For Sale By Owner: A Slippery Slope Even in a Seller’s Market

By Howard J. Willis *

Homes being offered as “For Sale By Owner” euphemistically referred to as “FSBO’s” (fiz-bows) by real estate agents, have increased in popularity in recent years. There are a number of issues that any homeowner should consider before entering what may appear to be an easy way to save money in a home sale transaction. In our opinion there are ten key reasons why any homeowner should think twice about trying to sell their home on their own or through the so-called discount brokers.

1. The 70% FSBO Rule          As you might expect, not all homeowners who start as independent sellers stay that way. Experts in residential home sales suggest that more than 70% of FSBO’s end up listing with a Realtor. That’s a lot of owners who had problems selling who later turn to an agent for results. About 15% of properties are listed as FSBO’s and about 85% are listed through a real estate agent.  Why?

2. List Price: Risk of Under-pricing          FSBO sellers often set either unrealistically high or low listing prices based on perception and hear-say and not fact. According to the National Association of Realtors the median sales price of FSBO homes sold by the owner was 27% LOWER than the median sales price of homes sold by a Realtor. A professional Realtor will provide a well-documented CMA or Competitive Market Analysis to show what similar homes have sold for in the recent past. Realtors will generally sell at a higher price and in less time than a For Sale By Owner.

3. Where Most Prospects and Buyers Come From          Conservative estimates say that most agents have a minimum of 3-5 buyer prospects on average. So let’s say that easily there are at any time there are agents with a combined list of 1,000 buyer prospects considering Weston and West Broward. Let’s also note that most FSBO sellers do not want to pay a commission. So if the majority of prospective buyers are working with agents, the FSBO seller will not appear on any agent’s radar screen because agents work for a living and will try to avoid FSBO sellers. It is hard work finding homes for buyers, so FSBO sellers have a narrow audience to attract to their home. The basic law of supply and demand says that homes being marketed and shown by agents will sell faster and for more money because more buyers will be exposed creating competition and price pressure that FSBO sellers only marginally enjoy.

4. Who Creates Exposure?          A key role and responsibility of the Agent/Broker is to create exposure for the home-seller’s property. By paying fees to list a home on the MLS (multiple-listing service) and to pay their own money to advertise in various outlets, the Realtor is building awareness and in effect competition for the home. FSBO owners believe it is so easy to sell their home that they can just pay a discounted fee to be in the MLS or just put a sign out. The goal is to create fast exposure for your home – it’s a product that requires intensive advertising, networking, and personal time to attract more buyers which in turn makes the home worth more.

5. Third-Party Negotiating          Unfortunately for most homeowners selling a home is the most trying and emotional transaction they will be involved in for most of their lives. By having a professional Realtor trained in negotiating and not emotionally caught up like the owner, the agent is more apt to negotiate a higher price.  The skilled agent will listen to the needs of the buyer and find a price that is comparable to the market and what the owner needs to get – resulting in a win-win for both parties. Agents as skilled negotiators keep bargaining chips from turning into deal-breakers

6. DIY – Do It Yourself         You the homeowner have to look at selling your home as a part-time job. You have to commit time when it is convenient for the buyer and buyer’s agent, not when it’s best for you. Most buyers call asking for appointments the same day or next morning for five to ten homes, so will you be there when the call comes in?

7. The Paperwork         State and Federal disclosure laws have become more complicated. Who provides the contract, paying an attorney to review the details, and managing the closing and settlement process can be overwhelming. Surprises in the buyer loan processing and knowing what to do with deposits, inspections, and title questions provoke mind-numbing frustration for the independent seller.

8. Sales Insurance          Realtors lower your risk. A Realtor as an advocate helps a seller minimize the risks. You are paying an agent to assist you, advise you, protect you and help you navigate the transaction legally and safely. The realtor will make sure you take steps to protect yourself. Many issues such as the sales contract, inspections, appraisals, etc. require careful attention. Realtors work with contracts daily and can fully understand which points are harmful and beneficial to you.

9. Qualifying Buyers          Even for experienced Realtors, confirming a buyer’s present ability to actually obtain the mortgage is a challenge. Most homeowners don’t have the experience and savvy to know what questions to ask and to screen qualified buyers before you let them in your home. Strangers have access to your home and there are risks. Agents qualify buyers and pre-select homes to show them what meets their needs and fiscal expectations.

10. Penny Wise … Pound Foolish        Saving the Commission is the number one reason why homeowners try to market and close on their home. By the time an independent seller spends money on newspaper ads, pays for an attorney, running the risk of leaving money “on the table” from improper pricing and negotiation, plus the approximate 100 plus hours the owner(s) will spend coordinating and showing, well that’s why 70% to 80% of all FSBO’s end up going to a Realtor.

What Does All This Mean?

While it is acknowledged that this is written from a professionally biased point of view, FSBO sellers do generally end up working harder for less savings or even losing more than they expected. There are exceptions where the FSBO seller does indeed profit by going the independent route but it is rare. Hopefully this article has pointed out a few of the pitfalls inherent in selling the home direct to the public.  

*Howard Willis is a realtor with Allegra & Howard Willis Real Estate Group, affiliated with Keller Williams Realty - Partners SW.. Howard has a law degree and specializes in providing real estate sales and services to premium home and condominium owners. Call with your questions and comments to (954) 949-0444 or to howard@thewillisgroup.com. Learn more about Allegra and Howard at www.thewillisgroup.com