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So you want to save the commission?

One comment we often hear as real estate professionals is "I'm selling my home myself to save the commission." That is fine so long as you don't think that your potential buyers don't know that.

In fact, did you know that there are only 4 kinds of buyers out there? That's right, 4. And they are either working with a Realtor or they, too, will want to save the commission. If you have a "For Sale By Owner" sign in your yard, everyone knows that you are not paying a commission to a professional. Home for sale

1. First time home buyers: They are the most likely to seek the help of a professional because they do not know all the ins and outs of the home buying process. Even if they come across your home and like it, they will want their agent involved. Being open to working with a buyer's agent and paying at least some commission might help you get your home sold.

2. Relocating buyer: They, too, usually work with a real estate agent because they are not in town, yet. Again, if you are willing to pay a buyer's agent commission, you may be able to work with one of these buyers and sell your home, that is, if you are available to show it when this buyer is in town house shopping. If not, they might just buy your neighbor's house because it's listed and on a lockbox and they were actually able to view it.

3. Moving up (or moving down) buyers: They tend to feel more confident about the process because they have been there before. However, if they choose to work on their own, they'll negotiate you down on your price to save some of the commission themselves. Since 2 out of 3 FSBO that go under contract do not close when no Realtor is involved, it might not matter if you split the would-have-been commission with this buyer. The question is: can you get them to the closing table?

4. Investors: Probably the most savvy buyer out there and you can bet that they will not pay you a commission to work the sale of your home for you. Unless you are an investor yourself and you've sold many homes in the past, this buyer knows more about the process than you do and he/she knows that they will have to do all the work. And, unless you are an awesome negotiator, you will not save money if your buyer is an investor. Not a penny.

There you have it! These are the only 4 kinds of buyers out there, no more, no less.

Here's another way to look at it: appraisers do not care about the commission. Your house is worth what it is worth, whether or not there is a commission involved. For example, if you live in a neighborhood where homes of similar age and sizes sell for 150K, then your home is worth 150K.

With a 6% listing commission, you would have to pay 9K in commission, usually split between the listing and the selling brokers (if two agents are involved). If you sell on your own, you are not going to save the full 9K. Buyers will want to split those savings with you and might only offer you 145K for your home. If this is acceptable to you, all is good, but your savings are now down to 4K. If you calculate 2 or 3 months extra on the market (and 2-3 months of extra house payments), the advertising and signs costs, and the time involved in showing your home numerous times to buyers who may or may not qualify to buy it, is it really worth the aggravation? Besides, getting an offer/contract on your home is the easy part. Do you know what to do if you ever get that far?

I know what my time is worth, do you?

Posted by Dr. Chantal Saucier on 09/22/2009 07:34 AM

Comments (92)

FSBO Wanting to Save the Commission With Home Buyers in the Home Selling Channel

fsbo saving the commission, 4 kinds of home buyers

Originally posted at: Lafayette Real Estate News: So you want to save the commission?

This post has been included in Louisiana Information Lafayette Parish, LA Information Lafayette, LA Information

92 Comments on So you want to save the commission?

SEP

This is a great post and once again we need to get the word out about what we do and why we get paid for doing it. And in the end how much the client saves over and above what we get paid

Excellent post!! I came across a FSBO listing yesterday on one of the for sale by owner sites, and it was overpriced and stated "no agents welcome". Buyers are savvy..they know when a home is overpriced. If they are going to risk going it alone (without a buyers agent) then they'll want to hold all the cards: Much lower price and at their terms.

Love this post all FSBO's need to read.

This is an excellent summarization, plainly stated, that should be an eye opener to those who are tyring to go it alone!

Well put! I am working with a FSBO seller now who absolutely will not list but who will allow me to show witha "One Time Showing Agreement." He is obviously willing to pay my commission so what is he gaining by not having the exposure I can provide?!

Good post. This penny wise and pound foolish!!

Nice post Chantal. I grew up near Lafayette (small town of Kinder) and have a lot of friends and family around there. I'll keep you in mind for referrals.

I just obtained a rental listing. He was going to do it himself from Washington state and the property is in lovely Buckeye, AZ. I spent five minutes why it is better to use local professionals.

Nice post! I think the most common misperception among FSBOs is the assumption they will save the entire commission. Buyer's Agents will get paid. If the homeowner refuses to do so, the buyers will adjust their offer. If the homeowner were to advertise, etc; the cost of selling could easily exceed that of what an agent would cost.

My first thought - only 4 types of buyer? But then I think you captured them all either first time or not, either in town or not, either investment or not.

Two reasons why property does not sell, gets moldy and stagnant ...not priced right (which Joe and Jane Broker know up to the minute the market value) and not marketed right...or at all. No commission, no help with pricing and when to adjust, how much. Also it's like winking at a girl in the dark..you know what you are doing, she does not. Spotlight to market the place ferociously, agressively and full throttle exposure is worth the price of admission with the higher price, quicker sale and less chance of a law suit when taken in by a sharp operator.

Great thoughts!!

I'm new to AR and this caught my eye immediately. Every day I drive past a FSBO that has had a sign in its yard for 1 year+. I'll have to share this information with them. Clear, concise and nicely worded.

Good post and worth a re blog. If you calculate the cost to sell a home yourself you usually dont save any money at all.

FSBO success stories are usually found in an up market on an under-priced property. The commission is saved, but the sale is lower than it should have been. In a down market, FSBOs can often become a foreclosure.

Chantal, What a great post. Didn't think you could catagorize all types of FSBO's into four, but it really does cover the whole gamut. Bookmarked this one to show to any FSBO's I go after!

Wonderfully stated..........I hope this gets the attention it deserves. Simplicity often captures the truth with a clarity that is lost in blog entries that run on and on. Communication is our goal and you have accomplished it.

Nice post! I think slowly but surely they are getting the message, we see very few FSBO signs in our area, those that we do have been there for years!

Saving the commission isn't what upsets me about a REALTOR wanting to put their home on the market, as a FSBO. We are always trying to convince sellers that hiring a professional is the best way to go, and then 'our own kind' turn around and do something like that. What does that say about the profession?

When I put my house on the market, you can rest assured that it will be sold by a REALTOR (no, not by me) ... I want to be represented, because I will be a seller then; and I deserve the best representation and the best negotiator on my side. I want to stay out of it, as a REALTOR. I'll be ONLY a seller then, and I will pay full commission. :)

I like your buyer catogories - very accurate.

I think agents need to do a better job of separating the market from their fee and also a better job communicating why they are worth their fee. That's been my focus this year and so far it's paying off with more satisfied sellers. I haven't approached any FSBO's yet.

Very well put. I will bookmark and use on my next FSBO call.

Great post. The biggest problem with FSBO's is they think they know more than a realtor.

Chantal - Excellent Post!!! You are completely right about the different types of buyer's. I've listed a few FSBO's and one in particular had numerous offers, but could never get it to the closing table. As you mentioned accepting an offer is the easy part. I feel our job doesn't start until the house goes under contract, then the REAL work begins.

Chantal, Thanks for a great post that we can actually use to make our point. I know I earn my commission and I almost think it's funny that home owners sometimes think they can do everything themselves and save money. We know that statistics prove that they actually get less for their homes but hey...they didn't have to pay the REALTOR.

Chantel, excellent post! Straight and to the point. This is information that SHOULD be shared with all FSBO's.

Yes we all get these don't we. Nice post and keep up the good fight.

great summary of exactly what it would cost you in the long run

Chantal, right on! Now considering that most FSBO's eventually list, and adding in the seller's carrying and advertising cost during the time it takes the seller to eventually list, and it becomes apparent that the FSBO approach can be risky, time-consuming and expensive.

Great information and very persuasive arguments. I might highlight the additional carrying costs a little more as a way of pointing out that it may not end up saving you any money at all and might in fact cost even more than the commission savings.

Good post, and very insightful! I wish all FSBOs would read this, and maybe they would understand why we cold call, email, mail them all the time. We know they are more than likely going to need a Realtor if they want to see their home!

I always believe in using a realtor, but to each his own. A lot of folks think they can do a better job without us. And they think they are saving money. Usually they aren't, but it's all in their minds anyway!!! After seeing how a lot of real estate agents work I can't say that I blame them. Hopefully "the good ones" can start changing the perception of those in the real estate industry... We'll see!

On a separate note, I went to college at Centenary College in Louisiana and visited Lafayette - such a charming place - I had a great time there!

Just a side note, I have worked with investors for 17 years. The statement that they are the most savvy buyers is wrong and over-generalized although you did say probably. If you look at some investors that bought in bubble markets that have lost 80% of their 2005 "value", and they did option arms to boot, I wouldn't call that savvy. The investors i work with don't care if their is a commission or not. They only care about the internal rate of return. Your post was reaaly accurate about buyers, but their is a danger of grouping people that way, and making them all intelligent.

i'm a mortgage lender in southwest florida and i can only put this one way;

any buyer or selling not working with a REALTOR in my market is a nut!

Excellent post! I always find it interesting how FSBOs come up with their price in the first place.

Very well written and very true. Buyers and sellers really need to professionalism, experience, and advice of a realtor.

Brought up some good points here. I'll have to store this information in my brain for the next listing appointment. Thanks for sharing.

Great post and oh so true! The FSBOs don't get it...or unrepresented sellers, as I like to refer to them! I love your logo! VERY COOL!!! (I'm a graphic designer, so I notice these things! :o)))

Thank you all for the great comments! I've worked with many FSBOs, usually representing a buyer and when I explain this to them, I can actually see the light bulb go on and they are much more willing to negotiate after that. It truly is a great script to use.

Leslie: when I have a buyer interested in a FSBO, I do not use a one-time showing or listing agreement. Instead, we see the home and if they decide to make an offer, I include a compensation agreement with it that is listed in the contract as an addendum. The seller cannot agree to one and not the other. I've sold many FSBOs to my buyers this way and when we get to the closing table, both buyer and seller are happy with me and my services.

Michael: I love referrals. If you have someone looking to buy or sell in the Lafayette area, I would love to help them.

Emily: if you ever come back this way, let me know!

Thanks for the re-blogs!

I like the simple explaination of the four types of buyers

Hi Chantal ~ I met with someone selling by herself last week. I went armed with information and statistics and she came back with a counter claim about my statistics. She had a differenct source and had done her homework too. The unfortunate thing is that we know the value of working with a Realtor. FSBO sellers need to run into a few walls first before they recognize the value. Really good post, but you're probably preaching to the converted here. Of course you probably weren't aiming to change the world anyway - if just one FSBO seller reads your post and "gets it" then you've won! Great job!

Denise

To Joe Pryor #32 You are spot on. There was nothing "investor class" about it and it wasn't savvy. I have experience in south Florida real estate and watched many so called "investors" in 2004-2006 do exactly as you said. The only thing you left out was the fact that they weren't investors, they were really bandwagon followers who couldn't afford to speculate the way they did, even in a more balanced market. Now the hangover has set in, and many of those "investors" are bankrupt and their personal lives destroyed. Some of it is sad to watch, but it would be a great case study in B-school on greed/selfishness/arrogance, etc. and not what to do.

NAR every year publishes data and shows figures for how much the average house sold through a realtor sells for, versus what FSBO's sell for. For the last several years, that amount far exceeded the average commissions paid. There are also the intangibles to consider- e.g. security, securing a mortgage, professionally handing the transaction; convenience. It is essential that a realtor demonstrate the value of his services, both the financial as well as the intangibles. While there is never any guarantee that a particular house will sell at a particular level, a real estate professional should be able to lead a seller to the most advantageous and attractive selling price. In this economy especially, houses "priced right from the start" are those that sell fastest and at the highest price. We realtors have to believe in our own value and be able to confidently and competently demonstrate that to prospective clients.

I hope the power of ActiveRain reaches many, many FSBO's on this post. Very well said. Going alone in this day and age is no way to save money and can hurt them instead. Great job!

Right on target. Sme will never learn until they experience the FSBO phenomenon - Failed Sale By Owner!

Great blog! Gary I love your FSBO definition.

Just knowing what you have to disclose should be enough to scare off anyone who is thinking about selling their home by themselves...or maybe they don't realize the liability? I don't know how the average person could possibly sell a home without professional advice. I think it's hard for people to look at the commissions they'll owe and not look for ways to save some of that all the while not realizing exactly how much having a realtor saves them in the long run.

Spoken as an appraiser who just sold her home with a realtor!

Great post, people don't appreciate what we do or realize where the 6% goes. People think we keep it all, not true one bit. FSBO is another topic, they do not realize all the hoops they need to jump through after they get an offer.. you end up working both sides of the transaction to get it closed.!

Very interesting post. I never thought of presenting it to a FSBO this way. It's very logical!

Cheers,

Robin

LOL, Gary. Love it! Hope you don't mind if I use that someday....

I'm not a Realtor, but a builder who has paid commissions on hundreds of homes; and I always paid it gladly. Realtors brought me business and sold my homes; they earned their commission. Then, there's the often unknown fact that homes sold by Realtors generally net more at closing for the buyer, according to statistics.

Chantal:

Very well said! All four of those could fall into a fifth category, which is: "Smart Buyer."

Chantal, What a great post. Clear, concise and to the point!

Chantal, great post. This needed to be put on paper (or Active Rain) lol If you don't mind, I would like to use it on my next encounter with a FSBO. It's funny, but I was just explaining this to someone just the other day. Sellers do not realize how much time and effort we put into marketing their home, until they try to do it themselves. 99%of them always end up listing within the first month I think.

Great Post. I bookmarked this to pull some of your great information out for my next FSBO challenge.

Thank you for such an insightful post. It is more important than ever for Buyers and Sellers to have representation in this market.

I love this post.

I would totally re-blog it, but I don't see a re-blog button.

Would you mind if I copy and paste and put your referral information at the top with a link to your original?

I love to hear how other agents are able to overcome the perception that we are not worth what we get paid, nice job.

Chantal,

Must read for homeowners contemplating going FSBO. On the surface it may look easy to sell your own home without a real estate agent, but once you get into it the cold truth will quickly come tapping on your shoulder.

Chantal, this is great, I think I have heard that somewhere before seeing as I too am a KW agent. Wink, Wink, I hope you have used this script somewhere in a conversation with a FSBO I know I have and it works great every time.

Keep rockin it.

Cheers!

What amazes me most about FSBO's is that it seems like many don't even try. A sign out front and BOOM, they're marketing. The only people who ever know it's for sale are the ones who live there already and drive by the sign. It's so sad! Showed one poor FSBO the other day who didn't even have a flyer, handout, pictures, anything that we could use to help remember the property.

Chantal - This is an excellent post and well worthy of a feature. I love the way you broke it down for the FBSO seller so they can see that they are in essence just shorting themselves by not hiring a real estate professional. Good job.

I was leaving the office today and a lady flags me down and ask's if I am an agent? I say yes and she proceeds to tell me how she is selling privately and is handing out flyers to all the agents to help sell her house. LMAO I was polite but she stood out ther for 2 hours flagging down any agent she saw. It was sad really. Why not just list it? Some people just don't get it.

Awsome post chantal,

I'm going to print this out and try to memorize it. You have a great point of view, it's clear and logic.

Thank you!

I've only heard of one FSBO sell locally. A friend of mine bought it very very cheap. Other than than that one sale the other FSBO's always results in Real Estate signs for xyz company.

It takes the FSBO's a couple of failed attempts before they realize they are in over their heads. It's kind of like the old saying, you can pay me now or pay me later. Sooner or later they come around.

With a FSBO every person involved is trying to save or get the same dollar. Usually the seller loses the buck as they are anxious to sell and cave in to the buyer.

The last FSBO I worked with tried for awhile on their own. The highest offer they got was from an investor at 180K. I listed it, sold it in one day and got full price of 209,900 and had to show comps to the appraiser to get it too appraise. They got a much better deal by listing with a professional. I hope all FSBO's read your post.

I try to tell sellers, "Don't miss the forest for the trees."

Great post. It is hard to convince FSBO's they need us without coming out and telling them they are just cheating themselves. NAR statistics show sellers sell quicker and for more with a Realtor than without. And the difference is usually enough to cover the commission.

Out of town buyers who purchase a FSBO without an agent usually pay more than they should because they don't know the local market and think they are getting a bargain.

Chantal, A lot of the FSBOs I have talked to over the years are going it alone because they had a bad experience with a REALTOR(R) in the past. Very few stated they were trying to save the commission. Although I'm sure that was part of it. Trust seems to be the biggest factor. This is why it's important to approach FSBOS by being helpful. Forget about trying to sell them on our services. Just be there for them with no strings attached. They'll eventually come around.

I do agree they are saving nothing by selling themselves. In fact if you factored in time spent it's costing them a lot more than out commission would have.

Chantal,

Savvy investors can often take advantage of FSBO's and far more than 5 or 6%.

It happens all the time.

Brian

It just goes to show that some people now the cost of everything but the value of nothing. I stopped trying to persuade F.S.B.O.'s to list with me a couple of years ago. I don't think they're really the type of client you would want anyway. The mere fact that they distrust agents to begin with would keep them constantly second guessing you. Good post and best of luck to you.

Who can blame a FSBO in this market, when their home values have dropped and they see all those $ signs associated with hiring a REALTOR. Yet FSBO's are people who identified themselves as home seller, and when they do list... they really appreciate what their agent does.

Dr. Chantal, what a fantastic post. No wonder it was featured! (And congrats on the feature!)

I, with a few other agents, were discussing this yesterday at a meeting. I know that I walk into a FSBO, when showing my buyer, that their house is already automatically overpriced by 6%, plus whatever the uneducated overpricing may be!

GREAT for my buyers, as they tend to get a great deal! :-)

In Oregon, a FSBO needs to do everything a licensed real estate agent does. They need to perform the same way . . . many don't know this, or don't know how to do this. If they don't follow their explicit obligations they could be in hot water.

Hi Dr. Chantal. I can see why this post was featured. If only sellers with FSBOs would read this.... ~ Lana

This is a great Blog...and so true... I have been following FSBO listings for a couple of months. I was not intending to call to list but just watch for a home that might work for my buyers.I have yet to see a fsbo that is priced realistically. They seem to all be overpriced. What you write about appraisals is sooo true. Even if they could find a buyer to purchase their home for the price they find appropriate, there is still the appraisal to deal with. Unless there is an all cash buyer than if the appraisal does not turn out then there is no sale. And then there is still the disclosures and getting the deal closed. I am thinking about looking more into FSBO's and your blog inspired me. Great job!

Hi Dr. Saucier -- Very, very true. What seems crystal clear to us is this is rarely viewed that way by consumers.

Hi Dr. Saucier~ Everyone wants to save money, so you can't really blame them for trying. Most of the time the unrepresented sellers end up listing with a Realtor in the long run.

This is awesome. Most sellers have no idea what is involved in marketing a house and then to get it to closing after a contract is executed is not easy either.

Good information. Many save money on the commission and the Buyer or the Seller may end up spending the money on an attorney to fix a mess they may create.

SEP

This is a good explanation of the different types of buyers and what happens with a For Sale By Owner.

SEP

Thanks for the opportunity to reblog this well stated post.

Matters of consequence to your money or your health are better in the hands of a professional. There will always be those who are penny wise and know better. For them I am just glad the fire department doesn't charge a fee for their services.

Chantal - I like this post and you have organized your thoughts quite well, but I have to disagree with you that there are only four types of buyers.

I have also worked with those who are downsizing because their finances demand it, as well as handling "empty nesters" who sometimes move just to get closer to family or medical services. The downsizers seem to be among the most prevalent buyers around these days, and baby boomers will make the latter group huge in the upcoming years.

Congrats on the featured post!

Hey Jason,

The downsizing buyers should have been with the move up buyers (I fixed it). They really do fall in the same category as they have been through a real estate transaction before. When I talk to people, I usually include both so thanks for pointing it out to me.

I'm not sure who to thank for the featured post but thank you all for the congrats. This was my first after about 2 months of blogging. Sweet!

Great subject matter... I don't work for David Knox, but he has a great DVD for FSBO's that I have and like to provide potential clients who are thinking of marketing their home themselves. The subject matter is the whole process necessary to get their home marketed and sold in a timely fashion. By the end of the DVD, most folks are rethinking whether they want to go through the process without the help of an agent, and he also covers all of the points you made in your last paragraph about buyers expecting a bargain:)

SEP

I agree with everything you have said. This is my second year in Real Estate and I have been focusing primarily on FSBO and expireds. Many sellers believe that all we do is drive people around and show them homes. Once they encounter the pitfalls of trying to do it all themselves they don't see commission as an issue. I am challenged daily on commissions and do not have any difficulty defending my worth. I feel like I earn it on every deal.

SEP

Chantal -

Superb post - the best and most concise arguement I have every heard on why not to go FSBO!

We should do lunch sometime...

~Michelle

OCT

Amen!! I was actually working with a buyer who wanted to see a particular house. The FSBO owner told me she is selling the home herself after I made several attempts to contact her. FSBOs should reconsider their stand when there is a "bird in the hand" of a professional. We are already the one who will ensure all goes well to get to the closing table. Great post....

OCT

Wonderful post. So many time the FSBO just can't see past the idea that they are saving something. If only they knew what's involved, they might realize that in the long run it could cost them much more than the commission would be.

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