“For Sale By Owner” Doesn’t Always Pay

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I don’t shop at Walmart. I don’t mean to sound uppity about it or anything, but I just don’t enjoy the experience. The lines are long, the cashiers are slow and over-whelmed and there seem to be more children than adults. Everything in the joint is cheap. The facilities are sparse, ugly and usually in disrepair- the only thing that matters to them is price.

I remember buying my son a bike from Walmart one year. I was a single-parent living in the San Francisco area and the cost of living was high for me. I hadn’t yet been promoted to managing broker so I was only making about $50,000/year, which is not much in the Bay area. For Christmas, I found that for the price of a new bike at the bike shop I could get him a bike, some toys and some clothes at Walmart. He loved getting his new bike and liked his toys and clothes, too. He proudly rode his bike around the condo complex we lived in until about a week later when he went over a speed bump and the front wheel came off, causing him to go head-over-handles and into the street face-first. He came home crying with blood covering his clothes and road-rash all over his body.

This was another lesson for me in the difference between price and value. Walmart would not refund my money, but would only give me an in-store credit. Lame. As soon as I could I went to the bike shop and bought him another bike. But this bike was built well and the salesperson showed us how to use it’s features and all about safety and it came with a great warranty and service plan. After riding the new bike for a few days my son told me how much better it rode than the other bike. It didn’t make the same noise when he put on the brakes and it handles bumps so much smoother. And the wheels didn’t fall off and it rode well for years until he outgrew it.

So how much did I actually save buying his bike at Walmart for the lower cost? Nothing- I lost money, and that’s the point. I’d rather shop at places where I enjoy the experience and buy quality items and services. I would rather pay more at Nordstrom and have excellent service and the comfort and knowledge that I am buying quality.

A good friend of mine decided to “save” money by installing his own swimming pool last year so he called a guy that helps people do this and my friend coordinated having the hole dug and the pool shaped and the concrete poured and the liners installed and did most of the work himself, along with me and other friends. Took about 45 days to complete and he finished the entire job for under $25,000. Not bad compared to the $45,000 estimate he received from pool companies. He had us all over for a pool party after it was all completed and was so proud of the fact that he put in some extra effort and saved $20,000. Until the pool sank. The corner of the pool began sinking within the first few months and by the end of the year the entire pool was cracking and coming apart and the sinking corner was about a foot lower than the rest and the water was running out of it. He had bids to raise it back up, re-enforce it and repair the damage, and now he’s spending an extra $25,000 re-doing the ruined pool. It should be done in about 45 days and who knows if it will ever be as good of quality as if he had simply had the experts do it from the beginning.

So how much did my friend actually save installing the pool on his own?

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90% of all FSBO properties, where the seller does not already know the buyer, end up listing their house with a professional. 6% sell and 4% take the home off the market and don’t sell. Why is it that only 6% of FSBO homes sell? And more importantly, do they actually save any money? There are surely some homes that happen to be in excellent, high-demand areas, are in great condition, show very well, and sell for top dollar without a real estate agent, simply by having a yard sign or newspaper ad. But what about the rest of these money-savers?

If a home could sell for $465,000 given the right touch-ups, marketing, and salesmanship, but is sold as a For Sale By Owner for $420,000 does the seller really “save” anything by not using a Realtor? Of course many times FSBO homes are priced way more than they are worth because the sellers have no idea what it’s worth or have an inflated sense of worth when it comes to their home. But regardless of where the the home sellers think they should price their home, NAR says that the average FSBO sells their home for 12% less than listed homes.

Here’s the thing about pricing- there’s a difference between value and saleability. Value is quantifiable on paper (neighborhood, square feet, number of bedrooms, etc.), saleability is more of a feel- condition, floor plan, room size, view from the windows, carpet color, etc. Some things add value, some add saleability- and you need to be able to find the highest price a home will actually sell for, and then deal with the appraisers and inspections to get the deal done. And many times making a few minor changes to a home can add tons of profit for the seller because it increases the home’s saleability. This is one reason it’s not just important to hire a real estate agent, but to hire one of the best Realtors in your area.

The irony is that many times FSBO sellers are so caught up in “saving” the commission that they lose thousands of dollars. They’re stepping over a quarter to pick up a dime and then think they’ve come out ahead. And they had to do all the work themselves to get to that loss. And they’ve hurt the values of all the surrounding homes by selling for less than the home was worth. If they sold a home for $420,000 when it could have sold for $460,000- all the surrounding homes now have been hurt by that comparable sale. Instead of helping all the neighbors, the seller hurt them all. 

Are the 94% of people who sell their homes with Realtors just dumb? Do they want to waste money? Or could it be that they, like I, have discovered that hiring a good professional Realtor is a smart investment that will save them thousands of dollars, help the neighbors, and give them a much more enjoyable experience along the way?

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I’ve heard there are more lawsuits with damages awarded from the 6% of homes that sell without representation than from the 94% of homes that do. If you sell your home and get sued for thousands of dollars and have to spend time in court defending yourself- is that worth it? There have been sellers who have had to buy back properties months after they sold them and moved on. There are people who have lost everything because they tried to “save” money and didn’t know what they doing. And using a good professional can make you more money anyway.

That’s why people would rather pay 30% of the winning judgement to a good attorney to represent them when they’ve been injured in an accident than try to go it on their own and keep all of the money they may win. Because 70% of something is better than 100% of nothing.

And when it comes to selling your own home- if you “save” a 6% commission by selling for 8-10% less than you could have (or not sell at all)- how much have you actually saved?

Now, money isn’t everything– there is certainly an element of satisfaction one can obtain by doing a good job yourself, and that’s something I understand well. I am simply talking to the business side of the transaction, where supply and demand play into the fold.

Most buyers are working with agents, and why not- it doesn’t cost them anything and they get a lot of help. And buyers working with agents don’t usually see homes that are FSBO because agents use the very efficient MLS to search for the 90% of homes that are listed and most of the consumers are looking online, where the websites get their feeds directly from that same MLS. So if every buyer will see your home if it’s listed, but only a fraction will see it not being listed, it makes the buyer pool smaller, and therefore more difficult to sell for top dollar, or at all.

You don’t have to have a professional help you in real estate, law, or landscaping for that matter, but there is a difference when you employ the right help. There are some FSBO sellers who have had bad experiences with agents. I’ve had bad experiences with agents, but I’ve had bad experiences dating and that didn’t stop me from meeting my wife. I’m not saying get an agent- I’m saying get one of the best agents.

I suggest you call a good professional who doesn’t cut corners. Have good help that will do it the right way and get you the most money possible and help eliminate the stresses and anxiety that can come from trying to navigate the process on your own.

You’ll be glad you did.

 

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18 thoughts on ““For Sale By Owner” Doesn’t Always Pay

  1. Pingback: Home Owner Warranty » Topic: Home Owner Warranty - “For Sale By Owner” Doesn’t Always Pay

  2. When we decided to leave Park City, my former wife wanted to try to sell the home herself to save money. She was a member of the Utah bar, so she wasn’t worried about the contract work. I think she spent about a thousand dollars and couldn’t get anyone to put it on the MLS. After a couple of weeks of hassles and no action, she listed with a Realtor. It was under contract within 24 hours of hitting the MLS, sold for full price and the buyer bought all the furniture as well.

  3. John,

    Isn’t that interesting? Often there are buyers searching for a home and haven’t found the right one and as soon as the right one comes on the MLS, where their agent can find it and where they can find it (now that it is sent to all the websites) they see it and buy it. Sounds like a win/win. Your wife sold her home and the buyers found the right home for them, and some furniture to boot.

    Kelley,

    You know I read it somewhere when I was an office broker in California a few years ago and I can’t find it now, which is why I said, “I’ve heard…”. It was in an industry paper or a law paper that I received a copy of from one of my agents or from the company. If I find the source I will post it.

  4. Mike,

    I choose to not shop at Walmart because I don’t like the experience, not matter how big they are- it’s my choice. You seem to have a difficult time understanding that price is really not the end-all be-all of the world.

    You should be glad it’s not- there are many brokers who charge less than you do.

  5. I find this an interesting article, primarily because I am in the process of buying a home without an agent, being sold by a homeowner without an agent. We’re both thrilled by the fact that we’re saving tons of money. He pockets more of his home’s value without having an agent, while still selling at a good price that makes the neighbors and himself happy. At the same time, I’m still saving money, and I get to interact directly with the seller. It’s a great situation.

    Perhaps I’m in that statistical 5 or 6% who has a successful FSBO experience, but as I’ve talked to more and more people, I have heard hardly ANY that like their agents, buyers or sellers. It seems like more and more of the work is put on the seller or buyer. In my home search, I spoke with nearly a dozen agents. Half were showing the property hoping to become my buyer’s agent, while the other half were the listing agent. In nearly every case, I found the realtor’s services to be largely superfluous, and certainly not worth the commission. Of the dozen or so, I was only impressed by 1 of the buyer’s agents and one of the seller’s agents. In every other case, their machinations were fairly obvious, I could tell they were withholding information, and were, in general, an obstruction to me obtaining the information that I needed about the home.

    Here in Utah, the Realtors’ marketing campaign has become more and more bold to convince the public that they really do offer a valuable service. With how much information is freely disseminated over the web or is made available as public record, it is hard to see why Realtors are quite necessary anymore, particularly buyer’s agents. One of the things that really irritates me is the hold that Utah agents have over pricing history (looking up “comps”). In other locales, that pricing history is a matter of public record. I don’t see why a realtor should be necessary to find that information.

    Something is going to have to happen in the industry if real estate professionals want to remain relevant.

  6. John,

    Thanks for sharing your experience. You’re not alone in your thinking. Unfortunately there are, as in all service industries, good and bad providers. Some provide good service and some do not.

    The local marketing campaign you’re referring to is actually the first campaign that I’ve really liked. I don’t think it’s bold, but I think it shares some of the value Realtors provide within the community.

    There are many things the Realtor organizations do for a community, such as being among the largest lobbyist organizations, fighting to protect private property rights and to keep property taxes lower.

    Last year our organization lobbied hard and helped defeat three bills specifically that probably would have affected you. The first was a transfer tax on every real estate transaction that would have imposed about $1000 tax when you purchased your home, and the seller would have been taxed as well. The second would have made it illegal to use a mobile phone while driving. The third would have raised property taxes. Each year we have numerous charity events to raise money for local causes. We are among the largest donors for the Christmas Box House- a local shelter for battered women and children, each year we sponsor the Christmas in July event for children and major donation drives for the holidays. Two weeks ago we held an event that raised over $5000 but goes unsung to the public.

    Good Realtors also protect clients and help them make good investments. The home you are buying may or may not be a good investment. But maybe you don’t know the trends in that particular neighborhood or know the appreciation for the area and where it’s heading. Or maybe there were properties that you didn’t find on your own that would have been a good fit for you for less. Who knows- maybe you found the best home at the best price anywhere on the market today, but maybe a good buyers agent could have helped.

    You sound like a local buyer. What if you were moving to an area in a state where you knew nothing about the place? Would you find it helpful to have someone there to pick you up at the airport or hotle and show you the different areas and give you area reports and teach you about the school systems and share experiences and history with you?

    I, more than most, truly believe in transparency and in giving as much information as possible (without charge) and believing that it will come back to me. And I have spent hundreds of thousands of dollars, of my own money, building the technology and systems that you, and anyone, can benefit from using BlueRoof, but as good I feel I can make the website I also realize that a computer has limitations and technology cannot communicate the feel of an area. And although you haven’t been shown the true value of a good professional Realtor, there are many have have and would not want to go unrepresented again.

    Good luck with your new home,

    Greg

  7. I’m not sure what WalMart has to do with FSBOs and I avoid shopping there for the same reasons as author Greg (and a few dozen more). He and I disagree about FSBOs, however. I have used realtors more times than not, including an excellent experience with an agent when I moved to Utah. However, I have also been involved in two FSBOs (both times as seller). The FSBOs were the most satisfying transactions and as John mentions above, I think a lot of it was that we (buyer & seller) got to know each other in the process and because I (seller) was completely reasonable in my asking price.

    The reasons I would want to do a FSBO again are multiple… 1) I can be as hard working, smart, and knowledgeable about home values, buying, and selling homes as agents and, sadly, I am probably better than many out there. 2) I am among the many home buyers and sellers who usually feel we do not get a value of service from an agent anywhere near the 6% commission that is usually charged. (Applause to the agents and brokers who are willing to discount this to make it more fair!!!) 3) The relationship between buyer and seller should be friendly and my experiences are that some agents tend to make this somewhat adversarial by being overly aggressive in negotiating contract items. The two worst transactions I was involved in were the only two where we never met the other party! 4) It’s not all about the money!!! I didn’t care if I got exactly the same amount out of the sale by going FSBO, even if I had to do more work. In fact, the first sale was of a tract house where there were plenty of comps available and it was very easy to figure out the asking price. I accepted exactly the value of the house minus 6% – in other words, I gave the 6% I would have paid an agency as a discount to the buyers. Everyone was happy. They even took me out to dinner. (I dare you to find an agent who wouldn’t cringe at the buyer and seller being that friendly!) Agents should catalyze a good relationship between buyer and seller, but with (usually) two agents standing between us, it can be more of a hindrance to have an agent.

    Agents (and brokers) – pay attention! You may working, and working hard, but if you’re not providing a service customers feel is worth the commission that will be charged, we would rather do a FSBO!

    So what if only 6% of FSBOs actually sell?!! Those who try it but turn out to be incapable of completing the transaction (for poor marketing, poor pricing, poor manners, whatever) will indeed resort in listing with an agent – and for those people, maybe the 6% now seems worth it – Great! Many of these people are just testing the waters or are just giving it a shot before anticipating listing with an agent anyway. The fact that 6% of FSBOs do sell tells me that the people who are serious about it can get it done. Count me in. Thanks for reading.

  8. Nancy,

    Very well said. You make some good points and I wish you much success in your future real estate dealings.

    It is all about value and the experience in dealing with someone you trust and feel comfortable with. If you cannot find that person who gives you value, you would do well to go it alone. Whatever field you work in I am sure you provide value for someone, and although someone else could do your work, they may or may not be able to provide the same value that you do.

    Perhaps you can do the job better than most real estate agents- you may have a natural talent for connecting with people and for sales. Perhaps you have not yet experienced working with a real estate professional who does offer you more value than being unrepresented. I have worked with many (hundreds) of people who tried for months to sell on their own, and some who had been listed with other brokers, but had not been given the value. Those people are often my most vocal advocates once I have succeeded for them. Good luck to you…

    If you ever need some helpful advice please don’t hesitate to call.

    Greg

  9. Greg,

    It’s funny that I came across this today, after looking on blueroof.com for three months now and never noticing your blog before. I have had sold three homes now if I count the one currently in escrow and the previous two were sold with an agent (one here and one in Texas). They were both good people but the sales always seemed so easy I figured I was paying a lot for the service. That’s why I decided to sell this last home “by owner” and do the work myself.

    Unlike Nancy I understand your reference to shopping at Walmart quite a bit because every prospective buyer that came through my house seemed to not be serious lookers, or had no idea about the price and assumed it was $50,000 less than we were asking. More than a few times people would not call to set up appointments and simply show up at the door at inconvenient times. We spent $600 to put our home on forsalebyowner.com for their premium package and in over two months did not receive even one phone call from a buyer from it. I got the feeling that the only people looking on their site were the other sellers and realtors. The one call I did get was from a real estate agent asking to list our home.

    After two months and $1400 ($600 for the website and $800 in newspaper advertising) we had enough and listed with an agent who had listed and sold a house in my neighborhood during the time we had been trying to sell.

    It was great to be able to relax and not worry about every detail and having it all done for us. Our agent actually suggested we raise the price about $10,000 and in less than two weeks we received an offer at full price with us paying $3000 in closing costs for the buyer, so we sold the home for $7000 more than we tried selling for.

    It was a satisfying experience because I was able to see the difference and all the work and frustration that went into trying to sell my house and now I appreciate my agent much more. Next time I’ll just call him from the start and save myself the trouble.

    We close escrow funds next week and I want to thank you for providing me with the best tool I have ever had in finding a home. Blueroof.com is simply the best and I will tell everyone I meet looking for a home to check it out. It was simple to use and I liked being able to see the comparables for every house. One suggestion (or request) would be to put when homes are having open houses. We like driving to open houses on the weekends and had to go to the newspaper to find them.

    Thanks again for the website.

  10. Christopher- thanks for sharing your experience. Who was your agent (let’s give them credit for a job well done)?

    Hopefully we’ll be able to add scheduled open houses soon, as the MLS just added this. The challenge is finding out the open houses- most agents don’t put them on the MLS yet, as it’s a new feature, and I don’t have a feed from the newspaper. Good idea though…

  11. “And buyers working with agents don’t usually see homes that are FSBO because agents use the very efficient MLS to search for the 90% of homes that are listed…”

    Ahhh…the wonderful “very efficient” MLS. The only thing that is special about the MLS is that it is the most popular listing service at this time. That is only because most people follow the traditional route of using an agent to list their home. There is nothing more efficient about the MLS than any other home listing service. Also, people who want to list on the MLS are forced to use an agent. The MLS is an “exclusive” listing service that keeps a lot of agents in business.

    There are a number of great listing services starting up these days. Unfortunately, they all offer independent listings for FSBO. What we need is for them to all start using a standard format and cross-listing homes. It would be nice to break the stranglehold that the MLS has on listings.

    I think that agents can provide a great service to both buyers and sellers. There are many cases where it is worth spending good money to avoid the hassles of searching for the right home, negotiating legal contracts, advertising, etc. However, I don’t see any reason why agents should get a percentage cut instead of a flat fee. Let the agents work in a business with a truly competitive pricing model like the rest of us.

  12. By the way, I LOVE the blueroof.com interface. You have done a great job of making it simple to search for the right home, with the right price, in the right location.

    Good work!!!!

  13. As the owner of a regional for sale by owner service in Western Massachusetts, I must disagree with some of the comments expressed here.

    1) National NAR statistics are not reflective of many local markets where established fsbo services exist. The results can be much higher if consumers seek out local help.

    2) On fsbos don’t know the value of their properties…. get a professional appraisal done by a certified residential appraiser and use it wisely. It will help the seller negotiate from a position of strength and will satisfy the lender’s requirements.

    3) On fsbos and lawsuits….are you implying that a real estate agent provides legal representation??? I hope not. That’s why we recommend hiring a good real estate attorney to protect the seller’s legal interests.

    4) On the seller who used forsalebyowner.com unsuccessfully…many national websites are in the business of satisfying their affiliates and business advertisers. They do not provide any sales results, and only report on listings. On the other hand, smaller regional services can be very successful and keep careful control over reporting sales, most will post statuses on their websites. They are also much better at removing stale listings than are national websites.

    5) On using the MLS…..exposure is key, but the MLS is not the only way to achieve this result. The MLS is successful about half the time, looking at expired listing data. This month we have received four new listings that had been with an agent and on the MLS for 6 – 8 months. Two sellers said they never had a showing. The MLS gets credit for every drive by that results in an agent contact and eventual sale. The MLS gets credit for every private home seller who sells through other means but who also may have used a flat-fee MLS service. Exposure, on the other hand, can be achieved in many ways. Local real estate fsbo magazines, using Web 2.0 technology, social networking, all may provide excellent results.

    6) On homes selling for more if listed with an agent….Isn’t it strange how the amount derived from the sale often equals the commission. The net result for the seller is what counts. In many ways, the current overvaluing of real estate has been helped by high commissions. Buyers who think they don’t pay that have not been informed that commissions are part of the acquisition cost of a home and are added to the seller’s bottom line.

    While it is always the consumers choice whether to use an agent, every home for sale is really for sale by the owner. It’s just that some choose to hire an agent and some don’t. In a slower economy, where every bit of equity counts, we predict that more consumers will turn to for sale by owner to try adjust to a competitive market. Hopefully, they will do their homework carefully to avoid mistakes. Education is key.

  14. Pingback: When For Sale By Owner Doesn’t Work Out | Indy-Biz

  15. Pingback: Got a House For Sale? Try Sundaybell Instead of FSBO! | Sundaybell Blog

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