So you’re on a blog that is run by a REALTOR® and are looking at a post about whether you should sell your home FSBO (“for sale by owner,” i.e., without a REALTOR®) or not? What do you expect me to say here, that REALTORS® are a waste of money and you should always go the FSBO route?
Well, let me try to be unbiased for a moment and give you a little of my history. I started in real estate, not as an agent but as an investor, flipping houses and buying rental properties without a real estate license. Any time I approach a topic like this one, my default is not an emotional “a REALTOR® is always better!” response but a “this is what I’ve learned over the years, including before becoming an agent” response. So let’s keep that in mind as we tackle this subject that is a very emotional one for many of my co-workers.
The reality is, there are times when it makes sense to go the FSBO route, but there are several considerations to take into account. Here are some of the most important ones I’ve learned over the years.
Time Cost vs. REALTOR® Cost
A wise man (supposedly Ben Franklin) once said that “time is money.” And few statements are more true. In fact, some modern thinkers and authors, such as Tim Ferris, have redefined “wealth” as having an abundance of time rather than an abundance of money. This is just common sense. You may have a lot of money to pay your bills and buy whatever you want, but if you have no time, how will you ever enjoy the money you’ve worked so hard to obtain?
This is one of the main values of a REALTOR® that tends to get lost in the shuffle – REALTORS® save their clients a lot of time while also saving them from a great deal of inconvenience (like having to use your lunch break to show a house to someone who isn’t really serious about buying it anyway). I’ve sold homes FSBO before, and it’s a huge time-drain. You have to research the value of the home, get the home ready for photos and showings, take photos of the property, research best strategies for marketing the property, take the time to market the property (usually on multiple websites), handle calls from prospective buyers, set up showings, attend the showings, determine if a buyer is credit-worthy and will actually have the funds to buy your house, negotiate with the buyer, work on the paperwork for the contract, negotiate repairs, etc. (and honestly, there could be many more steps depending on the circumstances).
If you list your home with a REALTOR®, all you need to focus on is getting the house ready for showings, fill out some basic paperwork that your REALTOR® gives you, and then let him/her handle the rest. That’s it.
So am I saying it’s never worth saving the 3% commission because of the time cost of listing your property FSBO? No, every situation is different. If you have a lot of time on your hands and schedule flexibility, then FSBO could be a great fit, since you won’t be impacted by the time-consuming steps of selling your home. But for many people, time is a factor and the REALTOR® cost is well worth the time savings.
Training on Legal Paperwork vs. No Legal Training
I’m part of an email thread of a local real estate investor’s group, and I’m constantly seeing group emails asking very basic questions about paperwork for selling or buying a home. The reality is that different people have different expectations on how earnest money works (and who holds the earnest money), what contingencies are allowed (for instance, can a buyer back out after having the inspection done?), what happens if the seller decides they don’t want to sell after agreeing to do so, what is binding vs. what isn’t binding, etc.
You can buy or sell a home with a simple contract in SC, but there’s a reason why the one that REALTORS® use is 13 pages. It protects both parties from any unexpected surprises in a way that the contract you downloaded off the internet doesn’t. Sorry if that sounds harsh, but I’ve done the contract download thing in the past, and it wasn’t worth the KB of space that it took up on my computer’s hard drive.
The reality is this – most people are well-meaning and won’t try to swindle you out of your money (or house), but there are plenty of non-well-meaning people out there that will try to swindle you or at least will try to bend the law in their favor in some way.
So what should you do? If you’re going the FSBO route, I would suggest involving an attorney to draft up the contract. This isn’t going to be fun, since it will cost someone money to have the attorney do this and both parties will have to try to figure out what clauses they want in the contract (sometimes without even knowing what the options are), but under no circumstance should someone untrained in real estate contracts be handling them. It’s too risky.
So if you want to save money on a REALTOR®, that’s fine, but you will still need to hire an attorney to help you navigate the tricky legal waters of contract paperwork.
Seller Liability vs. Broker Liability
Let me tell you a story. Bob listed a home FSBO, and Jim decided he wanted to buy it. They negotiated a little, settled on a price, and after a few weeks of back and forth, finally closed on the property. After closing, Bob casually mentioned to Jim that he should replace the stove because there was a malfunction that could cause a problem down the road.
A year later, the home that Jim purchased from Bob caught on fire and burned down as a result of the stove malfunction. Jim decided to lawyer up, he sued the daylights out of Bob, and he won. Why? Because Bob knew about the stove issue but didn’t disclose it to Jim in a way that was legally satisfactory. As such, Bob was liable for the house fire in the eyes of the law.
If Bob had a REALTOR®, this most likely would not have happened. Why? Because the REALTOR® would have supplied the correct paperwork to make sure no one was liable for the broken appliance (among other things), and if a fire did break out, Jim would have had no legal recourse.
Additionally, there is a very simple reality when it comes to liability. If someone wants to sue, they will go after the largest and wealthiest party. In a FSBO situation, that’s the seller. S/he is the one most likely to be sued because there are no other parties involved. On the flipside, when a home is listed by a REALTOR®, his/her brokerage (in my case, this would be Berkshire Hathaway HomeServices) would be the largest and wealthiest party, and the one most likely to be sued if/when something goes awry. Do you think someone would rather sue you or Berkshire Hathaway HomeServices (one of the largest realty franchises in the country)? The answer is obvious, but if you sell your home FSBO, you absorb all the liability yourself.
So, if you’re going the FSBO route, make sure you take some time to research the type of liability you have as a seller and have all the correct paperwork in hand to ensure that years down the road you don’t find yourself in a lawsuit.
Neutral Negotiation vs. Direct Negotiation
One time I received a call from a person (we’ll call him “Jake”) wanting to sell his home FSBO quickly to a cash-buyer, and he got my number because he found out I was working with an investment group. Apparently, Jake was in some financial trouble, didn’t want to foreclose, and needed to quickly get out of his mortgage. There was only one problem. Jake wasn’t a real estate investor, and he didn’t know how to negotiate with investors.
So he started the conversation by telling me how he had spoken to a few other potential cash-buyers and how every one of them was a jerk for low-balling him. I asked him a little bit about the home and what the lowest price he could take was, and told him I would look into it and call him back to discuss in more detail.
I never called him back.
Why? For starters, his price was far too high for selling to a cash-buyer/investor. If he knew anything about the profit margins in real estate investing, he would’ve realized this, but he didn’t. But on top of that, he was rude and too emotional about his house. In his mind, the people he had spoken to were jerks for giving him lowball offers. Rather than considering the possibility that maybe there was a reason he was receiving lowball offers or that maybe he had misvalued his property, he took it personally and got angry. It would’ve been a waste of time for me to call back and give him what, in his mind, probably would’ve been another lowball.
Guess what? Jake was a pretty normal FSBO seller. Selling a home is a stressful, emotional event, and it’s unusual that a seller directly negotiating with a potential buyer is able to hold those emotions at bay. The lowball offers will come, people will walk around your house pointing out all the things wrong with it, they will insult your yard and the cleanliness of the garage, they will talk about how crappy the pool is, etc. Then after you think you’ve reach a price agreement, they’ll come back and say, “We’ve found more things wrong and need to come down even further on the price.” They do all this not to insult you, but as a negotiating tactic, in order to get the best deal for themselves.
This is one of the strongest reasons that, after going the FSBO route a few times as an investor (before becoming a REALTOR®), I decided that I would have all my future properties listed with a real estate agent. A REALTOR® is a neutral party who can negotiate level-headedly with another REALTOR®. I’ve had agents contact me for listings and tell me that they have a client with a lowball offer to see if it even makes sense for them to make an offer. In those cases, I’ve told them “No” (after checking with my clients, of course) and that was it. No emotions were involved.
As a real estate investor, I try to avoid FSBO listings as much as possible, because I’ve seen too often how emotional sellers have clouded judgment on their home values. To say it another way, FSBO sellers almost always believe their home is worth more than it really is, and it’s not worth my time to keep looking at homes that are overpriced with sellers who won’t negotiate properly.
So, if you think that you would struggle to keep your emotions at bay in a negotiation, selling FSBO is probably not for you. If you think you can keep your emotions in check, prepare yourself in advance that you will likely feel insulted at some point by a buyer who gives you a lowball offer or has unsavory things to say about your home. It’s important to come to grips with the fact that this is a part of the FSBO process.
High Profit vs. Fewer Costs
With websites like Craigslist and Zillow, it’s easy to think, “I can save a few bucks by selling FSBO instead of going through a REALTOR®.” You’re probably expecting me to say that you won’t save money going that direction because you’ll sell the home for a higher profit if you use a REALTOR®, but here’s the things – I can’t prove that, and the data out there on FSBO sales is too poor for us to draw any conclusions, good or bad, on how effective the FSBO route is.
So let me take a different approach – let me explain some of what you’re buying when you list a home with a REALTOR® that you’re not likely to get listing it FSBO, and you can draw your own conclusions.
Knowledge of Real Estate Listings
A good REALTOR® understands what makes a good listing. In describing the home, s/he’s not merely going to regurgitate the information already accessible in the home details. S/he’s not going to get too wordy, going into detail about every inch of the house so that the buyer gets lost in the details (a very common FSBO mistake). S/he’s not going to take pictures of hallways and parts of the home that don’t add value to the listing. S/he will understand how to arrange the pictures for maximum effective internet traffic. S/he will understand what parts of the home to emphasize and what parts to de-emphasize. In short, s/he understands what to do to have the most positive impact on the largest number of people.
Most FSBO sellers list homes the way they would want the home to be listed, kind of like a waitress only ever suggesting to customers the food that she likes rather than trying to understand what the customer really wants. The result is that potential buyers are missed as people scroll past the listing or aren’t captivated enough by it to attempt to learn more.
Understanding of the Market
I’ve had some clients who are pretty knowledgeable about the market, but it would take a lot of time and effort for them to reach the level of expertise that a typical REALTOR® has.
But why does that matter? For starters, a good REALTOR® knows the things that will be potentially appealing to your house based on where it is located, and s/he can help you maximize that appeal through staging tips, tips on updates to make, etc. I saw a home recently that had brand new appliances, but they were way more high-end than was needed for that neighborhood, and it actually was a distraction, given that the kitchen itself wasn’t high-end. Had the seller contacted me, I likely could’ve saved them a few hundred (maybe even a few thousand) dollars to put in less expensive appliances.
Additionally, a REALTOR® knows the market well enough to price your home competitively and get it sold. Listing your home even a few thousand dollars above market value can cause the listing to be dead in the water, which in the best case scenario, only loses you time, but in the worst case scenario, can actually lose you thousands of dollars. For instance, if other listings nearby come on the market that undercut yours or other aspects of the market swing while your home sits with a high list price, you may find yourself a month later having to lower your price below what you would’ve had to a month earlier.
Ultimately, when a prospective buyer comes to you and says your price is too high or that you need to pressure wash the house or that you need to update the windows, etc. having someone on your side who knows the market and the process of selling a house can help you to make good decisions and be a voice of reason in the middle of all the demanding parties.
Robust Advertising
When a REALTOR® lists a home, that listing goes live on the MLS (Multiple Listing Service) that real estate brokerages and agents have access to, and from there it is pushed out to hundreds of other sites, which include the heavy-hitters like Realtor.com, Zillow, Trulia, etc.
Additionally, REALTORS® are frequently performing open houses, marketing properties on their social media pages and websites, presenting their listings before their office, etc. In other words, there is more to it than simply putting the listing up in the MLS (even though that benefit alone is powerful).
The reality is that no FSBO seller can replicate this level of advertising, no matter how much time is spent doing it. Advertising with a REALTOR® is the most exhaustive way to market your property, hands-down.
Conclusion
I don’t bash people who choose to go the FSBO route, but they should understand that while there are some pros to selling that way there are also some definite cons to it as well. Hopefully understanding the pros and the cons a little better can help you to make the right decision on how to sell your property.