Why For Sale by Owner (FSBO) is cheaper, but not always better
May 13, 2010 by Stef Lukas · Leave a Comment
Selling a home on your own can save tens of thousands of dollars in commission. It can be done by either without any help, other than a “For Sale” sign and a posting on a free site, like Craig’s List. Alternatively, they can recruit with the help of a For Sale by Owner company, which charges hundreds of dollars in up-front fees as opposed to a commission on a sale price.
These FSBO entities consider themselves as full-service real estate companies and usually offer online advertising services, photos and more. Most have the seller to show their own homes, but even offer some help with that in preparation.
Some of these companies also offer connections to legal services at an added cost. But many real estate agents contend these. FSBO companies are not just cheaper versions of themselves. Instead, they contend skipping a licensed agent has some major risks. And, just because an owner succeeds with a private sale doesn’t’ mean they’ve gotten full value for their property.
Stef says, “The biggest risk of skipping the Realtor is the missed opportunity.” He recalls someone who sold their house simply by putting a “For Sale” sign on their front yard and sold the home in two days. It might sound like a success, but Stef questions how this person could have really gotten the best price.
“My question is how many people knew about this house being for sale? 50? 100?” he says. “And if you can sell to this small sampling of a market, imagine how many people would have competed for this house and paid 10% or 20% more.”
In that sense, the cost of a Realtor should be relative to the added competition (and thus price) brought to your property. A 5% commission doesn’t seem so bad if you can sell the house for 10% or more above selling it on your own.
“You don’t save commissions when you market to a smaller pool of buyers – you just sell for less. It’s simple economics.”
Stef says that’s why buyers are often happy when purchasing a home privately, since it’s assumed the added cost of a commission has been saved and thus taken off the price. But he says the seller is the one who can lose out because they miss an opportunity to be exposed to a larger market.
“Buyers are most comfortable seeing properties that are staged and yet occupied,” he says. “I always tell my sellers not to be there for the showings as they sometimes can get involved in discussions that might help the buyer establish the seller’s motivation or miscommunications about what is or is not included in the purchase price and disasters can occur.”
In accurate pricing is the most common reason a home fails to sell. A common suggestion for private sellers to match their asking price to recently sold similar homes in the neighbourhood is not a worthwhile method.
“It’s important to know that no two houses are alike, and pricing a property based on what the house down the street sold for is wrong – pricing is based on market trends, full review of neighbourhood data, buyer targeting, home condition, amenities, price per square foot ratios and Realtor experience.”
