For Sale By Owner, also know as “FSBO”. The idea here is you can sell your house yourself, thereby saving all that commission money you pay a REALTOR®.
Granted, I am a REALTOR®, so I am a bit biased in what I am going to say here. “Why in the world would you want to put the sale of the most valuable asset you own into non-professional hands?”
I am NOT saying that people out there are non-professional. What I am saying is that unless you sell real estate for a living, you are NOT a real estate sales professional. And maybe your home isn’t your most valuable asset, but the odds are pretty overwhelming that it is.
There is plenty of data out there that says the average FSBO home sells for 5 – 10% below market value. And that’s just the sales price folks; it doesn’t include the marketing, time and frustration costs of selling your home. Given that the “typical” commission rate for a home sale is 6%, is a FSBO really saving money if they get 5 ”“ 10% less on the sale? That’s not advanced math. You may be saying to yourself, “Self, even if I sell it 5% below market, I save 1% on commission!” Please go back and re-read that part about NOT including marketing costs, the cost of your time, and the cost of the frustration involved.
There is also data that supports the fact that 80 – 90% of people trying to FSBO wind up listing with a real estate agent. If selling your own home was so easy, and saved so much money, why would 85% of the people doing it give up? Hmmmm
Yes, sometimes it works, but a lot of times it doesn’t. True case: About 6 months ago, I got a call from a couple in my neighborhood. They were considering selling their home and wanted to talk. So talk we did. I did a “CMA” (Comparative Market Analysis) which told them what I considered to be the market value of their home. It was about $20,000 less than what they wanted. They also wanted me to cut the usual commission by 66%. So it didn’t work out. But I stayed in touch. In our market, prices are increasing aroundd 4% a MONTH. In 5 months, their house could be sold for what they wanted. So I called them back, we talked, and they said they’d think about it. That weekend I saw the Assist-2-Sell sign in their yard. Assist-2-Sell charges people flat rate fees to do various things for them under the guise that they can save the seller oodles of money.
I live two streets over from this house. I drive by it every day. For the last four weekends, I’ve seen “Johnny” (the owner) out at the crack of dawn putting up his open house signs, tying balloons on them, all that stuff. In the evenings, I see Johnny trudging around in the 110 degree heat, taking his signs down. This happens EVERY Saturday and Sunday.
I’ve talked to them. They still want too much (but not as far off as before) and they are offering a 1% co-broke. (What the buyers agent receives. The usual around here is 3%). The house is NOT in our MLS (“We save a lot of money by not putting it in there”, says Johnny). I assume it’s on an Assist-2-Sell site, but I can’t find it as they seem to list homes by office, and there is no indication of which office it’s listed with, and no way to search across offices. Nice system. Maybe it’s not on the A2S site either, saving Johnny even more money.
One fundamental rule of real estate sales: if you want to sell your house, people have to know it is for sale.
This week marks week #5 that Johnny is trying to sell his home himself. For a home like his, in our market, the average time on market is more like five days, not five weeks.
Johnny used to smile, wave, and even flag me down to talk when I saw him putting up or taking down his signs. Then a couple of weeks later, he just smiled. This last weekend, he just nodded his head. Johnny appears to be getting quite frustrated selling his own home.
Here is a snippet from a recent article on FSBO’ing:
In addition to all the tasks an owner usually does — prepping the house, keeping it clean, containing kids and pets — you have to perform the tasks usually overseen by the agent, such as:
Setting the asking price;
Advertising and marketing the property;
Showing the house to prospective buyers (often with little notice);
Differentiating between well- and poorly qualified buyers;
Making disclosures required by federal, state and local laws;
Negotiating the final deal;
Opening an escrow;
Ordering a payoff for your mortgage.
All this mess frustrates Johnny. I understand why! It’s not easy. Failure to do some of these things means you home will never sell. Failure to do others (ie: proper disclosures) sets you up for a law suit.
I’ll post more on the trials and tribulations of For Sale By Owner later. Of course I’m going to tell you to use a REALTOR®. But honestly, I’m not just saying that for my own good, I’m saying if for YOUR own good, too!
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Dear Realtor:
You wrote: "There is plenty of data out there that says the average FSBO home sells for 5 – 10% below market value." Well, show me the data.
You wrote: "There is also data that supports the fact that 80 – 90% of people trying to FSBO wind up listing with a real estate agent. If selling your own home was so easy, and saved so much money, why would 85% of the people doing it give up? Hmmmm…." Well, show me the data.
Perhaps your business card includes the words: "Trust Me"?
Jon –
The NAR (National Association of Realtors) collects a lot of this data. Many will think they are biased against FSBOs, but their data is collected straight from recorded deeds and home buyer/seller surveys. Below are some NAR stats, as well as independant links and snippets to some interesting FSBO related data. You are of course, free to believe it or not. I know what I see every day. I know what people who’ve tried the FSBO route have told me. I know how much I’ve saved investor clients by helping them buy FSBOs. Certainly some FSBOs do very well, and more power to them! However many get taken to the cleaners, and I feel bad for them.
Unlike a lot of REALTORS, I do not “prospect FSBOs”. Many REALTORS do, and make a nice living from it. I’ll list FSBO homes on my main site for no charge, I’ll provide blank contracts to FSBOs, I provide any FSBO who asks with a 48 page booklet about how to go FSBO. I’ve helped several FSBOs sell their homes and I’ve not made a dime on those transactions (though I have made money helping them buy a home, and have listed several homes from referrals from FSBOs).
And no “Trust Me” is not on my business card, though hunderds of clients have trusted me to help them buy or sell the single largest asset they’ll ever own.
I actually WANT FSBOs to be successful, because that means there will be more FSBOs onthe market. As a REALTOR, I *LIKE IT* when people go FSBO. It gives many a better appreciation for what REALTORS do, and the best part of having FSBOs on the market is I can get some killer deals for my buyer clients.
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An interesting article from an Associate professor at Penn State (some, but not a lot of FSBO info): http://www.buygilberthomes.com/SawyerStudy.pdf
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http://realtytimes.com/rtapages/20060118_sellersurvey.htm
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For Sale By Owner (FSBO) Statistics
Did you know?
. . . the typical FSBO home sold for 163,800, compared to $189,000 for agent-assisted home sales.
FSBO Methods Used to Market Home:
Yard Sign . . . 63%
Friends/neighbors . . . 25%
Newspaper ad . . . 44%
Open House . . . 33%
Internet . . . 24%
Most Difficult Tasks for FSBO Sellers:
Getting the right price . . . 24%
Understanding paperwork . . . 22%
Preparing/fixing up home for sale . . . 24%
Attracting potential buyers . . . 10%
Having enough time to devote to all aspects of the sale . . . 5%
Source: 2004 National Association of REALTORS® Profile of Homebuyers and Sellers
The median for-sale-by-owner (FSBO) selling price in 2004 was 15.4 percent less than the median agent-assisted transaction price. It appears that sellers wanting to save money by not using an agent are losing money in lower sales prices. The median price of FSBO sales in 2004 was $163,800 compared with $189,000 for agent-assisted sales.
The vast majority of home sellers in today’s market rely on the expertise of a real estate professional to assist them when they sell their home, and there’s been a sustained decline in the percentage of people selling on their own.
Even with the housing market setting four consecutive record years for home sales from 2001 though 2004, the level of FSBOs has shown a sustained decline ”“ holding at 14 percent of the market in both 2003 and 2004, according to The 2004 National Association of Realtors® Profile of Home Buyers and Sellers. The trend is clear.
Thirty-two percent of people who bought directly from sellers knew them in advance of the transaction, meaning that about one-third of FSBO transactions are not placed on the open market.
Several factors appear to account for the decline in for-sale-by-owners: the increasing complexity of the transaction process, with more disclosures and legal requirement than ever before; the amount of time required to market and show property; and security concerns about the motivation of strangers dealing directly with owners and walking through their homes.
In 1997, 18 percent of owners sold on their own. That was a record year for home sales and reflected a historically high level of FSBOs, but it was the last time that trend was seen.
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Summary of The 2005 National Association of Realtors® Profile of Home Buyers and Sellers
Walter Molony 202/383-1177
wmolony@realtors.org
Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents
WASHINGTON (January 17, 2006) ”“ Technology is transforming how Americans buy and sell homes in unexpected ways, including how they work with real estate agents and brokers, according to one of the largest surveys of real estate consumers ever conducted. The study was released today by the National Association of Realtors®.
Nine out of 10 home buyers use a real estate agent in the search process, but use of the Internet to search for a home has risen dramatically over time, increasing from only 2 percent of buyers in 1995 to 77 percent in 2005; it was 74 percent in 2004. The next largest source of information for buyers is a yard sign, mentioned by 71 percent of buyers.
When asked where they first learned about the home purchased, 24 percent of buyers identified the Internet, up strongly from 15 percent in 2004 and only 2 percent in 1997. Although most buyers use an agent to complete the transaction, 36 first learn about the home they buy from a real estate agent and 15 percent from yard signs; five other categories were 7 percent or less.
The 2005 National Association of Realtors® Profile of Home Buyers and Sellers, based on more than 7,800 responses to a questionnaire mailed to a large national sample of consumers located through county deed records, is the latest in a series of surveys evaluating demographics, marketing and other characteristics of home buyers and sellers.
NAR President Thomas M. Stevens from Vienna, Va., said the findings underscore the complexity of the home-buying process. “Buyers who use the Internet in searching for a home are more likely to use a real estate agent than non-Internet users, and consumers rely on professionals to provide context, negotiate the transaction and help with the paperwork,” said Stevens, senior vice president of NRT Inc.
“The real estate industry today bears little resemblance to the way we did business 10 years ago. It is hard to find another industry that has adopted technology so readily to its customers,” Stevens said. “Realtors® have invested a lot of time and money in building information technology, and because of these efforts, more consumers than ever are using the Internet in their home search.”
The survey shows 81 percent of buyers who use the Internet to search for a home purchase through a real estate agent, while 63 percent of non-Internet users buy through an agent; non-Internet users are more likely to purchase directly from a builder or an owner they knew in advance of the transaction.
“We find that the level of for-sale-by-owners is on a sustained decline and is now at a record low. In addition, a growing share of FSBO properties are not placed on the open market ”“ they’re private transactions,” Stevens said.
A clear downtrend in FSBOs has been seen since that market share experienced a cyclical peak of 18 percent in 1997. Only 13 percent of sellers conducted transactions without the assistance of a real estate professional in 2005, and 39 percent of those FSBO transactions were “closely held” between parties who knew each other in advance, up from 32 percent in 2004. The FSBO market share was at 14 percent in both 2003 and 2004. NAR began tracking the FSBO market in 1981; the record was 20 percent in 1987.
“In reality, the term ”˜FSBO’ is a misnomer when used to broadly describe homes sold directly by owners. Since two out of five of these transactions are between related parties, and those properties are not placed on the open market, we believe that ”˜unrepresented sellers’ would be a much more accurate term to describe this segment,” Stevens said.
The median home price for sellers who use an agent is 16.0 percent higher than a home sold directly by an owner; $230,000 vs. $198,200; there were no significant differences between the types of homes sold. “While many unrepresented sellers are motivated to save on paying a commission, we think the price difference speaks for itself,” Stevens said. “Owners without professional assistance also have problems in understanding and completing paperwork, prepping the home for sale, getting the right price and selling within the time planned.”
Survey data don’t explain the price difference, but Stevens offered some context. “Agents know best how to prepare a home and maximize value, agents provide broader exposure to the market and are more likely to generate multiple bids, and the portion of sales that are between private parties are likely to be at a lower price than those on the open market.”
“The housing market today contrasts sharply with predictions a decade ago that the Internet would ”˜disintermediate’ real estate agents, including speculation that NAR membership would fall in half. In reality, it’s grown dramatically ”“ selling real estate is not like selling a book or buying an airline ticket,” he said.
Realtor.com was the most popular Internet resource, used by 54 percent of buyers, followed by multiple listing service (MLS) Web sites, 50 percent, real estate company sites, 38 percent, real estate agent Web sites, 31 percent, and local newspaper sites, 15 percent; other categories were smaller.
Married couples make up the largest share of the housing market, accounting for 61 percent of transactions. Single women purchase 21 percent of homes while single men account for 9 percent. Unmarried couples were 7 percent of the market, and 2 percent were listed as other. In 2004, single women were 18 percent of buyers and single men were 8 percent.
The typical buyer walked through nine properties, searched eight weeks to buy a home and moved 12 miles from their previous residence. The typical seller placed their home on the market for four weeks, had lived in it for six years, moved 15 miles to their new residence and previously owned three homes, including the one just sold.
NAR’s senior economist Paul Bishop said both buyers and sellers use traditional methods to choose a real estate agent. “Word-of-mouth recommendation is the most common way to learn about real estate professionals,” Bishop said. “The most important criteria, whether you’re buying or selling, are the individual agent’s reputation and their knowledge of the local market.”
In finding a real estate professional, 44 percent of buyers were referred by a friend, neighbor or relative, 11 percent used an agent from a previous transaction, 7 percent found an agent on the Internet, 7 percent met at an open house and 6 percent saw contact information on a “for sale” sign. Six other categories accounted for smaller shares each.
The most important factor in choosing an agent was reputation, according to 41 percent of home buyers, followed by an agent’s knowledge of the neighborhood, 24 percent. In terms of desired qualities in an agent, three categories were rated as very important by more than nine out of 10 buyers: knowledge of the purchase process, responsiveness and knowledge of the market. Of buyers who use an agent, 63 percent choose a buyer representative. Satisfaction with real estate agents is very high, with 85 percent of buyers saying they were likely to use the agent again.
Seller responses are comparable: 43 percent chose agents based on a referral by a friend, neighbor or relative, and 28 percent used their agent previously; 10 other categories were 5 percent or less. Fifty-seven percent of sellers said reputation was the most important factor in selecting an agent, followed by their knowledge of the neighborhood, 17 percent. Eighty-two percent said they were likely to use the same agent again or recommend to others.
Four out of ten respondents are first-time buyers, a finding that is consistent for more than a decade. The median age of entry-level buyers is 32 years, also typical over time, and the household income was $57,200. They made a downpayment of 2 percent on a home costing $150,000, but 43 percent purchased with no money down. Of first-time buyers who made a downpayment, 23 percent received a gift from a friend or relative.
The typical repeat buyer is 46 years old and had a household income of $83,200. They placed a downpayment of 21 percent on a home costing $235,000, but 11 percent of repeat buyers paid cash for their home. In all, 94 percent of buyers and sellers believe their home purchase is a good financial investment.
“To underscore the value of housing as an investment, all you have to do is look at the difference in how repeat buyers purchase their next home ”“ the wealth effect of homeownership provides the greatest source for their downpayment, which is significantly larger,” Bishop said. Aside from sellers who pay cash for their new home, 66 use the equity from their previous home for a downpayment.
The most important factors in choosing a location to purchase a home are neighborhood quality, cited by 68 percent, close to a job or school, 43 percent, close to family or friends, 36 percent, and the school district itself, 23 percent; seven other categories were under 20 percent.
NAR mailed an eight-page questionnaire to a national sample of 145,000 home buyers and sellers, based on county records, who purchased their homes between August 2004 and July 2005. It generated 7,813 usable responses; the response rate was 5.4 percent.
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If you read all that, I commend you! You may be rolling your eyes right now saying, “Typical REALTOR…” and you’re certainly entitled to that opinion. But the fact remains that while there are thousands of people out there selling their own homes and doing quite well, there are many more trying to do so and failing miserably, or worse, getting a far lower price for their home than they could, even if they did have to pay some evil REALTOR a commission.
Thanks for reading and commenting!
Regards,
Jay
Most people do not have the time to sell own home. They do not realize how much work it is and will wind up paying agent in the end to sell house. It sounds good to save commission but it the end you might loose money on your home than if you just paid a agent to sell it for you.