Real Estate For Sale by Owner

[NgineER]

We sold our home through a discount broker in 2012, total cost was ~$500 (+buyers commission 2.5%).

We interviewed a couple of realtors and they gave us a suggested list price and sold price. They were all pretty close together. A neighbor/friend who also is a realtor advised us to list by ourselves through a discount broker that got us on the MLS and it included an electronic lock box. She said she'd only recommend it if your house was fixed up and ready to sell in an attractive neighborhood.

We sold for more than the general realtor consensus and in two days. Getting on the MLS was key however, staging it and taking good pictures. There are so many realtors that use "professional" photographers with pictures that are terrible.

The discount broker walked us through the process without any direct help, but they had all the paperwork for us.

 

[pb4uski]

I've sometimes wondered if there might be a different commission structure that could be a win-win. For example, let's say there is a property that a trained seal could sell for $200k and $250k would be a real good price and an expected price is $220k.

I'm not really willing to pay a realtor anything if they sell the house for $200k, I'm willing to pay a market commission for a sale at $220k and would be willing to pay an even higher commission if the property could be sold for $250k or more.

So I might be willing to pay 0% on the first $200k and 66% of the sales price in excess of $200k if the sale price is between $200-220k and 40% of any excess over $220k. If the house sells for its expected value the seller gets a market commission $13.2k on a $220k sale is 6% and if they sell it for $250k they get a nice juicy commission of $25.2k (10.1%). But as the owner, my net proceeds are more stable; $200k on the low side, $206.8k on an expected basis and $224.8k if the property sells towards the high end of the range. Both the seller and the agent have good incentives to sell the house for more than its expected fair value and each win if they are successful.

If I go a conventional straight 6% commission my net proceeds are $188k, $206.8k and $235k, so the alternative arrangement has less "volatility" - a trade-off of less upside for less downside.

Putting aside the obvious issue of coming up with a reliable estimate of the low, expected and high end values that the agent can't use their greater knowledge of the market to take advantage of the seller, for those agents out there, would an arrangement like this be attractive to an agent?

 

[misanman]

We have only ever sold "by owner" so I'm not sure what benefits we've missed. We hire a lawyer to do "the paperwork" and it has ended up being a small fraction of what the realtor commission would be. I would say the biggest potential issue is setting the right asking price but with some of the online tools available that seems to be less of a problem.

 

[heeyy_joe]

Just sold house in Plano Tx - thru a realtor, full price offer in 3 days - market is hot. The lady two doors down the street is FSBO for two months now and not a nibble except low-ballers and cheap shot artists (flippers).

Ever been in a real estate law suit? Dude, get a realtor.

 

[eta2020]

Are real estate agents kinda like Hedge Fund managers. Hedge fund managers often charge 2% of portfolio plus 20% of profit. They can not loose Even if they loose your money they still make killing.

Lets say you are selling house worth 500k. Real Estate agent charges 5% fees.
He sells at 500k 25k fees
He sells at 100k 5k fees
He sells at 700k 35k fees

he/she can not loose but you can loose And the quicker they sell your house the better for them.

But given number of LBYMs who are willing to pay 5% I see those Hedge Fund managers will be doing very well for many years to come.

 

[iac1003]

I never sold a house by myself but my mother did, got into some dispute with the prospective buyers, had a lawsuit and lost. She had to sell to them and move. They then promptly tore down the historic house despite contracting that they would not do so and built an awful McMansion.

All that being said I live in such a hot neighborhood right now that people are mentioning they are selling their house on our neighborhood listserv and within a few hours an independent buyer has bought at full price or higher. Or with bidding wars.

If I were selling now I would do it by myself, especially now that DH is retired and could show the house. Don't need help with staging, I'm pretty good with design, and the house is uncluttered since we got rid of 80% of our stuff when we moved here.


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[daylatedollarshort]

The percent of sales price does seem like a racket, especially in places where average home prices are high but there are still lots of buyers and often multiple bids. We see houses sell in a few days. Pricing seems to have an element of randomness or at least criteria we do not understand.

One house that from the realtor pictures looked like it was in perfect shape was priced $75K less than a similar house that just sold in the past few months. It was off the market in a few days. Was there a bidding war? Or did the realtor price it too low just for an easy sale and take advantage of the owners? Or something else? I just don't know all the ins and outs.

Some realtors near us advertise "sold in 3 days" or whatever. If I priced our house for sale for $5.00 we could sell it tonight just advertising it on our kids' Facebook pages. I am not sure time on market is necessarily a good indicator of superior realtor sales skills. it could just mean the house was severely underpriced.

The Freakonomics guys showed that realtors left their own houses on the market longer than client houses, because with client houses they made more money on high volumes rather than spending something like an extra month on open houses to get only 3% of an additional $10K. However when the whole $10K is their money, the extra month is worth their time.

 

[clifp]

I've sometimes wondered if there might be a different commission structure that could be a win-win. For example, let's say there is a property that a trained seal could sell for $200k and $250k would be a real good price and an expected price is $220k.

I'm not really willing to pay a realtor anything if they sell the house for $200k, I'm willing to pay a market commission for a sale at $220k and would be willing to pay an even higher commission if the property could be sold for $250k or more.

So I might be willing to pay 0% on the first $200k and 66% of the sales price in excess of $200k if the sale price is between $200-220k and 40% of any excess over $220k. If the house sells for its expected value the seller gets a market commission $13.2k on a $220k sale is 6% and if they sell it for $250k they get a nice juicy commission of $25.2k (10.1%). But as the owner, my net proceeds are more stable; $200k on the low side, $206.8k on an expected basis and $224.8k if the property sells towards the high end of the range. Both the seller and the agent have good incentives to sell the house for more than its expected fair value and each win if they are successful.

If I go a conventional straight 6% commission my net proceeds are $188k, $206.8k and $235k, so the alternative arrangement has less "volatility" - a trade-off of less upside for less downside.

Putting aside the obvious issue of coming up with a reliable estimate of the low, expected and high end values that the agent can't use their greater knowledge of the market to take advantage of the seller, for those agents out there, would an arrangement like this be attractive to an agent?

When I sold my house in Santa Clara, I proposed this to every broker I talked to. A couple rejected it out of hand, the guy who I ended up using was open to the idea. My structure was 1.5% at the sell the next day price, 3% at the good deal price, and 8% at the stretch price, with the buyers agent getting 3% no matter what. At the end I gave him 2.5% and he did a decent but not stellar job. The problem as he explained was that he worked for RE/Max which while provided more flexibility than most place really wasn't set up to do such a thing.

My guess is that you can most easily do it with independent brokers, broker who own their own company.

I am not sure about the ethics in involved in paying the buyers agent more money if they get the buyers to pay more.l

 

[clifp]

I personally would never sell my home myself. However, my sister sold her Ojai California home by herself. She paid a realtor friend a flat fee to act as consulting with respect to the all the financial, and legal stuff.

I should also point that my sister is an artist, uber anal, and her friends nickname for her is Martha Stewart. So the house was staged beautifully with scent of tropical flowers, artful arranged, mixing nicely with the aroma freshly baked bread. Her friends best artwork displayed on the walls. Only their nicest furniture along with my grandmother best antique remained in the house. They spent a year in Tahiti so one room was devoted to Tahiti and it looked like a movie set. The house was nothing special, the lot was quite nice, but it definitely looked like something out of a magazine layout by the time she was done with it. She got a good price in a average market after being on the market for 6 weeks or so.

So my guess is if you are planning your 500K+ house by yourself you probably need to to spend money on staging and such.

 

[urn2bfree]

I have seen several threads about this around the internet now and I notice something. Realtors talk about how hard they work and earn their money and barely scrape by...sellers talk about everything their realtor did for them that was soooo worth it...and I would not argue with anything they say..but not one realtor, not one seller have I seen answer the simple question--tell me why I should pay 3x as much to a sales person for selling my very desirable $900,000 home as I pay to the salesperson selling my less valued $300,000 home. They do not even acknowledge there is a question.

Lots of talk about the "going" rate and nobody really wants to pay them by the hour, etc...but not one can justify what in the HELOC the price of my house has to actually do with the service they provide.

And that goes for buyers agents too.

This strikes me as a phony racket that everyone just tolerates/accepts. Not me.

If they want to earn money off what they do, I am all for it-- but most of the value of my house --I earned the money, I maintained the property--is a reflection of MY accomplishments. not a determination of their worth or a reflection of their efforts.

Any realtors who hope to get my listing better start working on a better answer or a different fee structure.


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[eta2020]

So my guess is if you are planning your 500K+ house by yourself you probably need to to spend money on staging and such.

I don't live in Palo Alto but in my town 500k means tear down sitting on 5000 sq ft lot. On very rare occasions house like this comes for sale and builders will line up to buy it 24 hours after you post it on zillow.com.

 

[clifp]

I don't live in Palo Alto but in my town 500k means tear down sitting on 5000 sq ft lot. On very rare occasions house like this comes for sale and builders will line up to buy it 24 hours after you post it on zillow.com.

That is probably true of a lot of places on the coast. The assess value of my place is was 70% land and its only stayed that way cause I have done a ton of repairs and renovation to the house recently.

I share Urn2bFree frustration to the realtor commission structure,which is in many worse than a typical financial adviser. Most asset based FA give price breaks e.g. 1% up to 1 million in assets .75% $1-$3 million and .5% above $3 million in assets. Because they recognize that it isn't 10x more work to manage $5 million portfolio than a 500K portfolio.

I can say without qualification that my Vegas realtor spent more time and was more on the ball with my six real estate transactions in Vegas all at below 100K, than 3 transactions I was involved in at the 500K+ level. Either she was very much under payed or the 6 brokers (3 buyers/sellers) involved in my other transactions who made 5-10x as much as she did were overpaid.

I think this why were are seeing more of the discount brokers like Redfin who operate on a fix cost getting more work.

 

[pb4uski]

...I am not sure about the ethics in involved in paying the buyers agent more money if they get the buyers to pay more.l

Good point. It might make sense to have a conventional buyer's agent commission and put the big incentive on the selling agent to press the buying agent and the buyers for a higher price. God forbid we would not want to put the buyer's agent in an ethical dilemma.

At a flat 3%/3% it doesn't provide much of an incentive for either agent to maximize my price, but just make as quick and easy a sale as possible at the best price and move on to the next deal.

 

[NgineER]

Interesting topic, if you haven't read freakonomics yet, do so. It is a very interesting read... They have one chapter on realtors in there.

 

[photoguy]

Good point. It might make sense to have a conventional buyer's agent commission and put the big incentive on the selling agent to press the buying agent and the buyers for a higher price. God forbid we would not want to put the buyer's agent in an ethical dilemma.

Well they actually call the agent that represents the buyer the "selling agent". Took me a while to get used to that. I think there's no ethical dilemma in the agent's mind :>

I think one issue why so many use realtors instead of FSBO even in silicon valley is due to the fee structure. You will likely still need to pay the selling agent (who represents the buyer) a commission -- probably around 2.5%. Thus the amount that you can save on the listing agent is perhaps 1.5-2.5%.

On a 700k [-]hovel[/-] home, this is maybe only 10-20k in dollars. Given that anybody who can afford a 700k home in silicon valley is probably very busy at work and may also be stressed out about the new (even more expensive) house they are going to buy, it's no wonder that people chose the realtor.

 

[Fishingmn]

The Freakonomics guys showed that realtors left their own houses on the market longer than client houses, because with client houses they made more money on high volumes rather than spending something like an extra month on open houses to get only 3% of an additional $10K. However when the whole $10K is their money, the extra month is worth their time.

Love Freakonomics and listen to their podcast regularly.

That said, not all Realtors do this. Sold my house 2 years ago. Did comp and knew exactly what I wanted to get. Priced it $10k above target price. Got 6 showings in first 4 days. Received offer at day 2 but waited to day 4 to see if there were any more offers. Since none more came in I negotiated to my target price which I was confident was the fair market value. Done.

I believe houses mostly sell at fair market value when fully exposed to the pool of existing buyers based on condition and comparing against alternatives. Agent doesn't set the price - the market does.

You're paying Realtor for help in getting home into best condition (the 1 main thing to influence sale price ahead of time), market pricing advice, marketing home broadly, negotiations and handling the process. If you don't think that's a value then don't buy it. There are always alternatives. There's just no guarantee that you'll actually save money since there's never really a way to verify whether you'd have been better off.

 

[Cobra9777]

Standard real estate commission is 5-6%. But it's worse, you pay interest on the commission on a home because it's rolled into your loan!!

It's even worse... you pay property tax on the commission because appraisal districts refuse to accept the economic reality that your "sales price" was not just for real property... 5-6% was for real estate agent services.

I've sometimes wondered if there might be a different commission structure that could be a win-win. For example, let's say there is a property that a trained seal could sell for $200k and $250k would be a real good price and an expected price is $220k.

I'm not really willing to pay a realtor anything if they sell the house for $200k, I'm willing to pay a market commission for a sale at $220k and would be willing to pay an even higher commission if the property could be sold for $250k or more.

So I might be willing to pay 0% on the first $200k and 66% of the sales price in excess of $200k if the sale price is between $200-220k and 40% of any excess over $220k. If the house sells for its expected value the seller gets a market commission $13.2k on a $220k sale is 6% and if they sell it for $250k they get a nice juicy commission of $25.2k (10.1%). But as the owner, my net proceeds are more stable; $200k on the low side, $206.8k on an expected basis and $224.8k if the property sells towards the high end of the range. Both the seller and the agent have good incentives to sell the house for more than its expected fair value and each win if they are successful.

Last time we sold a house, we negotiated a matrix rate structure with the listing agent that was based on price and time to sell. Closing within 30 days at full list price or above was 5%. It went down from there, bottoming at 2.5%, which was enough to pay the buyer's agent only. We ended up paying about 3.75%. We had no problem getting the agent to agree, and she was the highest volume agent in the area.

 

[Fishingmn]

One other practice I hate.

You pay commissions on the full sale price, even if seller concessions are included.

If you sell a house for $300,000 - $10,000 in seller paid closing costs (very common practice) the seller only nets $290k but the commission is based on $300k. You can try and negotiate it out at the time of an offer but I feel like my commission should be based on the net price. MLS won't even let us try to mandate that as a standard practice - has to be done on a case by case basis and then only if the buyer's agent will agree to it during the negotiations.

 

[urn2bfree]

You're paying Realtor for help in getting home into best condition (the 1 main thing to influence sale price ahead of time), market pricing advice, marketing home broadly, negotiations and handling the process. If you don't think that's a value then don't buy it.

STRAW MAN ARGUMENT: Where did anyone say there is no value in what the realtor does? I have not seen anyone make that argument. I certainly have not. No one is questioning whether realtors add value (a distinction from financial advisors, who in many cases could seriously subtract value by what they do).

The questions about realtors center on how do we RATIONALLY tie their compensation to their work? Clearly the value they add cannot possibly really be related to a flat percentage of the value of my home. Real estate values vary widely by location, but the work of a realtor cannot possibly be that different or likely even directly correlated to location. Does the Silicon Valley agent earning 3% on a $2,000,000 house really add 10x more value than the agent in Cedar Rapids, IA on a $200,000 home? As someone else noted, the realtor in Iowa may have a much more difficult job in a cooler market...
And yet the realtor in California will charge 10x more.

The Freakonomics observation and the obvious disconnect between effort and value suggests reform is needed. The question is how to do it...not by government- by us - the market. But let's start by acknowledging that the current model is flawed.

The sliding scale of percentage commission is only likely to exacerbate the "Freakonomics" problem as each incremental increase in price is worth less effort by the realtor earning a smaller commission.

Why can't we just pay them like accountants or plumbers or interior designers or any other professional?




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[Fishingmn]

Doing a little research brought up this interesting article about a broker in Chicago who is (or was in 2012) offering an hourly model to buyer's. The exchange in the comments section is also worth reading - Should Realtors Charge Buyers For Working With Them? Koenig & Strey’s Announcement | Getting Real

 

[eta2020]

Half of millionaires have lived in the same house for more than 20 years. "The Millionaire next door"

I guess this makes us non suckers for realtors.... even if we use them.

 

[daylatedollarshort]

We looked at the price history of one of our neighbors' houses that sold recently and it had hardly gone up in price since they bought at close to market peak 10 years ago, plus it was really fixed up so they poured a lot of money into it.

What little gain they did have is going to go largely to realtor fees. If we downsize and stay local we are thinking it might make more sense to just rent than re-buy in a seller's market.

 

[imoldernu]

One of the many sites...

Official For Sale by Owner site: Homes for Sale, Sell a House, Buy Real Estate | ForSaleByOwner.com - FSBO

There are many other locally owned/operated similar operations.

Since we expect that our last move will be to an apartment in our full-service retirement community, our plan is to make the move... take what we'll need, sell or give away the rest... and reduce the price until it sells. Currently no homes for sale in our community, and when one comes up for sale, usually for a very short time. When next door neighbor passed away two months ago, the home sold the day it was placed on the market... at asking price.

Too old to go through the "fix-up-for-sale" thing... will be as is, and we'll trade the aggravation for cash on the other end... All part of the plan.

 

[mrfeh]

Sold our house w/out the aid of a realtor 5 years ago. Paid a few hundred to get it listed, and paid a few hundred for lawyer at the closing.

Had to pay 3% to the buyers' realtor, but still came out thousands ahead.

ETA - also used lawyer for reviewing purchase/sales documents

 

[JOHNNIE36]

One other practice I hate.

You pay commissions on the full sale price, even if seller concessions are included.

If you sell a house for $300,000 - $10,000 in seller paid closing costs (very common practice) the seller only nets $290k but the commission is based on $300k. You can try and negotiate it out at the time of an offer but I feel like my commission should be based on the net price. MLS won't even let us try to mandate that as a standard practice - has to be done on a case by case basis and then only if the buyer's agent will agree to it during the negotiations.

Our home is currently under contract. The real estate commission in our case (6%) is based on Realtor obtaining a full price offer. Anything less than full price leaves the commission open to negotiation.