FOR SALE BY OWNER: FACT AND FICTION
Observations from a Real Estate Attorney
As a real estate attorney, occasionally I’m hired by a seller who informs me they are selling their home on their own - without a real estate agent. For sale by owner or FSBO. My advice to these clients is always the same: “I’ve seen this movie before, and you probably won’t like the ending.”
That’s not to say a sale between family members or friends where price is agreed upon cannot occur without an agent. Yet even in those situations I advise my sellers to hire an appraiser to ensure they’re not leaving money on the table.
Below, I highlight 3 reasons (among many) that any home seller should consider before deciding to go it alone.
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Reason #1: Saving 5% on the Broker Fee:
“I’ll save 5% on the broker fee - right?” Wrong.
Guess who will have an agent? The buyer. And the seller is responsible to pay the buyer’s broker fee, typically 2.5%.
So, the perceived 5% savings is cut in half before the home is even listed. In addition, the buyer’s agent will be armed with more market information and expertise, which translates into a lopsided negotiation.
In fact, a recent study of U.S. home sales nationwide found that when comparing similar homes, a FSBO home on average sold for 5.5% less than a traditional sale using an agent.
In other words, a FBSO seller’s loss in sale dollars is usually greater than the agent fee they think they’re saving. And the lost profit only increases when they have to pay 2.5% to the buyer’s broker, which is most of the time. That study can be accessed here.
Reason #2: Overpricing:
Yes, it’s possible to overprice a home even in this market, and it’s usually far worse than underpricing. In fact, slightly underpricing a home (a shrewd strategy employed by some agents) is likely to attract multiple offers.
A bidding war is the best way to determine true market value and maximize sale price. An overpriced home on the other hand will sit on the market, become quickly stigmatized and invite low-ball offers from savvy buyer.
Reason #3: It's More Work Than You Think (much more):
A separate article could be devoted to this topic alone. Sellers who choose to go it alone don’t even know what they don’t know about selling real estate. It’s an extremely time-consuming process as it needs to be since it involves the sale of an asset worth hundreds of thousands of dollars - or more.
It involves well over 100 individual steps, many of which a lay person could not possibly anticipate. From decisions on pre-sale improvements to scheduling visits from buyers, home inspectors, contractors, and bank appraisers to name a few. And if the deal falls through, the process starts all over.
Nearly all my clients who began as FSBO sellers ultimately ended up hiring an agent. As Abe Lincoln once said: "He who represents himself … has a fool for a client!"
Although he was referring to lawyers, in my experience the sentiment can usually be applied to sellers who attempt to sell their own home.
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