By Andy Carter Jan 2018
Why I believe it isn’t a good idea to go FSBO: Money...
Money: First on the savings. Really? Most FSBO sales involve a Realtor on the other end and guess what, in the contract that they write the Buyer will make sure that the Seller is paying for their Realtor. That will be 3%. That’s $12,000 of that initial $24,000 savings. Your Benevolence Fund just shrunk.
Money Part 2: The Offer: It is not uncommon for the Buyer to discount your home by 6% or maybe 2%, since you are paying only for the Buyer’s Agent, but they realize you want some of that cash. So, your $400,000 is now dropped to $392,000. In this scenario you are saving yourself $4,240 because 3% of 392,000 + the $8,000 less on the offer provides you with $4,240 in your pocket. Is it still worth it?
Money Part 3: Agents in general earn more for their clients than selling by yourself. A recent University of San Diego study showed that, “They found that on average, FSBO listings sold for about 5.5% less than comparable properties sold through the MLS, with FSBO listings tending to sell for a little less than their automated valuations and MLS listings tending to sell for a little more. The valuations were generated by Collateral Analytics’ software.” Aug 16, 2017, Inman Magazine. This gets interesting and worth mentioning although in general I don’t agree with it. The NAR (National Association of Realtors) takes the average number of homes sold by FSBO’s and Realtors and comes out saying that on average agents sell a home for $46,000 more. This is their feather in the cap to show that we do our job. I don’t buy these numbers because I think they are skewed. It is rare to see million-dollar homes listed by FSBO. These people appreciate professionalism and get it that their home needs a pro to market it and manage the transaction. Setting that issue aside, the fact that these homes are included in the ‘average’ naturally provides a higher bias to the numbers. I believe the types of homes sold influence this number as much as anything. It’s still something to think about, but overall, I don’t give this figure as much weight as the University of San Diego study. On an anecdotal note, we’ve seen on our team a consistent pattern of FSBO homes that are up for sale not receiving the attention they need to maximize their sale. The Seller doesn’t understand the options available and will all too easily settle for less. So, at a 5.5% difference, let’s keep the math easy. The FSBO person sells this home for 5.5% less than the $400,000 valuation. That means it sells for $378,000 (or we could go the other direction and add 5.5% to the agent's sale, making it $422,000, but let’s just use the other direction). Guess what, you’re still paying a commission to the Buyer’s Agent. We’ll call it 3%. That would be $11,340. You have now netted $366,660. If they would’ve worked with a Realtor, they would’ve sold the home for $400,000 and pocketed $376,000. So, does this make financial sense?
Money Part 4: What if the Buyer asks for concessions? Should you give them the cash or should you not? Could you lose the deal or the money? Do you have an understanding of the trends in this area? Is this a reasonable request or not? Oh yes, there is inspection. What is reasonable and what is not? Is that inoperable burner on the stove worth having fixed or not, what about the window well that is rusting or the worn carpet or that old wiring in the electrical box? Do I have to have smoke detectors and a CO detector? Where do we spend our money for the Inspection Resolution and where do we not?
Money Part 5: Exposure: This one is big, probably bigger than most realize. The MLS and the active marketing that good Realtors do will attract more buyers. When you have more potential buyers do you think you will get a better offer or a worse offer? If only one likes it in 30 days, do you think they are going to offer you full price? Basic market economics rests on the principle of supply and demand. If your marketing keeps demand low, then your price will go down. Do you know when you should make a price adjustment? How familiar are you with the 5 P’s of marketing? Are you engaging in all five? Even when the market is slow and few are looking at homes, more will find something from the MLS and the Realtors marketing than if it wasn’t on the MLS and just promoted on Craigslist. Realtors do this all the time, that’s their job so they know how, or at least have connections to help you get your home more noticed than before. I know through my company we are able to push this out to the web on over 300 web sites (that number varies and has been over 400 at times). Not bad!
Money Part 6: Economics 101: Yes, that class you hated in college now comes back to haunt you. The crux of a market economy is based upon the law of supply and demand. This law works best when all interested buyers of a product have access to that product and can make a wise and informed decision. This is how the market defines itself and how ‘real prices’ are found. If demand is high and supply low, then prices rise. If demand is low and supply high, then prices will fall until they find equilibrium. You must have ease of access by all interested parties in order for a free market to truly occur. If a FSBO does not have as many eyes looking at the home, then that means that the demand for the home will not be as high as a home better marketed to those buying a home. When demand is not as high then the supply will have to come into equilibrium with the demand. A good real estate agent knows how to maximize exposure (as mentioned in the section above) and therefore increasing potential demand which in theory and I believe in practice, help to keep prices higher. For example, when the market was quiet and a home sat for a month, we all evaluated the price and adjusted it accordingly. Interestingly, I recently had a home that sat during the month of December, and we saw little activity – holidays, cold weather, it all scared away buyers. We were questioning ourselves and did drop the price a little. Then January took off. We had showings daily, sometimes two or three a day. We sold it over asking and at our original price because and only because DEMAND had increased. The Buyers started off low, but because of multiple offers we did get full appraised value on the home! You have to have eyes on the home or else you will not get the potential value for the home! Parenthetically, I find it interesting that I have never seen a FSBO used as a comp. I know they are, but an appraiser must use county records and then they have to dig deeper to find the relevant data that they need to use. They are also concerned that the transaction wasn’t at ‘arm’s length’ and thus they do not exhibit true market value.
... to be continued.
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