October 2, 2013 | buyers, FSBOs, real estate commission, sellers
A long time ago, before I started my real estate career, but after the dinosaurs disappeared, I was a producer for several lifestyle series on broadcast TV. Many of which were geared toward real estate. At one point, I developed a show where real estate agents squared off against FSBOS (For Sale By Owners). In developing the show, I spoke to several real estate salespeople and several FSBOs to see who could do a better job of selling a property at the best price – the owner or the realtor. The show never made it past the development stage. During my research, I learned that there were very few FSBOs that were successful. Most had no clue about what is involved with trying to sell a property. There were some successes, for sure! Usually FSBOs who either had some kind of experience as a builder, or some connection to real estate that allowed them to understand what was involved. I would say that most of the time the FSBOs I came across failed to understand what was required in selling a property.
Nowadays you have discount brokerages like Comfree and Property Guys who promise to put your home on the MLS for a smaller fee than the usual 5% real estate agents charge, plus offer you some guidance as to what to expect as a seller. And this appeals to some sellers. The common belief circulating out there goes something like this: If you list your property on to the MLS, you can sell it yourself, and not pay as much commission.
Unfortunately, I think there are only a few people who can pull this off. For the most part, even if you can sell your own property, the sales price is often lower than if you paid full commission. Why you may ask? If the condo unit or identical house next door sold for a certain amount, why can’t the seller attain the same price and save the commission?
Here’s why:
1. First of all, most of the buyers out there will be represented by a real estate agent. Traditionally, a seller that goes with a full service brokerage will give 2.5% to the buyer’s salesperson and his or her brokerage and 2.5% to the seller’s salesperson and their brokerage for a total of 5%. So, most buyer agents will likely make sure that any seller using a discount brokerage will pay them. If they are not paid any thing by the seller, then the buyer has to pick up the 2.5% commission, and they are usually not too keen to do this.
2. Buyers believe they should pay less for those who are not paying any commissions to buyer or seller real estate salespeople. Let’s say a buyer does not have a realtor. The seller would think this is great, and he or she doesn’t have to pay that 2.5% commission to a buyer agent. The thing is, when a buyer approaches a FSBO, they often take off the 5% when they put in an offer. So, if the unit next door to you that is exactly the same as the one you have for sale and it sold a week ago for $500,000, the buyer is going to look at that price and remove 5% or $25,000. Because in reality, your neighbour’s house is really worth $475,000 when the commissions are removed. If you are not paying commission to anyone, then your place is worth $475,000. The bottom line: Buyers who are going to FSBOs are looking for deals too. They are not going to pay you more money for your property. They want to pay less since no professional real estate salespersons are involved. They want a deal.
3. Real estate sales have become more competitive and complex. It’s not just about slapping a listing on the MLS. You need a marketing campaign. You need proper staging. You need a negotiation strategy, and you need to know the market around you well. The truth is, owners are not always the best at determining the value of their own home or unit. They will either overprice it and it will languish on the market for days, or they will sell it to a neighbour for way under asking to the bliss of the neighbour who took advantage.
4. There’s a lot of work involved. Most people have regular jobs. So, they are not always available to answer question or make appointments. It may not sound like much, but most agents come with a front desk that will book every thing, plus an agent will often seek out feedback. Real estate salespersons will also chat with their fellow colleagues about real estate. They do it all day. They love to talk about it. This chit chat is often the way other agents find out about properties.
5. Real estate salespersons will drive you nuts. The truth is, most real estate salespersons know that those who try to sell their own properties do not have much success. There are even those who specialize in picking up FSBOs as clients when they mess up. So, you are going to be hearing from real estate agents. They will be circling your property like a carcass if it fails to sell.
I know why sellers sometimes become frustrated with agents. I am still surprised sometimes at how little some real estate salespersons do when they are selling a property. I can see why sellers think they can do it themselves. And I’ll say this one more time: Some can! And I tip my hat to you. But for most FSBOs or those who prefer to take the short cut out there, I believe you will lose money instead of save some. You will save the money on the commission, but you will likely sell your home for less (if at all). In the end,you will likely do a lot more work than you think.