There are over 85,000 real estate brokerages in the United States vying for buyers’ and sellers’ business. Yet, an increasing number of people are choosing to skip the realtor altogether and take the For Sale By Owner (FSBO) route to selling their homes. According to the 2018 National Association of REALTORS Profile of Home Buyers and Sellers, FSBOs accounted for 7% of all home sales in 2017.
The reasons for leaving real estate professionals by the wayside are both many and diverse. For some, it’s a way of saving cash and getting the most out of the sale. For others, it grants more control over the process. In some cases like that of condos or mobile homes, it’s simply easier to pass on the property directly.
Whatever the reason, choosing the FSBO route comes with both pros and cons. Here’s what you could face when you take the DIY approach to property sales.
Why People Skip Realtors
On average, around 6% of the sale of your property will go to the real estate agents on the case. Usually, half goes to the sellers’ agent and half goes to the buyers’. While the commission percentage seems low, the actual check isn’t. If your agent sells your property for $300,000, you’ll pay $21,000 of that in commission fees. Paying that commission is one reason that alternative modes of real estate sales popped up and are continuing to grow.
A big argument made by real estate professionals is that you can’t earn nearly as much from an FSBO sale as an agent-assisted sale. The 2018 report noted above that the average FSBO home sold for $200,000 while the average represented sale went for $265,500.
However, these figures don’t take into account an important issue: many FSBO sales are those of lower value homes, like condos, mobiles homes, and property in rural areas. What’s more, academic studies have found that when you correct for differences between the properties, there’s a 0% difference between FSBO sales and agent-assisted sales.
As that myth has slowly dissipated, DIY sellers have also benefited from real estate tools to help them better market their homes and enhance profitability. These include more than Craiglist or Zillow. There are tool-heavy sites dedicated to commission-free sales. There are also sites available to help with the legal aspects of the purchase.
Even things like real estate photography are more accessible thanks to the improved quality of mobile phone cameras. Sellers willing to dedicate a full afternoon to capturing great pictures can free themselves of the endless costs of real estate professionals and their attache.
FSBO Sellers Face Real Difficulties
Those who opt for the FSBO or cash sale route say they want to save money and sell their house faster. FSBO sellers often want to skip the 6% agent commission taken off the top of the sale. The reality, though, is that the small amount of money saved can pale in comparison to the money lost.
Thanks to the technology available, marketing a house isn’t the problem. People use a combination of online and offline methods: 22% of FSBO sellers use yard signs and 18% have friends, relatives, and neighbors share the news. The problem is that the technology used for marketing doesn’t replace the value agents offer: experience with the nuts and bolts of the sale or their contacts in the industry. These are the issues that can cost the seller that extra $65,000.
For example, 12% of FSBO sellers struggle to understand and complete the paperwork required for the transaction. Getting the paperwork right is more than a matter of preventing headaches. All paperwork needs to be 100% correct or the seller could face a civil lawsuit from the buyer.
Agents and lawyers have insurance to protect them from any mistakes and thus from losses from lawsuits. Even those sellers who insist on representing themselves benefit from hiring a real estate lawyer to complete the paperwork.
The problem leaves groups like the growing number of people facing suburban poverty in the lurch. They can’t afford to hand over 6% of their sale, but they’re also not necessarily able to afford the cost of protecting themselves as they take the DIY approach. The result can be a long, grueling sales process that eats up a huge amount of other resources, like their time and energy.
FSBOs Are Still Likely to Grow
Although the technology and information available don’t make FSBO sales perfect, they do make them easier, and it’s likely that the 7% of sales seen in 2017 will grow over the coming years. Because even though, the legal aspects of transferring ownership of a property are still daunting.
Realty publications still see FSBO as a blip on their radar, and they’re counting a 1% drop year-on-year as a sign that the realtor is here to stay. But as with the pricing differences, the data they offer doesn’t tell the whole story.