In a traditional real estate transaction, the seller is represented by a seller's agent, the buyer is represented by a buyer's agent and these agents navigate the negotiations, paperwork, and other aspects of the transaction with their client’s best interests in mind. In a previous post, we discussed the benefits of a buyer being represented by an agent.
Similar to a buyer, a seller can reap many benefits from choosing to be represented by an agent. However, there are quite a few sellers who choose to go a different route – For Sale By Owner (FSBO for short). Many follow this approach because they feel they have more control of the sale process, and want to save the commission that would otherwise go to the agent.
Despite this reasoning, choosing to FSBO has several disadvantages as well. It is important that property owners know these drawbacks and consider them before making such decisions. Below are 7 reasons to rethink the For Sale By Owner route.
1. No Professional Help
Property owners are not as well informed as real estate agents. Part of a seller’s real estate agent’s responsibility is to oversee all the negotiating and paperwork, from start to finish, on behalf of their client. A real estate agent’s experience helps a seller review offers, write counter-offers, etc, which a seller would otherwise have to do on their own or through hiring an experienced real estate attorney. An inexperienced seller choosing to FSBO might think that the negotiating might be done solely between themselves and the buyer regarding the sale price of the home. However, there are potentially 4 different parts (and parties included) of the transaction that will require negotiating:
- The buyer who wants the best deal possible
- The buyer’s agent who solely represents the best interest of the buyer
- The home inspection company which works for the buyer (and will almost always find some problems with the house.)
- The appraiser if there is a question of value
It is not only helpful, but it can also be a relief to have a real estate agent represent the seller and navigate these negotiations on a seller’s behalf. Another drawback for FSBO sellers, is that they may not be available for a showing when a buyer is, which limits the property’s exposure and hinders the sale process. Working with an agent who will oversee the coordination of open houses, schedule appointments with other agents, meet with potential buyers, and conduct showings of the property allows for maximum exposure of the property.
According to the National Association of Realtors on May 11th, 2018 - FSBOs accounted for only 8% of home sales in 2016. The typical FSBO home sold for $190,000 compared to $249,000 for agent-assisted home sales and the most difficult tasks reported for FSBO sellers were:
- Getting the right price: 15%
- Understanding and performing paperwork: 12%
- Selling within the planned length of time: 13%
- Preparing/fixing up home for sale: 9%
- Having enough time to devote to all aspects of the sale: 3%
2. Knowledge of the Real Estate Market
Another reason a seller might want to reconsider For Sale By Owner, is related to their knowledge (or lack thereof) of the real estate market. Most property owners (especially first timers) don’t have the sufficient knowledge and experience in the real estate market that ensures a successful sale. Most sellers do not know how to correctly conduct a real estate market analysis that aids in pricing the property. Some assume that because a neighbor’s home was recently sold for $200,000, then this is also their home’s worth. This is not necessarily accurate. However, conducting a real estate market analysis is not an easy process for those with insufficient knowledge or experience in the real estate business.
Pricing your home incorrectly when you list it can be the worst mistake, and can greatly affect days on market and final sales price. Pricing too high will mean fewer people see it, resulting in fewer offers. Price it too low and you’re conveying that something is wrong with the property or that you are desperate to sell. More days on market will also signal to buyers that something is wrong and can ultimately mean less money upon final sale.
3. Limited Marketing
Another disadvantage of being a FSBO seller is that, unlike real estate agents, most property owners have limited contacts. As a result, marketing can be very challenging. Having limited contacts means you won’t be able to expose the property to a large number of people and attract as many potential buyers as possible.
According to National Association of Realtors on May 11th, 2018- Buyers found the home they purchased from:
- Internet: 51%
- Real estate agent: 30%
- Yard sign/open house sign: 7%
- Friend, relative or neighbor: 6%
- Home builder or their agent: 5%
- Directly from sellers/Knew the sellers: 2%
- Print newspaper advertisement: Less than 1%
Real estate agents have access to the best marketing technologies that are not available to average real estate investors or property owners, such as the Multiple Listing Service (MLS for short). Only licensed real estate agents have access to and can list properties for sale on MLS while buyers’ agents search the MLS for potential properties to show their clients. Single Handedly, this real estate tool can foster interest in the property, result in more showings, and lead to faster sales. Unfortunately, it’s not available to FSBO sellers, so it’s no surprise that homes sold via FSBO have seen a steady decline as online real estate has become the norm.
As previously stated, simply putting up a ‘For Sale By Owner’ sign in the front yard, is not nearly enough to get the property sold. When selling their property FSBO, sellers need to check and inspect the property for anything that might need repair, prepare and stage the property, market and advertise it, handle all the paperwork and be available for showings. Once under contract there are inspections, appraisals and other appointments to be scheduled, and more paperwork to be done. One of the largest benefits of using a seller’s agent is that 90% of the workload is handled by the agent. The agent can give access to the home for showing, handle all negotiations and paperwork on seller’s behalf and manage all marketing and advertising of the home.
The common perception of FSBO sellers by buyers and real estate agents is that they are not serious about selling their property and are often just testing the market or seeing if they can get some farfetched price. They are often not taken seriously in the real estate community because they don’t see the value in representation by an agent or broker. FSBOs can also attract investors and low-ballers who are looking to use the seller’s inexperience and ignorance as a prime opportunity. While an offer may seem like a lot to the seller, it may be a steal. An experienced agent will understand this and negotiate the most money possible for the seller.
Recently, Paige Johnson with EJ Johnson Group had such an experience:
"Recently, I met with a young couple looking to purchase a home and seamlessly the home they had dreamed of was located, a contract negotiated, professional inspection (s) performed, repairs agreed to between buyer and seller and they were on their way to being homeowners in a few short weeks.
Toward the end of the transaction they shared a story about looking at a For Sale by Owner - it too was in their dream neighborhood. This house checked their boxes and they strongly considered writing a contract with the seller/owner, but after careful consideration they realized the value in being professionally represented to protect both them and the seller. The seller in this case was not willing to work with an agent and the buyers moved on to another property and look forward to settling in to their new home for years to come."
Choosing to FSBO doesn’t necessarily save money. According to the National Association of Realtors on May 11th, 2018- the typical FSBO home sold for $190,000 compared to $249,000 for agent-assisted home sales. When using an agent, they will price the property to get the most money in the shortest time- a combination that can mean 10-30% more net profit. When considering saving 1-6% on a listing commission- a seller should take that into consideration.
7. Attachment to Property
The selling process can be emotionally difficult for sellers who are attached to their homes and could have a hard time letting them go. This is, in fact, a reason why property owners might overprice their property when selling them as FSBO, as for them their homes very valuable. Moreover, it might be awkward or uncomfortable for a seller to show the home to a potential buyer (who essentially is a stranger). Working with an agent helps keep the emotions out of showings and negotiations aiding in a smoother transaction.
The Bottom Line
Real estate agents are very helpful in a real estate transaction as selling a property is a complex process, and it can be overwhelming for seller following the For Sale By Owner approach. FSBO will definitely allow a seller to save the commission cost, but risks losing the offers and potential buyers that a using real estate agent will guarantee.
Before deciding to sell property as For Sale By Owner, consider the following questions:
- Can I handle all required documents and paperwork?
- Will I be available for showings whenever a potential buyer is?
- Can I knowledgeably negotiate with potential buyers, agent, appraisers, and home inspectors?
- Do I have enough knowledge and skill to conduct a real estate market analysis to assist in correctly pricing the property?
- Do I have contacts or marketing strategies that will attract potential buyers? Can I afford to not have my home included in the MLS?
- Am I prepared to spend the time and effort needed for the success of this process?
- Am I able to make reasonable, non-emotional decisions regarding my home?
If you're ready to sell your home but remain unsure as to the value of, or have questions about, working with an agent- please call us at 479-877-0423!
We'd love the opportunity to answer your questions!