Real estate agents work on commission. Sellers typically pay 100% of that commission, which ranges between 3% and 6% of the sales price (with commission split between buyer’s agent and seller’s agent).
Some sellers don’t want equity going toward commissions, so they choose the for-sale-by-owner (or “FSBO”) route. An FSBO situation means a seller serves as his or her own agent.
There’s nothing wrong with FSBO – as long as you’re aware of the challenges. The National Association of Realtors found that FSBOs represented 7% of all home sales in 2017. Those FSBO homes sold for an average of $200,000 compared to $265,000 for homes sold with agent assistance.
Why the big gap in price? Here’s a look at five reasons why it’s hard to find success with FSBO.
1. Buyers Want to Avoid Commission, Too
As noted above, sellers typically pay 100% of the commission, and that commission is split between the buyer’s agent and the seller’s agent. Sellers choosing FSBO have no seller’s agent to pay, and they typically won’t pay the buyer’s agent either. That means the eventual buyer is left to pay his or her agent.
Think about this from the buyer’s perspective. Imagine you’re looking at three homes in the same price range. Now, imagine you have to come up with 3% of the sales price to pay your agent’s commission for one of those homes, but the seller will pay your agent’s commission for the other two. You’re going to be far more interested in the other two.
Which is why FSBO sellers start at a disadvantage.
2. Agents Prefer Working With Other Agents
The vast majority of real estate agents understand the sales process from start to finish. They know how to keep a transaction moving forward from acceptance to closing, and they also have a network of other professionals who are important to closing a sale: title agents, appraisers, lenders, etc.
Sellers attempting FSBO typically do not know the process, and they lack a network. In most FSBO cases, a buyer’s agent ends up managing the process from start to finish, virtually serving as an agent for both parties.
A good agent will always do the right thing on behalf of the client. For example, if a client’s dream home is an FSBO, an agent will get the job done. But, in a market where there are lots of options, an agent will steer a client toward non-FSBO homes and processes that will be much easier to manage.
3. It’s Harder to Get to Closing
After offer acceptance, the buyer and seller begin a march toward closing that includes several tasks and deadlines. Here’s a checklist of just a few things that need to happen before closing: home appraisal, home inspection, title work, contingency agreements, disclosures, walk-throughs, financing approval, documentation, etc.
If a mistake is made with any task, it could put the deal at risk. Because FSBO sellers are often first-timers prone to first-time mistakes, FSBO deals fail to close more often than non-FSBO deals.
4. FSBO Sellers Don’t Really Save Money
Sellers choose FSBO to save money. But, unfortunately, FSBO sellers rarely realize the savings they want.
There are two reasons for this. First, a real estate agent brings value to the process. A good agent helps a seller with staging, marketing, accessing pools of buyer, pricing, negotiations and more. And second, buyers have insider knowledge in FSBO situations – they know a seller is looking to save 6%, and so buyers often try to negotiate down the price to save the 3% they will be left to pay (as noted in No. 1 above).
These two factors depress the ultimate price that FSBO sellers get. Remember, in 2017, the average FSBO home sold for $65,000 less than with agents involved.
5. It’s Hard to Get Attention for FSBO Homes
In the 21st century, real estate marketing is more than a sign in a yard. The best real estate agents know how to capture the attention of buyers in a way that drives traffic to a home and makes it easier to sell quickly and at peak value.
Most FSBO sellers do not know how to capture that attention. Their homes often take longer to sell, and the final sales price (as noted above) is often lower than in non-FSBO situations.
That’s not to say all FSBO situations fail. In some cases, an FSBO seller has real estate knowledge or experience, and market conditions sometimes make FSBO transactions easier to close. If you have questions about FSBO, I’m always glad to answer them. Get in touch by emailing me at pthessen1@gmail.com.
-by Perry Thessen
