Thursday, January 26, 2017

FSBO Fail: Why trying to sell your own house simply doesn’t work

Every year, a very small portion of brave and misguided homeowners try to sell their homes themselves, without the help of a real estate agent. Why would anyone try to sell their home as a FSBO (For Sale By Owner)? Unless they happen to be a real estate attorney, there is only one likely motive: to try and save money.

After all, a typical full real estate commission is 6%, with 3% going to the buyer’s agent and 3% paid to the seller.

“Isn’t 6% of the sales price a whole lot to give up when selling my house?” their thinking usually goes, and rightfully so.

But remember that when listing FSBO, homeowners still need to pay a buyer’s commission of 3%. If they don’t offer a commission for the buyer’s realtor, no one will ever show the home or do business with them.

But maybe they'll just find a buyer that doesn't want to use a real estate agent, so they won't have to pay their commission? Wrong. The vast majority of buyers use a Realtor to help them and why wouldn't they, since it's free for them. If a buyer doesn't use a Realtor for some strange reason then surely they'll expect the appropriate discount – or more – from the seller.

So we’ve established that FSBOs are essentially just trying to save 3% of the sale price.

All of a sudden trying to go the FSBO route is only half as financially attractive. But FSBOs are even more financial fool’s gold, as we’ll see.

To address the obvious, I am a Realtor, so of course I have a vested interest in people using a real estate agent (me!) when buying or selling their home. But the facts that support using professional representation when selling your home don't need hyperbole or embellishment, as you'll see.

Here are 20 facts about homeowners who sell their home with the help of a Realtor versus those who (try) to sell on their own:

According to the latest reports, 89% of sellers now use a real estate agent to sell their home.

For Sale By Owner (FSBOs) accounted for only 8% of all home sales.

The remaining 3% can be accounted for with real estate attorneys, family-to-family sales, sales occurring during a divorce and the like.

Now let’s look at the ever-important financials when it comes to FSBOs versus using a Realtor to sell your home:

The average FSBO sold for $210,000.

Meanwhile, the average home listed with a real estate agent sold for $249,000.

That’s a difference of $39,000 – or 15.6% in sale price – when listing with a Realtor.

For every sale to be successful they need a buyer, so let’s look at the stats on home buyers using real estate agents to further illuminate this discussion. These days, 87% of homebuyers purchase their home through a professional real estate agent or broker.

That's a marked increase from the low point in 2001 when only 69% of buyers used a real estate agent or broker to sell.

While a good portion of those that don’t use a real estate agent try to sell themselves, there are other factors that contribute to those numbers, like sales between family members, divorcing spouses, direct from the builder and also company relocation sales.

When searching for a home, buyers used these information sources:

  • Real estate agent: 87%
  • Yard sign: 51%
  • Mobile of tablet website or application: 57%
  • Open house: 48%
  • Mobile or tablet search engine: 54%
  • Print newspaper advertisement: 20%


If the average FSBO sells for $210,000, the seller will net (discounting all other factors, taxes, fees, etc. for purposes of this illustration):

$210,000 - $6,300 (3% paid to buyer’s agent) = $203,700

Now let’s look at the average home sold with a Realtor.

Numerous studies and housing market research show that the average Realtor-listed home sells for $249,000. That means the seller would net (discounting all other factors, taxes, fees, again):

$249,000 - $7,470 (3% paid to buyer’s agent) - $7,470 (3% paid to listing agent) = $234,060

Even after paying a full commission to both agents, homeowners who sell with Realtors net 14.9% more profit.

That’s almost a 15% increase in profits just by using a Realtor!

If home sellers were truly motivated by putting the most money in their pockets as possible (and why wouldn’t they be?) and are thinking clearly (that’s the problem), data proves that they can make an additional 1/7th just by enlisting the help of a real estate agent.

But there are other compelling reasons not to list your home as a FSBO.

Time is also not on the side of FSBOs. Considering that:

Average time to sell for FSBO: 88 days
Average time to sell for listings with a Realtor: 69 days

So working with a Realtor saves at least 19 days, which is 22% longer on average, in an industry when time is definitely of the essence during limited hot-selling seasons of spring and summer, and the subsequent cooling of sales and prices during the winter.

Interestingly enough, 20% of FSBOs end up relisting on the MLS after the do not sell the first time, which creates a lot more work and time delays for the sellers.

When it comes to marketing their FSBO, how do sellers fare? Not very well, judging by these statistics:

The most common marketing tactics for FSBOs:

  • Yard sign: 42%
  • Friends, relatives, or neighbors: 32%
  • Online classified advertisements: 14%
  • Open house: 14%
  • For-sale-by-owner websites: 15%
  • Social networking websites (e.g. Facebook, Twitter, etc.): 15%
  • Multiple Listing Service (MLS) website: 10%
  • Print newspaper advertisement: 3%
  • Direct mail (flyers, postcards, etc.): 3%
  • Video: 2%
  • Other: 1%
  • None: Did not actively market home: 25%


What were the biggest challenges FSBOs reported?

  • Understanding and performing paperwork: 12%
  • Getting the right price: 6%
  • Preparing/fixing up home for sale: 6%
  • Selling within the planned length of time: 18%
  • Having enough time to devote to all aspects of the sale: 6%


In fact, a recent survey found that owners of FSBOs reported having 70% more stress during a transaction than those who sold with a Realtor.

The contracts, disclosures, documents, timelines, procedures, etc. necessary to sell a home sometimes reach hundreds of pages, and you can’t just skip them because you’re unfamiliar or selling a home yourself.

Additionally, there is the potential for HUGE liability issues with every single real estate transaction. People do end up getting sued and in court all the time when they don't properly disclose material facts about their house, their neighborhood, etc. A seller essentially magnifies their liability when they represent themselves in the sale of their own home (talk about a conflict of interest!).

There are even things you can’t say as a Realtor that extend to a homeowner when they decide to try and sell their own home, like Fair Housing Laws that curb discrimination, steering, redlining, and other practices. If you don’t know exactly what you can and can’t say – or even write in your ads for your home – you could be violating federal laws.

What does it all add up to?

If you want to net 14.9% more profit,
Have less stress 70% while working far less,
Sell 22% faster,
And avoid a huge liability and potential to be sued,

Then skip the thought of listing your home as a FSBO and do it the right way with a Realtor at the Alfano Group instead!

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