Think FSBO Sellers Route Will Save You Money?

Real Estate Agent with Re/Max Classic 314578

Many folks are tempted to take the FSBO Sellers route believing they’ll save a bundle by not paying an agent’s commission. They may imagine it’s a simple as sticking a sign in the ground and watching a qualified buyer magically appear. While that may happen occasionally, the vast majority of that time it doesn’t work like that. At all.

FSBO Sellers Pricing It Right

Coming up with the right asking price requires doing your due diligence. Researching what comparable homes in the area recently sold for is key. You may also want to hire an appraiser to be sure you’re not over-pricing or under-pricing your property, as both will end up costing you. Also, beware: Those who’ve gone the FSBO Sellers route note that very often buyers are hoping for a deep discount knowing sellers aren’t paying anyone a commission. So even if you’ve listed it for a fair price, be prepared to negotiate.

When a seller prepares to put their home on the market, they have one of two choices: working with a real estate professional to sell their home, or attempting to sell it on their own (aka “FSBO” – for sale by owner).

The reason most sellers decide to go the FSBO route is to avoid paying a commission to a real estate agent. But turns out, FSBO doesn’t save money at all. In fact, in the end, it may cost you.

FSBO Facts To Ponder

According to the 2017 National Association of Realtors Profile of Home Buyers and Sellers, homes sold using an agent sell for significantly more than FSBOs. In fact, the study found that the median price of a home sold by an agent was $250,000, compared to $190,000 for FSBOs—an astounding $60,000 difference.

Will you avoid paying a commission fee if you go the For Sale By Owner route? Yes. But if your home sells for $60,000 less than it would have with an agent, it’s not worth it. The math simply wouldn’t add up in your favor.

The Takeaway

FSBO might help you avoid paying a commission to a real estate agent, but when you factor in the expertise an agent brings to the table and the higher price they’ll be able to get for your home, FSBO isn’t a way to save money. In fact, it’s the opposite.

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Comments (1)

Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Sellers go FSBO because they do not perceive the value of the commission being charged.  It is about the money. The industry needs to be open to providing alternative solutions to meet their needs.  Flat Fee Listings, Hourly Fee for Services, and Real Estate Consulting offer the seller additional choices to meet their needs while saving their equity.  All of the issues mentioned can be addressed by a real estate broker/agent who is open to alternatives beyond the legacy commission compensation system. So, there are actually more choices available to sellers; the real estate industry just needs to get past the 2-choice mindset.

Sellers Net More Using a Real Estate Agent/Broker is repeated often but is not supported by reality.  Will a real estate broker really generate $60k more on a single house?  Heck no.  Studies have shown people are “more likely to FSBO in markets with lower price points."  In addition, the NAR study includes mobile homes (much lower priced than stick built typically) in the FSBO data.  Large macroeconomic data (the United States FSBO sales data) does not support the local market; this is a logical fallacy being used to mislead and confuse sellers. 

An economic study, which controlled for the local market, specific to Madison, WI, showed there was no difference between sold pricing for FSBO/agents. Certainly not what the NAR and real estate sales industry want to hear, let alone disclose.   

An anecdotal example, actual sales activity in my market: Two similar homes on the same street sold within weeks (33 days) of each other; one FSBO, one agent represented.  House 1 FSBO, 1,140 sq ft, 2 bed 2 baths sold for $224,000, sold June 1.  House 2 Agent, 2 bed, 2 baths, 1,190 sq ft, sold for $224,000, sold April 28.  We will even assume the FSBO buyer had representation, so the only commission savings is on the listing side.  For example’s sake, assume 2.5% listing commission.  FSBO property netted $5,600 more.  Certainly not $60,000 more.  And this is not the exception to the rule. I have seen many situations experience similar equity savings.

Another, more recent, study, by Collateral Analytics, concludes FSBO’s generate less than a broker represented transaction. The devil is in the details. Be careful with quoting these results; it is a very specific study on only large population counties.  The methodology relies on large data sets; most counties in the US don’t have the large data sets used in the study.  Only 150 counties (of over 3,000 counties nationwide) comprise 50% of the US population. Extrapolating high population urban results to less populated and/or rural areas might be risky.  The Collateral Analytics study also states data was from a normal market.  Yet counties in the study had double digit year-to-year increases in price. Normal markets do NOT exhibit 10%+ year-to-year increases.

In summary, the industry needs to spend more time finding solutions to client needs and less time performing studies to provide questionable "fact" quotes.  It diminishs the industry.


Apr 07, 2018 04:44 PM