Realtor vs. FSBO

[nwsteve]

Will soon find myself making this decision and would appreciate learnings and insight.
Last thread I saw on this was MJ's and not sure how that turned out.
Between experience here and reading a couple books from FSBO promoters, it looks like to me that out of the common 6% commission, FSBO typically will save you maybe the last 1-2%.  To get traffic, even the FSBO folks seem to recognize you will probably pay the buyers agent his 3%.  The FSBO folks want 1-1.5% for MLS listing and stuff.  That leaves the last 2 points for savings.  On a 500k sales that 2% is still a decent size number.
On the other hand, there are plenty of stories of major hassles and dealing with cons when you are doing a FSBO.  The agents will want you to believe they will make you as much with better marketing and of course save the hassle and risks of dealing with unqualified buyers, etc etc etc.
So-o-o-o,  perhaps the collective wisdom here can provide some insight that will make the choice a bit clearer.
BTW, if MJ happens to see this , I would be interested if FSBO would be his/her choice.
Thanks
Nwsteve

 

[Nords]

We've sold two homes via FSBO and didn't pay a realtor or MLS either time.

On the first home we came down from $225K to $215K (in 1989) for a cash offer. On the second home we came down from $425K to $385K in Aug 1990. During the second listing we were pestered to death by buyer's realtors right up until the Kuwait invasion and then the action stopped dead in its tracks. We had offered a 3% courtesy for a full-price no-contingency offer but somehow it just didn't happen. The eventual buyers (three weeks later) didn't have a realtor but at that point we felt pretty fortunate to get an offer within 10% of our asking price.

We bought our "dream home" in Aug 2000 from the owner of a real estate company, but we bid $405K on a $425K listing price and we were the first offer. We don't feel that we paid anything extra for having to go through their listing agent.

When we've looked for a home we've pretty much restricted our search to Open House classifieds. When we've sold a home we've used an "Open House" ad and a FSBO sign out front. If there's a Craigslist in your area then you might even do better with the publicity.

Some people feel that a realtor helps with the negotiating process. We feel that they tend to get in the way, that they raise irrelevant issues, or that they even try for a lowball just to get a quick commission. But we're hardly objective on the subject.

However, as you probably know, the process is fraught with surprises & unexpected complications. Real estate is one of our hobbies and we felt we had nothing to lose by trying the FSBO approach first. Your results will depend on your risk profile and the temperature of your local market.

Nolo used to have an excellent "For Sale By Owner" book. If they're still selling it, I think it's just a California edition. That may be helpful in other areas of the country... but then again it may not.

 

[tryan]

the common 6% commission

I've sold over a dozen properties using a realtor ...  never paid more than 5%.  4% in a hot market is common.

It's all negotiable .... this can close the 2% gap pretty quickly

 

[Rich_by_the_Bay]

Been there many times, wife is now a realtor and we have had frank discussions about it.

A couple of key points she makes: pricing can be tricky and an experienced realtor can run comparable home searches which help. They also know the neighborhoods. The conventional wisdom is that FSBO's tend to be priced too high, and can get "stale" ultimately getting a lower price than they would have if priced properly in the beginning. Sometimes during negotiations a third party helps to keep emotions out of the mix, usually a good thing. Finally, the time between an accepted offer and closing is filled with deadlines on contingencies, lining up inspectors, sometimes specialized inspections like roof, termites, etc. A realtor can "qualify" buyers to make sure that they are not just tire-kickers. A reputable broker will often make you whole on certain misunderstandings, such as paying for a home warranty, or making up the difference on the price of a given repair.

Realtors run the gamut from money-grubbers to real professionals, as you would expect. Top sellers often are so busy they farm things out; bottom dwellers may be either novice or ineffective. Go for one who is up there but not at the pinnacle.

Having said all that, what's lacking is objective data. For me, busy as I am being not yet FIREd, I would hire a good realtor (even if I wasn't married to her ). For those with time, knowledge, patience and a lawyer to review contracts, you might do well on your own.

 

[oldcrowcall]

All I can offer is my observation on properties in my area (small town in NH).  Every property put up for sale with a FSBO sign I have seen,  has changed to a local broker sign after about 3 weeks- this is without exception. I'm not sure why that is.

 

[Arif]

Just like anything else "do your homework". You can go to http://realestate.yahoo.com/re/homevalues/ and plug in your address to get a ballpark value of your house. Then do a search on google for "flat fee mls". These companies charge you between $300-600 to put your property on the local MLS. You agree to pay the buyers agent 3% or whatever the going rate is. I've did this three times last year with nothing but success each time.
A lot of realtors will get mad at you because they think they are losing out on a commission. I tell them 3% of 100k is more than 6% of 0.
The company that puts the property in the MLS can walk you through the process and act as an advisor as well.

 

[cute fuzzy bunny]

I've learned my lesson about paying less than 3% to a buyers agent. They dont show your property. That sucks, and if I found that my buyers agent was doing that, I'd get another buyers agent pronto.

That having been said, you can get selling agents for 1.5%, no problem. There are gazoodles of low cost realtors. These days, its my opinion that you get as much bang for the buck for 1.5% as you do for 3. A sellers agent puts the thing in the MLS, prints you a flyer to stick out front, and waits to fill out the paperwork. No more carbon copying your listing, calling 100 other agents, doing all sorts of other marketing hoo-hah.

I wouldnt buy from a FSBO unless the seller was a moron and priced his property too low, and even then I'd figure I'm in for a bad ride. Most fsbo's just run at the same price and look to take the extra couple of percent for themselves. Why the hell would I want to pay the same price to a rookie thats probably emotionally attached to the deal, doesnt know what they're doing and is probably going to be a pain in the ass when I can pay the same price and get a professional RE sales rep keeping the seller cool?

In fact, the next time I sell I think i'll go with the 1.5% el cheapo selling realtor, and offer 3.5% to the buyers agent. Big bunch of money says my property is the first one shown to every new buyer, whether it meets their criteria or not, and I get twice the number of initial offers to choose from, since everyone that is shown the property is going to see another realtor walking out with their customer and another one waiting to come in behind them...

 

[nwsteve]

In fact, the next time I sell I think i'll go with the 1.5% el cheapo selling realtor, and offer 3.5% to the buyers agent.  Big bunch of money says my property is the first one shown to every new buyer, whether it meets their criteria or not, and I get twice the number of initial offers to choose from, since everyone that is shown the property is going to see another realtor walking out with their customer and another one waiting to come in behind them...

CFB, helpful points, afterall the amount you SELL the house for can make a bigger difference than the commission rate.  Buyer competition does tend to raise the price and more buyer agents, the more potential to have more buyers.

One the key concerns for me is to what degree as a FSBO you have to deal with flakey, demanding, and UNQUALIFIED lookie loos. Any experience about managing this component will be especially appreciated.   If this is a big issue, it would certainly make the Realtor look better.

I have enough real estate backgrnd to deal with the pricing and the legal components of the deal, just not sure I have the patience and inclination to deal with the "servicing" of unpleasant demanding individuals who are not qualified and in many cases do not know it themselves.  As someone who likes to do their own taxes, oil changes, etc, it is painful to drop 15-20k for commission beyond the Buyer's agent fee.

I appreciate all the comments and lessons--keep em coming.
Thanks
Nwsteve

 

[Craig]

... UNQUALIFIED lookie loos ...

Yep, that is one of the big problems.  The way to manage it is:

• Hire a realtor
• If FSBO, put your own sign out front, with a tube ... in the tube you have a great flyer:  home address, annual taxes, annual insurance, square footage, floor plan, estimate PITI at a few market interest rates / programs, and photos.  Disclaimers on the numbers of course, and keep the tube filled, always.

We've done both.  I held a real estate license once, because I was CFO for a developer ... my wife was a realtor for 8 years.  Neither of us works in the real estate industry at this time.

These days, when we buy and sell real estate, we use a realtor.  We interview them like job candidates, because we are hiring them.  I agree with the advice above, generally ... you want a sharp, engaged, busy realtor ... but not a "rock star", that assigns your listing to their newest minion.

Years ago, we tried the FSBO route.  If you feel qualified to handle the pricing, negotiation and all the legal details; if your home is located in a high-traffic area (not critical, but helps); if you can keep your emotions out of the deal; if the market is reasonably strong; and if you're willing to spend the significant time and trouble to manage the sale of one of your largest assets, then FSBO is fine.  That last point is the killer for even experienced investors.

So we've come full circle.  We've done FSBO's, hired realtors, and been realtors.  Now as I look at it, I figure it's like most service jobs in our society ... can I fix a bicycle tire, make my own breakfast, change my own oil, launder my own shirts, sell my own home?  Sure.  But we use the services of others because (1) our time is valuable, and devoted elsewhere, (2) if chosen wisely, those others can do the job better and more quickly, at a reasonable price. We'd recommend you use a realtor.

Having said all of this, if you're in a scorching hot real estate market where homes sell in a couple days (fading mostly, from what we see), then by all means ... put the sign out, and cash the check.    But that is not usually the case.

Regarding oldcrowcall's comments, we note the same ... those FSBO signs come down and agent signs go up because the agents pester the FSBO's, but also the FSBO's learn it ain't so easy.

Another point ... just wonder if anyone else has ever tried this.  DW and I noted long ago that the psychological truth of real estate brokerage is that the agent is much more motivated by a quick sale than a high price.  Even if they get a full 6%, another $10K in sale price is only $600 in the agent's pocket ... which could easily be eaten up in higher marketing expenses during the time necessary to generate that higher price.  We've thought of creating a commission schedule that ramps up the agent's commission as they generate higher and higher sales prices ... e.g. the agent gets 20% of the sales price which is 105% over the anticipated sales price, etc.  Obviously need to absolutely know your market, but could be interesting ... anyone tried such a method?

Last point.  Be very cautious about the neighborhood "expert" ... they may be holding down values in your neighborhood.  Very short story.  "Bob" shows up at my father's funeral ... no kidding.  Bob is a realtor in my Dad's patio home development, and a neighbor.  Bob works that development, and appears to be the only realor working it ... "everyone" seems to use "Bob".  Bob's price seems a bit low when we go to sell Dad's patio home, so we interview some other realtors.  We choose another realtor, and end up selling Dad's home for something like 20% over what Bob suggested.  Later, we have a discussion with the President of the homeowner's association, who tells us she has been trying to get folks to use other realtors, because Bob is pricing all of the units low, simply to generate quick sales.  Worked great for Bob ...

If a realtor tells you most of their listings "sell in XX days or less, and for full price", consider that may be because they are intentionally priced too low ...

Sorry for the length, but we've got some strong convictions on this question, and paid a lot of "tuition" to this college.   

Best of luck ... real estate is a good "friend" in the long run.

 

[tryan]

Every property put up for sale with a FSBO sign I have seen,  has changed to a local broker sign after about 3 weeks- this is without exception.

That's because realtors are very aggressive converting FSBO ... DW worked part time for a realtor who paid her $50 for every FSBO sign she spoted.  Then the sales pitch begins.

Another tip to lower the commission is to use the realtor who sold the building to you.  They love re-sales and will discount thier services if the house/area is well understood.  Some of the closing work (e.g inspections) can also be carried forward to entice a sale.

 

[MJ]

BTW, if MJ happens to see this , I would be interested if FSBO would be his/her choice

I have tried several time to reply to your PM but it isn't going through?

I am still in contract but hope to have a closing date soon. Since I am retired, I had decided to try selling it myself 1st to save on the comm. I spred the word around the neighborhood and was able to get a buyer within 1 week. The market here is pretty brisk even during winter. Then another neighbor began bidding against the 1st buyer. I got over 10% more than I originally thought I would get. I did not incur any costs (advertising, painting, repair) in trying to sell the house.

Lucky, I guess.

I have say that, not using a broker was emotional draining for me but I did save about 4% to 5% comm, which based on the final sale price was a huge chunk of money.

Good Luck with your sale.

MJ

 

[Nords]

One the key concerns for me is to what degree as a FSBO you have to deal with flakey, demanding, and UNQUALIFIED lookie loos. Any experience about managing this component will be especially appreciated. If this is a big issue, it would certainly make the Realtor look better.

We stocked blank copies of sale contracts at open houses, along with sign-in logs, floor plans, and all the other stuff you see at a typical open house. In the '80s the sales contracts used to be in office supply stores or a realtor's association (and still might be). Five years ago, making an offer on our current home, we just downloaded it off the website and filled it out.

When a lookie-loo wants to make an offer, you hand them the form. If they nod alertly, thank you, and march off smartly, then you're in good shape and they'll probably be back. If they stand there waiting for you to help them fill it out, you gently advise them to find themselves a lawyer or a realtor. They probably won't be back.

Unfortunately for their associates, most of the "flakey, demanding, and UNQUALIFIED" people we've dealt with were realtors. When a guy with shiny white teeth tells you "You can set the price if you'll let me set the terms" then I feel like I'm on a Carlton Sheets informercial. But I tell them to put it in the offer and we'll consider it. If they're serious, then they'll be back and we can deal with numbers & contingencies instead of semantics.

Every time I watch HGTV's "Buy Me" with their hissy-fits between realtors & clients over a buyer's offer, I feel like shouting "Stop the emotional ranting and just fill out the @#$%ing counteroffer!"

I have enough real estate backgrnd to deal with the pricing and the legal components of the deal, just not sure I have the patience and inclination to deal with the "servicing" of unpleasant demanding individuals who are not qualified and in many cases do not know it themselves. As someone who likes to do their own taxes, oil changes, etc, it is painful to drop 15-20k for commission beyond the Buyer's agent fee.

Well, this is certainly an area of life where you have to tolerate fools gladly. After years of submarine duty filled with teams of nuclear-power inspectors, I'm pretty used to it.

 

[Curly]

As a "Newbie" to the forum, allow me to offer a couple of comments. We have bought/sold only about 5 homes in our life, so we are certainly not real estate experts. However, I recently read an interesting book, Freekenomics by Levitt and Dubner, that points out issues with the current real estate compensation methods.

As pointed out by others here, the RE agent may be more inclined to make a quick sale than gain the hightest price for the Seller. Specifically, the typical, 2-6% real estate agent's commission is not aligned with the Seller's objectives. Let's say a house is "worth" $150k, but the RE agent may say that if the price is $125 it will sell quicker. In this example the agent may loose say 6% of $25, while you loose 94% of $25k. When the chips are down, the RE agent is not going to fight for the highest price.

As I believe Charles pointed out, the incentives for RE agents is misaligned with the Seller. I've often argued with RE agents that I'll pay a fixed percentage (say 3%) up to the listed house value. Then I'll pay an increasing rate, say 15%, for all money gained over the 95% target price. (or I've considered offering tangible products for certain types of performance, i.e. , airline trips, or other products). The whole point is to try to align the RE agent's motivation to the Seller's, and a flat fixed % fee doesn't satisfy that objective. (the same type of argument can be made regarding retail stock brokers, whose fees are totally decoupled from the results of an investment made for their "clients".)

Now, having said all that great theory - I've given up trying to "teach the Pigs to sing". It's just frustrated me and made the Pigs mad. The RE / MLS markets are largely a closed monopoly with little incentive to change their methods, the subject of recent Dept of Justice antitrust inquiries. Clearly, there is some level of price competition in the RE industry, but the barriers are fairly high for strong competition. Most RE agents simply "glaze over" when you try to get too creative.

We are now selling our real esate totally on our own, marketing our land with a website and listing it in news media - and offering ANYONE a 2.5% referral fee (like contractors, RE agents, architects, etc). Of course we are doing our own market analysis, advertising, hiring a lawyer, accountant, etc - but in the end WE are doing the deal, not a third party disinterested RE agent - and so far, this has worked very well.

Curly

 

[free4now]

I like CFB's idea of 3.5% for the buyer's agent and 1.5% for the selling agent. I wonder if that is even doable with MLS... can you offer more than 3%? Would the buyer's agents even notice the 3.5% compensation among the forest of threes? You'd have to find a hungry selling agent who could see the business value of that compensation scheme and how it would make their sale quicker.


On another note, I'd love to see some quantitative studies that indicate how much price increase you can expect from additional offers. E.g. something that says that properties with 2 offers sold for X% more than properties with 1 offer. And with 3 offers it sold for Y% more.... It wouldn't be an easy study to control but would be very useful info...

It seems pretty clear that on average FSBO properties get less offers than agent-listed properties. Whether the increased traffic really does translate into higher selling prices is the question.

 

[riskadverse]

I've bought from a FSBO and not used an agent - as a buyer you have more negotiation room and can control the problems easier.  As a seller, I prefer to use an agent.  I find negotiating through an agent, it is easier to manipulate the buyer.  Convince your agent you fully trust him/her.  Magically everything you say to your agent gets passed to the buyer's agent and buyer ends up paying exactly what you told your agent was your bottom line (which it isn't).   Remember the only thing an agent is interested in is closing the sale (collecting a commission). 

 

[cute fuzzy bunny]

I like CFB's idea of 3.5% for the buyer's agent and 1.5% for the selling agent. I wonder if that is even doable with MLS... can you offer more than 3%? Would the buyer's agents even notice the 3.5% compensation among the forest of threes? You'd have to find a hungry selling agent who could see the business value of that compensation scheme and how it would make their sale quicker.

yes you can, yes it does, and yes it does.

In an area with a lot of properties for sale, mostly high end thats appreciated 300-400% over the last 7 years, I've seen MLS listings with 4, 5 even 6% commissions to the buyers agent. Those homes are SWARMED with people. I am of the opinion that some realtors check the buyers agent commission before they see if the property is a match for what their buyers are interested in. There are two little fields on the realtors listings for buyers and sellers agent commisions...have you noticed they print out copies for you and copies for themselves, and that theirs have a bit more info on them...

 

[getoutearly]

Have bought and sold one houe, and and bought another house using, at most, the buyers agent (who was a PIA). I found the Title Company does most of the heavy lifting, especially in a hot market. But, the houses I am talking about were either, 1) bought from a relative, or 2) been on the market for a long time and needed a lot of work, and the seller was an idot.

Depends how much expertise and / or patience you have.

 

[free4now]

  As a seller, I prefer to use an agent.  I find negotiating through an agent, it is easier to manipulate the buyer.  Convince your agent you fully trust him/her.  Magically everything you say to your agent gets passed to the buyer's agent and buyer ends up paying exactly what you told your agent was your bottom line (which it isn't). 

Nice!  The whole idea that your agent is on your side seems like a load of bunk.  The agent is on the agent's side, which means doing whatever they can to close the deal with as little work as possible.  If you truly are a motivated seller or buyer, it may be useful to involve agents because they can use their catty cunning to close deals that otherwise wouldn't have happenned.  But there's no need to let your agent know how motivated you really are; that only turns them against you.

 

[SC]

However, I recently read an interesting book, Freekenomics by Levitt and Dubner, that points out issues with the current real estate compensation methods.

I was thinking of this same study. If memory serves, they found that when realtors sold their own houses, they stayed on the market much longer and ultimately fetched a higher price than their clients houses. The conclusion was that when they were receiving close to 100% of the sales price, they were in less of a hurry to get a quick sale at any price. I think Curly is absolutely right about the seller and realtor having misaligned interests.

The last house I sold was FSBO and worked like a dream. I didn't do open houses so there were no lookie-loo's. When someone called about the classified ads, I set up an appointment to show the property. I priced the house about 6% below market - I got the same amount as if I'd used a realtor - and as a result it sold in two or three weeks. The buyer was using an agent and he ended up paying his agent's 3% out of pocket.

I think in this case the FSBO resulted in a quicker sale for the same net gain as using a realtor.

SC

 

[tryan]

But there's no need to let your agent know how motivated you really are;

This is true ... really need to filter the home improvement "advice" too. Can remember a couple "recommendations" to fix untangibles (in each case replace the roof). Held my ground in both cases (there were no leaks) and the house(s) sold within a couple months at asking price.

 

[SLC Tortfeasor]

My 2 cents: it's easier to talk your selling agent's commission down if you're using the same agent to buy your next home.  That's what I just did last week.  He agreed to sell my house for 4% (3% going to the buyer's agent, 1% going to my agent), if I let him work as my buyer's agent for my next, more expensive house. 

I was not too pleased to discover some $400 worth of additional fees imposed by the brokerage firm in addition to the commissions that are paid to the agents ($200 on the sale of my house, and $200 on my purchase of the other house).  But, I figure I'm still getting an okay deal.  However, my house won't actually go on the market until next week, so something could still go wrong. 

 

[NYCGuy]

Real estate agents are scum. When I was a buyer they lied to me about boilers being replaced and about some amenities. When I sold my apartment here in NYC last spring, I interviewed four agents from three big name firms. I asked each why I should hire him or her and not one of the others. This one guy said I should hire him because if the apartment didn't sell immediately the others would start trying to get me to lower my price. Ok, fine I hired him, it was on the market for exactly 8 days before he suggested that I should lower the price. I didn't. It sold 2 days later for 13% above the list. I can handle that they are striclty going to pursue their own interests even at the expense of yours, but I hate when they talk to you like you are stupid.

That said, I am glad I used an agent for one reason. Here in New York there is no MLS. The brokers have something similar called a Rollex or Rolex. If you aren't in there you aren't going to get the traffic. If I had tried to sell it myself I would not have had 140 people show up at the two open houses, would not have had a bidding war, and would not have got the price I did.

Eventually RE agents will go the way of travel agents, replaced by the Internet. But, for now, at least here they own the quality buyers.

 

[MJ]

Just slightly off the topic. I have been in contract since Jan 12th and the proposed closing date passed a week ago. The buyer's lawyer has sent a letter waiving the mortgage contingency provision so the 10% deposit is mine. The buyer is putting down a hefty 42% cash at closing so his mortgage would be 58% of the purchase price. I was wondering how long should it take for a buyer to get a mortgage. I am losing a chunk of money in daily lost interest.

MJ

 

[nwsteve]

I was wondering how long should it take for a buyer to get a mortgage. I am losing a chunk of money in daily lost interest.

MJ
Unless you have some unusual title issues to be cleared or your market is short of appraisers, closing this type of transaction should be no more than several weeks from all terms being met.
Note the ads for DiTech and Lending Tree.
I have recently done a deal with a major s & L and closed the deal in three weeks from application.
nwsteve

 

[cute fuzzy bunny]

If my wifes home sale was an example...young couple with middling credit, she has a decent but very unspectacular job as a secretary (no benefits), he worked in a gravel yard shovelling. They paid me extra and I gave them back some cash for a down payment. All they could afford was $1000 as a deposit, although they took a credit card advance to come up with an extra thousand. Took them about 10 days to get a loan.