As a real estate attorney, I’ve been hired by a handful of sellers over the years who informed me they were selling their home without an agent: “For sale by owner” or “FSBO”. My advice to these clients is always the same: “I’ve seen this movie before and you won’t like the ending.”
That’s not to say a sale or transfer between family members or business associates where price is pre-agreed 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:
1. Saving 5% on the broker fee: "But I'll save 5% on the broker fee right?" Wrong. Guess who most surely 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 knowledge and negotiation expertise, which results in 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.
2. Overpricing: in most cases this is 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 buyers.
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 of 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 representing themselves in court, in my experience the sentiment can usually be applied to sellers who attempt to sell their own home.
This article is intended for general informational purposes only and should not be construed as legal, tax or other professional advice. Prior to acting on any information in this article, you should seek legal, tax or other relevant professional counsel.