown costs associated with going it alone, which are so often swept under the rug.
In fact, there are two groups of home buyers out there. There are those who choose to enlist the services of an agent so that they have representation, and those who avoid having an agent in hopes of pocketing all of the commissions that would otherwise be charged.
As a FSBO-seller, if you are lucky enough to come upon a buyer in group number one, you will have an agent who is a trainednegotiator and whose mandate is to get their buyer the best deal possible coming to you for his or her compensation in the sale. NOTE: The seller, in most cases of any home sale transaction, is responsible for paying both the listing agent (if there is one) AND the buyer(s)’ agent. Buyers rarely pay real estate fees. In this case you are at least half way into the commissions that you would have paid to have your home listed, but you have no one protecting your interests and you are doing your best to keep close to your list price against a trained professional. Not to mention, you have expenses to pay for marketing your home, lots of hiddencosts in your time, energy and resources, and – if you are smart – a higher degree of involvement from your lawyer so as to avoid numerous pitfalls that only experience and time can uncover.
Behind door number two, we have the buyer who loves the thrill of negotiation so much that they avoid help. They come to you and say, “I don’t have an agent so what is my price?”. Again, they want a big chunk of the savings that are to be had and now you have two opposing parties with no one in the middle to make sure things stay on track and follow a prescribed sequence. You can only imagine the outcome of some of these transactions. I challenge you to contact your lawyer and pose to him or her this question… Do they see more litigation amongst sales without professional representation, or less?
I propose a slightly altered question to all of this commission savings. As a home owner, I propose that you think in terms of net proceeds instead of commissions “saved”. The real question is how much money can I put in my pocket as the seller of this home? What method of selling my home will net me the most money? Commission rates quickly become less interesting. In fact, my team wins our clients more than $5000 dollars per transaction in net proceeds vs the average MLS result thanks to our ability to negotiate with other agents. This little fact alone uncovers the heart of the matter. The sale price of your home is dramatically effected by who is involved.
If you could pocket the commissions and generate the same sale price for your, home then frankly, you should. The reality is that by the time you give the buyer their portion of the savings, negotiate a little bit more off the top of the list price, pay for the marketing expenses of getting your home on the market, divert your attention from your life and living within your “sweet spot” to become a realtor for a period of time, open your door to complete strangers and manage the very real safety issues of doing so and tip toe through the myriad of legal issues that can (and do) arise, you may or may not have your home sold.
The next time you pull out your calculator and plug in a commission percentage on the value of your home, I challenge you to fill out the other side of the ledger and see where you land. The vast majority of property transactions happen through the full service brokerage system because that is where the highest net proceeds come from. As so many exceptionally successful people will tell you, when something looks too good to be true, it probably is.
Some other resources to check out:
http://qna.mortgagenewsdaily.com/questions/for-sale-by-owner-advantages-and-disadvantages
http://ezinearticles.com/?Disadvantages-of-For-Sale-by-Owner&id=2499282
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