We all know that with a great many things, DIY saves a lot of money. Sure, DIY projects can cost you time, but you can save money and completing the project yourself can be quite satisfying. But what about your house? Could going the for sale by owner (FSBO) route be a better option than hiring a real estate agent? Buying a home is probably going to be the most expensive and complicated purchase you will ever make. If you can save yourself 3-6% by selling it yourself, that would be a pretty good deal right? After all, what could possibly go wrong?
So why might you want to go For Sale by Owner (FSBO)?
This is an odd question to hear a real estate agent ask. But let’s face it, real estate is what I do. So of course I’m going to ask questions like this. Before I became a real estate agent I always thought I could sell a home myself without any issues. I was pretty good with real estate, I’m a smart guy, and I was able to knock about $3k off my car when I purchased it. So obviously I’d be good at this too. Now I don’t want you to think this is the only thing to think about. But it’s a good start. So how about we step through each of these points and see what we come up with?
In 2017, 18% of FSBOs were unable to sell within their targeted time-frame.
- Marketing your home
- Detailed and litigious paperwork
- Sales price of the home
- Days on market
- Is the potential buyer actually qualified to buy?
Boy was I wrong. As I learned more about home buying and selling, I realised just how much I didn’t know. For starters, the word liability. People make mistakes sometimes, and while an attorney can close the sale for you, they don’t carry errors and omissions insurance. And you most likely don’t either. Let’s say that you put your home on a free site or craigslist and you have the most amazing hardwoods in your home. You market the house as hardwoods throughout, and you get a buyer who decides they want your home. After they buy, they discover that those hardwoods are actually wood veneer, you now have a big legal oops to deal with. It’s far too easy to be a target for lawsuits in today’s society, so be careful.
Detailed and Litigious Paperwork
Do you know what the disclosure requirements are when listing a home? Are you sure you have disclosed everything you need to? The laws are different from state to state. They cover everything from lead paint, if there’s anything about the neighborhood that has to be disclosed, and even the presence of specific detectors or devices. Are you sure you included all the forms required for these disclosures? Needless to say things get complicated and you could be committing a prosecutable offense without even knowing it. Plus, many of the contract forms required by the state are not accessible to FSBO sellers.
Marketing Your Home
Just an FYI, when you sell your home yourself, it will not be on the MLS. This means every one of those real estate websites you go to won’t list your home. Real estate agents don’t put it on their websites, realtor.com won’t have it, and real estate magazines and publications won’t list it. Some areas will let you pay to have it listed on the MLS, but real estate agents have no incentive to show your home, plus there’s the fear of the unknown with someone who’s not represented by an expert.
Days on Market
In 2017, 18% of FSBOs were unable to sell within their targeted time-frame. 87% of buyers purchased a home using a real estate agent or broker, who may not show your home because of the above mentioned concerns. And in the market as a whole, only 8% of the homes sold in 2016 were FSBO. The average agent sold home spent 69 days on the market, while the average FSBO spent 88 days on the market. 20% of those FSBOs ended up relisting after that time on the MLS to sell, that’s a total of 157 days.
Sales Price of the Home
This is the primary reason people go FSBO. They want to save on the commission price. But what happens when I have an exclusive representation agreement with a buyer that requires them to pay a commission when I find them a home? It’s the buyer who pays that commission, and if you say you won’t, guess who does. The buyer, they still have to live up to our contract. Do you think a buyer is going to pay the commission out of their pocket? They are not even going to bother looking at the house at that point. In 2016, the average FSBO sales price was $190,000 while the average home sold by an agent was $249,000. So if you are looking at 6% of $245,000, that lowers what you get to $234,000 after paying commission. So you actually lost $44,000. The average real estate agent sells a house for 24% over what the FSBO sells for, while the seller only pays 3-6% for commission.
In 2016, the average FSBO sales price was $190,000 while the average home sold by an agent was $249,000. The average real estate agent sells a house for 24% over what the FSBO sells for, while the seller only pays 3-6% for commission.
Is the Potential Buyer Actually Qualified to Buy?
This is something people don’t even think about. Before I even start looking for homes for a client, I REQUIRE they get a preapproval. I want to make sure we are looking at homes they can actually afford, that they can actually buy if I find them the home they want, and that I’m dealing with a qualified and serious buyer. But when people are “window shopping” FSBO houses, there’s no guarantee they are actually qualified buyers. You go through the entire process of getting the house sold to them. The paperwork ends up filled out incorrectly or assurances to buy are not in a contract. And they end up not being able to secure financing because they just used a number that some google search told them they could afford. Next thing you know, some makeshift contract has bound you to selling the home to them but there’s no contingencies or time frames governing the sale. You now have to wait a year for someone to back out before you can sell to someone else. Not a fun scenario.
Considering 20% of FSBOs give up and end up hiring an agent anyway, an agent is worth looking into. When you look at the averages, is saving 6% to loose 24% really that amazing of a deal? As someone who used to have the FSBO mentality before getting his real estate license, I can tell you there’s a lot more to the buying and selling process than you may think. Plus, putting all the logic and facts aside, there’s a lot of emotional things going on in your life during the transition. So after exploring only 6 points out of literally hundreds of considerations in selling a home, think about it and answer my original question. Why might you want to go for sale by owner?