Many home owners each year take the For Sale By Owner route (commonly called FSBO) in order to save a few percentage points on the sale of their home. Most likely they are thinking that they can do the same job, if not better, than a licensed real estate agent.
Some may be able too. I’ve heard of successful FSBO’s. I’ve also heard of the FSBO dread stories. NAR found that 86% of For Sale By Owner’s convert to a REALTOR within 7 weeks of their house on the market. So on average, a For Sale By Owner seller spends about a month and a half trying to sell their home, and then hires a licensed REALTOR. 9 out of 100 sellers will sell their home “For Sale By Owner”.
Did you catch that? 7 weeks on the market and not selling. This is called “opportunity cost”, which is the cost of any activity measured in terms of the value of the best alternative that is not chosen (that is foregone). It is the sacrifice related to the second best choice available to someone.
Many times a home owner will want to list their home on their own, and wait for buyers. Lets say they list on May 1st, and go 7 weeks on the market with no “bites”. They should still be able to convert to a REALTOR and get a sale before “buying season” (May – August) ends.
But what if the home owner decides to list their home, For Sale By Owner on August 1st? Statistically they would convert to a REALTOR in September, where buyers are far and few. Most buyers are trying to buy during the summer, while the school year is not in session. Buyers are also not looking to move during the holidays..
I have my own theories of why majority of home owners will convert to a REALTOR when trying to sell. Let’s look at the typical transaction on a For Sale By Owner will play out.
Owner/Seller (emotionally attached) –> Buyer’s agent (experienced negotiator) –> Buyer (emotionally detached)
So the owner is dealing directly with a buyers agent, someone who specializes in getting prices reduced on homes for their clients. They do this for a living. They’ve done many, many real estate transactions. NAR statistics say that most home owners go through an average of 3-4 real estate transactions in their lives. To put things in perspective, I’ve been through 13 in the past 10 months. Who do you think has the upper hand on this negoitation?
My point being, is that websites such as Zillow.com or ForSaleByOwner.com is cheating motivated sellers into thinking they will somehow save money on the sale of their home, if they do it themselves. What those sites don’t tell you, is in 2010 REALTORS sold houses at a 42% price increase than For Sale By Owners.
So basically, you’re saving 3% on a sellers commission and risking 42%. Hiring a REALTOR puts you in a different position, see below:
Owner/Seller (emotionally attached) –> Seller’s agent (experienced negotiator) –> Buyer’s Agent (experienced negotiator) –> Buyer (emotionally detached)
So doesn’t it make sense to hire a REALTOR? Well, yes it does. REALTORs have access to the one thing that For Sale By Owner’s do not – the MLS.
The MLS is the multiple listing service, what every real estate agent lists their properties on for other agents and buyers too see. This is the most common method your home will be found, and will be sold.
The problem is that there are a lot of homes on the market. How will yours stand out? I’ve seen FSBO open houses with 1 “Open House” sign. I always wanted to stop in and ask them how it was working out. I’ve found that in my open houses, my response rate is directly proportionate to the amount of “Open House” signs I put out. The difference is that I’ve got 20+ open house signs in my garage ready to go, with balloons, to market someones house. It’s something I do once a weekend. It’s not something I just decided to do one weekend and see if anyone shows up. It is a practiced, and refined process, which ensures maximum buyers through your door.
There are some FSBO owners who take the sale of their house very serious. This is not a bad thing, by any means. The problem (as stated before) is that home owners are emotionally attached to the house. I’ve seen deals fall apart because the seller was insulted by the buyers agent comments, and did not want to deal with the. You’re going to have to deal with buyer’s agents one way or another, if you sell your home your self.
It’s unbelievable what sellers will do to “control” the deal, and feel like they’ve won something. It’s up to the sellers agent to make sure that the seller feels good about the sale of their house, but also make sure they are not making rash decisions that will jeopardize the sale of their home. Chasing buyers away in this market is a big “no-no”.
This is the reason why For Sale By Owner homes simply do not work, in this market – if you get far enough to get a buyer in the door. Most FSBO sellers believe that putting a sign up that says FOR SALE BY OWNER will sell their house. Contrary to popular belief by FSBO sellers, this might increase offers (if it’s in a high volume area) but it will decrease the size of the offer.
Buyers agents, and buyers “smell blood” when they see that red and white For Sale By Owner sign. Some real estate investors I work with only want to buy FSBO homes, because they know that the person selling the home is not an informed real estate professional, with proper representation.
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