Hard to believe that a real estate agent can tell you the truth about trying to sell your home without a real estate agent - especially after I just covered all the myths and lies that the industry spreads about the for sale by owner route. But I'm going to try anyway.
I actually have some credibility in the area, having sold my last home myself in Richmond, VA before returning to Chicago in 2000. Even then I knew that the whole notion of the "neighborhood expert" was bogus and there was no way I was going to pay that guy 6% to sell my home even if he had sold every other home in the neighborhood. I never could exactly wrap my head around what it was he was going to DO for us. So we paid some other guy $500 to get us on the MLS (even a FSBO seller HAS to be on the MLS) and we patiently waited for the right buyer to come along.
We sweated it out a bit because we were scheduled to move in a few weeks and we didn't yet have a buyer. But at the last minute a buyer came along, who just happened to not have a real estate agent, and offered us our full asking price - he told us he thought it was fair. We ended up saving $18,000 in commissions but in another week we would have turned the house over to a real estate agent.
For Sale By Owner Commission Savings
So the benefit of doing the for sale by owner thing is that you save on the commission. That's the main reason people do this. But let's make sure we understand exactly what the savings would typically be. My situation was quite unique in that there was no realtor on either side of the transaction. The vast majority of the time your buyer is going to have an agent who the seller is expected to pay and 2.5% is fairly typical in Chicago - the co-op commission. Yeah, you can ask the buyer to pay their agent but then the buyer is just going to add that to the effective cost of your house so it ends up being the same thing. And you can offer less than 2.5% but then what happens when most of the other homes are offering 2.5%? It would make me nervous.
On top of the co-op commission you will probably pay someone $500 to put your listing on the MLS. Otherwise no one is going to know you are on the market. And you really should have professional photos taken. It makes all the difference in the world. That will cost you about $109 if you know who to call.
Compare that cost to the 5 - 6% that most agents would charge you to list your home. If we assume a $300,000 purchase price at 5% then the for sale by owner savings is only 5% - 2.5% - $500 - $109 = $6891. That may be a bit less than you thought you were saving but on the other hand for higher priced homes the savings are even greater - or so you think. More on that another time.
So what it really comes down to is whether or not the savings are worth it and to make that determination let's look at the real factors to consider in selling your own home.
What Is The Value Of Your Time?
You have to look at the potential savings relative to the time you're going to spend selling your own home. If a realtor would put in 40 hours of work selling your home then you will definitely put in some multiple of 40 hours simply because this is all a realtor does and so they are going to be way more efficient at it than you. Personally I think it's at least a factor of 2 based upon my own learning curve in this business. And if you want to create professional brochures....well, that's a whole other skill set you need to develop.
And then there is the issue of your availability to show your place. We get showing requests for all hours of the day and every day of the week. So if someone wants to see your home at 3:00 on Wednesday afternoon what are you going to do? Leave work for 1 1/2 hours to do the showing?
But the bottom line is you have to factor in a cost to your time. It's not free. If you're taking orders at McDonald's then selling your own home makes a lot more sense than if you're an intellectual property attorney billing out at $500/ hour. Like I tell people all the time...I could save money changing my own oil but my time is worth more than that.
What Is The Value Of A Realtor's Knowledge?
I'm not going to pretend that you or I can put a dollar amount on this but a realtor will have some knowledge that the AVERAGE consumer will not. If you're one of those people who spends 5 hours per week looking at what's for sale and selling in your neighborhood then you're going to know a lot. However, most people aren't like that and a realtor is going to have a far better understanding of things like:
- What finishes and features are valued today
- What potential inspection items are going to come up
- What improvements make sense before you put the home on the market
- How you can stage your home for photographs and for showings
- What homes have recently closed and what is currently on the market that help us understand what someone might pay for your home
- What forms you need to fill out to sell your home and where to get those forms
- Where to go to get professional photographs, brochures, flyers, signage, and flyer boxes
- How to create a property Web page
- How to drive traffic to a property Web page
- How to screen potential buyers to avoid the time wasters
What Is The Value Of A Realtor's Access To Information?
Even in this day and age a good realtor is going to have access to some critical information that you will not as an owner selling your own home. First and foremost, a good realtor will be able to show you various metrics that show how your listing is performing on various Web sites. This information can give you a really good sense of your prospects only one week into the listing. Second, a good realtor is going to get solid feedback from every single showing that, over time, helps you understand how competitive your home is vs. all the other homes available. Sure you can try to get that same feedback but it's going to be a lot harder to get a buyer's agent to call you back and when you do talk to them they may be hesitant to tell you the cold hard facts.
You Probably Need A Realtor's Objectivity
Every single seller I have ever met is convinced that their home is above average. They will point out every dollar they put into that home, including high end door hinges, paper towel holders, custom paint that no one else likes, some weird tile they found, etc... At some point sellers need a very polite and gentle dose of reality when a home is not selling. You can't give that to yourself.
You Don't Want To Turn Off Buyers When Showing Your Own Home
I've shown many a home listed for sale by owner and some sellers handle it really well and others not so well. The best approach is for the seller to basically stay out of the way. Nothing is worse than having the seller following you around, pointing out the new towel rack in the bathroom and the extra electrical outlet in the den. It really makes buyers uncomfortable and they can end up hurrying to get out of there or hesitating to ask questions for fear of prompting a 10 minute speech. The only problem with the seller staying out of the way is that they don't get to gauge the reaction of the buyers (which they might misread anyway) and they are not available to answer questions.
Who Gets The Commission Savings?
I've heard people who sell by owner say that they were able to extend a lower price to the buyer because they weren't paying the full commission. And some buyers who see for sale by owner immediately think that they should be able to get a better price. But if you're giving away a big chunk of the commission savings then what's the point of going through all that work yourself?
Can You Bring A Deal Together And Keep It Together?
Maybe you and the buyer will have no problem reaching an agreement and holding it together but even real estate attorneys will tell you that deals without real estate agents tend to fall apart at a higher rate than deals involving real estate agents. The possible explanations include buyer and/ or seller reacting emotionally instead of rationally and not having experience with some of the more typical problems that occur in transactions. Some of the problems you might encounter include:
- Inspection issues
- Association issues
- Appraisal problems
- Survey issues
- Issues uncovered at final walk-through
- Life events
- Buyer changes their mind for any number of reasons
- Better offer comes along
- Material change in condition of home
Experienced realtors have seen it all and even if they haven't seen a specific issue they can research it and look for creative solutions.
No doubt there is a lot to consider when trying to decide if you should put your house for sale by owner and when you weigh all the factors you might still legitimately come to the conclusion that it still makes sense for you to go that route. The only thing is that you probably haven't considered all the alternatives that are out there - i.e. you are only measuring your savings against the traditional high cost model and thus overstating the savings. More on that next time.
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