DFW Flat Fee MLS Agent discusses why people try the FSBO approach.

Over 90-95 % of all residential real estate sold in the United States is sold with a Real Estate Agent involved on at least one side of the sale.  This means that the remaining 5-10% of homes not sold by agents are sold by their owners without an agent involved.  It is for that 5-10% of the market that this book is written, but the other owners who are using an agent may also benefit from the suggestions included herein.

This book is written specifically for the owner of residential property in the state of Texas.  While Texas laws are possibly a little different from other parts of the United States, most of the information contained herein is applicable to selling real estate anywhere in the U.S.

"For Sale by Owner - FSBO” 

 

Here is a short list of motivations that cover the majority of FSBOs.

1)     Save The Commission
2)     List for Higher Price
3)     Take Control of the Process  

Industry studies have shown that approximately 80% of all FSBOs eventually give up on trying to sell their home themselves and list through an agent.  Before we analyze why this is the case let us look closer at the motivations, then we will evaluate why these owners are unsuccessful at selling directly and eventually list with an agent.

This category are the most common reason that people try to sell their home without an agent.  They believe that by listing and selling their home without a real estate agent they can save the commission that the agent would earn.  These owners believe that the commission that they save will be money in their pocket and they are unwilling to acknowledge the value and benefits of dealing with agents.

Agents will counter that the buyer will usually be dealing with an agent and that, being guided by the agent, they will discount the home for the saved commission and negotiate away any savings that might have been realized.  There is both truth and falsity to that counterargument. 

The truth is that since the commission is reduced or eliminated the buyer will attempt to get that savings, or a portion of it, for themselves by reducing their offer.  The falsity of that argument is that each house has a Fair Market Value (“FMV”).  The FMV is supposed to be the price that a willing, informed buyer and motivated, informed seller agree to for a specific house without any undue pressure or sense or urgency on either party.

FMV is not supposed to take into consideration the commission that the agent charges.  In other words, the house’s value is not dependent on the agent’s selling skills or level of effort.  Each property has a unique value that is a function of its improvements, condition, and situs.  The agent does not have anything to do with the value.  If so, then appraisals would have to take into consideration that the agent is.  Ask any certified residential appraiser if the agent is part of their calculation and they will let you know the truth.

Therefore, the argument that you should reduce your asking price to allow the buyer to benefit from the savings you will receive by not paying any commission is an invalid argument, however, you will most likely still have to deal with this negotiation tactic.

Importantly, agents that try to justify their full Listing Commission will often use this argument to get you to list your home with them.

Price your home in conformity with the fair market value as evidenced by recent sales in your immediate community and you will be justified in holding to your price in the face of this argument.  It is important, however, to be fully armed with either an independent appraisal of value, or, to a lesser degreed, a CMA.  You will need to provide justification for your valuation during the negotiation process.  A little money spend on an appraisal in advance of receiving a contract on your house can help to justify your price and save a lot of money when you get down to the gritty details of negotiation.

Many agents, especially those that are seasoned, will make a concerted effort to get the owner to list their home in conformity with the prevailing market valuations based on a comparative market analysis (“CMA”).  Often the homeowner perceives greater value in their home than the CMA would indicate and the owner is unwilling to list for a lower value simply because of a CMA.  In short, the owner thinks their home is more valuable than the agent does, and since the agent will be investing time trying to sell the home they will attempt to adjust the owners price point so that their time is not wasted on marketing a home that is priced above its market value.

Lets look at the conflicting motivations here.  The homeowner wants the highest price possible.  The agent wants a high price for the home owner, but, the agent is compensated based on a sale and since they only get a portion of the commission the difference between selling quickly now or taking three or four months to get an extra $20,000 means very little to the agent, but it means a great deal to the owner.  Therefore, the agent is motivated to price low and sell quickly, while the owner wants to price high and sell quickly.

Seasoned agents know that pricing high is a sure formula for a slow sale and they will attempt to persuade the owner to list for a ‘reasonable’ valuation.  The most professional agents will discuss these factors with the owner and help the owner to evaluate all of the factors when pricing, however, if the owner wants to set a price that is unreasonably high the agent will either balk and not take the listing (improbable) or they will go ahead and take the listing knowing that after 30-60 days without any activity the owner will become more receptive to a reasonable valuation.

The problem with the second approach is that the property has the most salability during the first 20 days on the market.  It is during this time that the seasoned buyers and their agents are watching for new properties that will fit their needs.  If your property does fit their needs, but it is overpriced for the market, they will not make offers, or the offers that they make will be rejected, therefore wasting everyone’s time.   The buyers’ agents will know what reasonable values are and may even fail to show the property until it is priced in line with market valuation.

Therefore, the agent that lists a property at a value substantially greater than the fair market value for the property is biding their time waiting for the owner to become realistic and adjust the price down to market.  In the meantime, the most valuable opportunity for a sale is slipping away and the property is much more likely to sit on the market for several months in this situation.

By pricing the property in conformity with true market value the seller is much more likely to get a quick sale saving themselves significant time and headache.

The biggest problem with FSBO properties is that they are often priced above market value since the owner simply does not accept the guidance of an agent during their pricing considerations.  They set the property price too high, sit on the property too long, and then become frustrated when it does not sell.

By investing in an appraisal before putting a price on the property the seller is much more likely to se the price properly, and, they will have some objective third party proof of the valuation when an interested buyer does come along.

Back in the 1950s through the 1970s it was very common to sell your home directly.  The MLS services had not established the dominance of the market as they now have and people relied more on newspaper ads and yard signs than they do now.  Many people who sell their own homes come from families that have a history of selling homes directly, without the aid of an agent.  Their parents did it, they have done it, and they are not intimidated by the process.  They know, from direct personal experience, that it is possible and they will at least try to sell directly before listing with an agent.

It used to be that selling a home involved a real estate attorney who would draw up a contract directly for the buyer and present to the seller who would often have their own attorney review the contract and respond with changes.  This process was relatively expensive, was time consuming, and was confusing.  Then along came Realtors© and state governing bodies and promulgated contracts and federal disclosure requirements.

The Realtors© and the state governing bodies, with the advice of Realtors©, developed a wide variety of standardized forms for the sale of real estate.  These promulgated forms and contracts are now very mature and have plenty of blanks where you simply fill in the required information, making the need for attorneys in the average transaction much less common.  The trade off is that the fees that once went to attorneys now goes to Realtors© and other agents in the form of commissions.

Contracts and forms are still confusing, though less so than in the days when each one was uniquely generated by an attorney.  Most people who have been through the sale process once or twice in the past are familiar enough with the paperwork to feel comfortable dealing directly with the contracts and other forms without the need for an attorney to be involved, however, we encourage you to get competent advice unless you are an attorney yourself.

It is because of the standardization of the modern real estate sales contract and the other required forms that it is so easy for FSBOs to handle the sale themselves.  It is also for this reason that a number of Flat Fee MLS Listing services are becoming more popular.  We will discuss those services in more detail later.

FSBO sellers and buyers can easily obtain standardized, promulgated forms and can obtain the advice of attorneys, real estate agents, or other professionals to assist and forego the necessity of having an agent involved in the full process, thereby saving the commission.

Other ‘Process Control’ related motivations would be controlling access to the home, directly managing the showing process, managing the advertising, and other similar duties.

DFW Flat Fee MLS Listing Broker NetOffer has been providing Flat Fee MLS Listing Services to Dallas and North Texas home owners since 2004 and has helped nearly 2,500 people sell or purchase a home. If you are considering selling your home please visit our website or call 972-470-5888 to find out more about our Flat Fee MLS Listing services.