Selling "For Sale
by Owner" (FSBO) isn't much different from listing a home with
a traditional real estate agent. Many homes on the Multiple
Listing Service (MLS) and Realtor.com are FSBOs, and real estate
agents routinely show FSBO homes to prospective buyers.
Indeed, failing to do so would be a breach of their fiduciary duty
to their clients and of the Realtor Code of Ethics.
The difference is that
FSBO sellers take over the job of the listing agent. Many of
them hire professionals to appraise, stage, photograph, design
flyers, and help them with the paperwork. By overseeing the
marketing of their own properties, they believe they can get much
more bang for their marketing buck.
Does selling FSBO
2007 study by two Northwestern University economists found that
FSBO sellers in Madison, Wisconsin, got roughly the same price for
their homes as agent-assisted sellers,
giving them "a significantly enhanced net sale price." Another clue is given in the 2005 survey of US sellers by
the National Association of Realtors (summarized in the Massachusetts
Association of Realtors Profile of Buyers and Sellers).
The study found that FSBO sellers reported the highest level of
satisfaction with the selling process, with 80% "very
satisfied" and only 3% "very dissatisfied." Of those
who sold their homes through a real estate agent/broker, only 65%
were "very satisfied" while 5% were "very
Reasons to sell FSBO
sometimes claim that you
can pocket the entire real estate commission by selling your home
yourself. Unfortunately, that's usually not true.
Real estate commissions are
of the sales price of a home. Of this, half normally goes to
the listing agent (who represents the seller and markets the
property) and half to the selling or buyer's agent (who shows the property to
buyers and writes up offers).
In this primer, I'll be recommending
that you offer a 2.5 - 3% commission to buyers' agents, but use a flat-fee
MLS listing service, a FSBO website, a discount broker, and other
service providers to
replace the services of a listing agent. If you take my
advice, you'll likely save lots of money by selling FSBO, but you won't save
Here's an estimate
of how much it would cost to replace many of the services that a
agent would perform, assuming you do some of the work yourself, like
hosting open houses and fielding phone calls:
photos and flyer design
listing on the MLS
rental of an electronic lockbox
rental of signs and a flyer box
Flat-fee broker representation from the time you get an
offer to close of escrow
of 200 color flyers
cookies and flowers for 12 weekends of open houses
This, of course, is
just the cost of replacing the listing agent, who normally splits
the commission with the buyer's agent. If you choose to
cooperate with buyers' agents, you should also expect to pay 2.5 -
3% of the sales price of the property as a commission.
Even if you don't pay a
commission to the buyer's agent, you shouldn't count on pocketing
all the savings. Buyers will expect a price discount if
they've spared you the expense of paying for a buyer's
agent. Giving them this discount acts the same way on your
bottom line as paying a commission.
Real estate agents often warn FSBO
sellers that there are complex tax and legal issues involved in selling a
home and that it's best to let a professional handle it. (See, for
article.) I agree. That's why I recommend that you have an
experienced broker or real
estate attorney--not a real estate salesperson--prepare and review all the
contracts. As Douglas Gantenbein
points out in a
Slate article, "A realtor's license can be had after as
little as 50 or 60 hours of training (the person who cuts your hair
probably has 1,000 hours or more."
Once you've signed
a contract with a listing agent, your options become severely
limited. It may be difficult for you to switch agents, or
rent out your home, or take it off the market. If you find
a buyer on your own, your listing agent will likely pocket the
buyer's agent's commission.
You might find yourself locked
into a contract for several months with a flaky or incompetent
agent. Some agents may surprise you with transaction
fees they charge on top of their commissions for handling your
paperwork. Or you and your agent might have a misunderstanding
about the amount of commission that's due. (Click here,
here, and here for examples.)
If you list your house, buyers
usually need to go through licensed agents to make an offer (though there
are ways for astute buyers to get around that--click
here to learn more). If you sell FSBO, buyers can contact
you directly to make offers, and pocket the buyer's agent's
commission themselves. Many buyers seek out FSBO homes for
Selling FSBO allows you
focus your money on services that
are tailored to your needs. In a slow market, offering a generous
3% commission to selling or buyers' agents gives them a
powerful incentive to show your property to their clients and bring
your house is in a remote area, you might want to pay for
professional photographs and a virtual tour so prospective buyers
can view it online. If you expect to
have a high tax liability,
you may want to pay for an accountant or tax lawyer. If
your house is dowdy, you may want to splurge on a professional
stager or rent nice furniture.
||You can often get more bang
for your buck by hiring different service providers ŕ la
have an incentive to sell your home quickly, even if that means
getting a lower price. Holding off a sale in order to get, say,
an additional $10,000 will benefit the listing agent by as
little as $125, since the commission must often be shared with
the supervising broker. From the agent's perspective, it's better to push for a
quick sale and close the deal.
In some areas,
many agents leave
flyer boxes empty and suppress the addresses of their listings
on Realtor.com. This
hurts sellers, since it frustrates those buyers who are
searching for homes on their own. But it helps agents,
since buyers sometimes call them to get the prices or addresses.
The gives the listing agents a shot at representing the buyers
as well as the sellers in the transactions.
closely supervised, listing agents may
also "sandbag" listings. I know of a beautiful bank-owned
property in a remote location that the county tax assessor shows
as having 4 bedrooms and 4 baths. The listing agent took
horrible pictures and described it as having 3 bedrooms and 2
baths. His motive may have been to discourage other agents
from showing the property so that he could save it for his own
buyers and collect a double commission.
Unscrupulous agents may also
use listings as buyer magnets. In an informal study
of bank-owned properties, I found that agents would sometimes
exaggerate features, say by claiming that a $300,000 home has
three bedrooms when it really has only one. Their motive may be to
attract phone calls from buyers eager to get a good deal, so
that the agents could steer them to other listings.
|| To demonstrate how the interests of listing agents and sellers
differ, economists Steven Levitt and Chad Syverson studied 100,000
home sales, and found that agents who were selling their own
property kept their houses on the market an average of almost 10 days
longer and got an average of 3.7% more for them. (That comes to
$18,500 for a $500,000 house.)
||Listing agents are
paid, in part, for helping their clients find reliable
pest inspectors and contractors. But agents have no incentive to choose the cheapest service providers. Though
it's illegal for agents to accept gifts, kickbacks, or referral
fees from many service providers, there's evidence that this
rule is often flouted. (See, for example, here,
Ever notice that ads
for $8 trinkets on eBay often
have better photos and descriptions than ads for $800,000 homes on
Realtor.com? Once a
listing contract is signed, listing agents have little incentive to
spend money on marketing. Again, getting $10,000 more for a
house may only benefit the listing agent by about $125. When a
house near mine sold last year, the sales flyer was printed on lime
green paper and had spelling errors, the image file on the Realtor.com
website was corrupt, and the agent served stale Halloween candy
at the open house. But the market was hot, the home sold
quickly, and the listing agent (and his broker) got a
sellers of a $800,000 house in California will normally pay
$40,000 to $48,000 in sales commissions if they list with a real
estate agent. But they shouldn't be surprised if their
agent refuses to spring for a professional photographer.
Even if good photographs were to boost the market price of a
house by, say, $10,000, the agent may only pocket about $125.
Even if you plan
list your home with an agent, it's a good idea to try selling it
FSBO for the first few weeks. Sellers sometimes find that
their houses sell easily soon after they're listed, which leads them
to wonder if they could have sold them without the expensive
Reasons NOT to sell FSBO
- Listing agents don't charge
If you're short of cash, you may
not be able to come up with enough money to market your property
effectively. Listing agents don't charge any upfront fees and
get reimbursed only if the house sells. In essence, realtors
are in the business of making risky "loans" to sellers, in that they
provide a lot of services upfront but get paid only if
the house sells.
- Buyers may not take you
Since selling FSBO can be as easy as
putting a homemade sign on your front lawn, many prospective buyers
worry that FSBO sellers aren't committed to selling their property
and won't accept a reasonable offer. Sellers who have
signed up with real estate agents are perceived to have made a
stronger commitment to selling.
- Buyers' agents in some areas
might not show FSBO homes.
Though buyers' agents may have
an ethical and
fiduciary duty to search all homes for sale in an area for their
that agents in some areas boycott FSBO homes or steer their clients
away from them.
This is more likely to happen
in rural areas that are dominated by just a few real estate
brokerages. If you're worried about this, attend the open
houses of FSBO sellers in your area and ask the sellers if they
think they're being boycotted.
Be aware, though, that listing
with a traditional brokerage won't necessarily protect you from
unethical buyers' agents. If you list, say, with ABC
Realty, it's possible that XYZ Realty agents will steer their
clients away from your home in favor of their own listings.
The best way to keep buyers' agents honest is through aggressive
Also note that listing agents
often tell FSBO sellers that buyers' agents won't show FSBO
homes. This claim is part of a standard sales script and
is usually wrong.
||If your home is in a gated
community or a hard-to-find location, you'll be more vulnerable
to boycotts by buyers' agents. Agents are more likely to
show FSBO homes if they're in conspicuous locations. They
worry that if they don't show these homes, their clients might
find them on their own and make offers directly to the
- If you're involved in a short
sale, it's usually best to go with a traditional agent. most of your
savings likely will be captured by your lender.
If you owe more on your house
than it's worth, and if you plan to ask the lender to make up
the difference, then you'll be listing your home as a short
sale. Short sales tend to difficult transactions, so I
recommend that sellers use traditional agents to handle them.
Besides, since the lender is absorbing much of the loss, it
stands to capture most of the savings you'd enjoy from selling
- Selling FSBO can be an ordeal for families that are already overwhelmed with
You'll have to do some of the work
yourself, like filling the brochure box, giving personal tours, and hosting open houses.
||Some agents claim you can get
16% more for your home if you list with an agent. This statistic probably comes from a
National Association of Realtors study which found that the
median 2005 sales price for a home that was sold by an agent was
$230,000, compared to only $198,200 for a FSBO home. But
while it's true that $230,000 is about 16% higher than $198,200,
it doesn't follow that hiring an agent will boost your home's
sales price by 16%. One reason FSBO properties sell
for less is that is that many of them are sold to family
members. Another is that FSBO properties include a
disproportionate number of mobile homes and manufactured homes,
which usually sell for less than detached single-family homes.
- You'll have to find reliable
contractors and inspectors on your own.
Real estate agents
know to steer clear of the bad ones.
- You'll need to have
good business sense and social skills.
Comedian Larry David once
described himself this way: "I'm a very susceptible person,
easily influenced, a natural-born follower with no sales-resistance.
When I walk into a store, clerks wrestle one another trying to get
to me first." If that sounds like you, you probably shouldn't
You'll also need to have reasonably
good social skills and the discipline to follow through.
- It's sometimes hard to sell a home FSBO if
you're an absentee owner and live out of the area.
Pros and cons of signing up with a
flat-fee listing service
Flat-fee listing services like Help-U-Sell
perform many of the services of a listing agent, but for a lower, flat
fee. These fees vary by area. Here are some of the pros and cons of
signing up for this kind of service:
- Their fees are usually lower than
conventional listing agents, but they perform many of the same
- As with listing agents, they don't
normally charge upfront fees and get paid only if the property sells.
This is advantageous if you're short of cash.
- Unlike conventional listing
contracts, a flat-fee contract makes it easier for you to sell to
buyers who aren't represented by buyers' agents.
- As with conventional listing agents,
you may be required to sign a contract for a certain period of time,
say three or six months. If you're dissatisfied with the services
you're getting, it may be difficult to get out of the contract.
- I believe you can get much more bang for
your buck by doing your own marketing.
Like full-service realtors, flat-fee
listing services are in the business of making risky "loans" to sellers in
that they advance the seller a number of services, but get paid only if
the house sells. As with most risky loans, though, the
"interest rate" they charge is quite high. I believe
that if you have enough cash to finance the marketing of your home,
you're better off not using this kind of
Is it wise to sell FSBO in a slow
Agents sometimes argue that sellers are better off using full-service realtors in a slow
real estate market.
I disagree, for these reasons:
- As I've noted above, listing agents
usually have little incentive to spend money on marketing, since
raising the sales price of a house by, say, $10,000, will give
the agent a return of only $125. In a slow market, that $125
return becomes less certain, since the listing is more likely to
expire before the house is sold. If the market's slow, then,
an agent's incentive to spend money on marketing--already
weak--becomes even weaker. Just when you want your agent to
splurge, he or she is more likely to scrimp.
- Since listings in slow markets are
more likely to expire, listing agents are especially eager to close
deals quickly--even if that means a lower sales price. If the
market's slow, then, the listing agent's advice about setting an
asking price and negotiating offers is especially questionable.
- If you're having trouble finding a
buyer for your FSBO property, it may be more cost-effective to
increase the buyers' agent's commission (perhaps to 4%) than to sign
up with a listing agent. Buyers' agents are the ones who
convince buyers to make offers.
- In a slow market, buyers can pick
and choose among different properties on the market. A good
selling strategy might be to forego the listing agent and use the
savings to price your
property more competitively.
If you are attempting a short sale
of your property, though, you may be better off using a listing
agent. A short sale occurs when the sales price is less than
the amount of the loans taken out on the house. Agents usually
have to work much harder to make these deals go through, since the
bank or banks have to approve all deals.
||In a buyers' market, FSBO
sellers can use the money they save on the listing agent's
commission to do one or more of the following: (1) raise
the buyer's agent's commission, (2) market their home more
aggressively, or (3) lower their price.
Alden, 2008. All rights reserved.