The Real Cost of FSBO (For Sale By Owner)
Some homeowners try to save money by selling their homes on their own. They think, “The market is hot, right? Why not do it myself and save thousands of dollars?”
On the surface, this seems like a no-brainer. Who wants to pay commissions to real estate agents if they don’t have to?
Although most FSBO listings start with good intentions, we all know where that can sometimes lead.
I’m a real estate agent. Obviously, I think that listing your home with an agent (me, preferably) is a wise decision. But I’m not going to convince you of this by telling you how great I am at my job or showing you statistics from a report conducted by the National Association of Realtors (sounds a little biased, right?).
SAVE HOW MUCH?
Let’s look at the primary goal with a FSBO listing – saving money. As a homeowner, how much can you save?
Commission rates vary among real estate brokerages, but most full-service companies charge 6% of the purchase price to sell a client’s home. On an average home in the Greater Cincinnati area ($250,000), the potential savings is $15,000. Right?
To be fair, it’s seldom right and almost always wrong.
Nearly all home buyers utilize a real estate agent to help them find a home, negotiate the contract, and guide them through the process to closing. Buyers’ agents are not paid by the buyers – they’re paid by the listing agent. Usually half of the 6% commission paid by the homeowner to the listing agent is paid to the buyers’ agent at closing. So the homeowner indirectly pays the buyers’ agent 3% of the purchase price.
So what has happened to the $15,000 in potential savings? It’s been reduced to $7500.
But even so, $7500 is a lot of money. It may still be worth the trouble.
But wait. There are other expenses to consider. At a bare minimum, a FSBO listing needs signage ($50), professional photography ($250), online ads ($200), and a real estate attorney to review the contract ($500) .
What’s left now? $6500. Still worth it?
I guess that depends on how much time it takes. After all, time is money.
Taking phone calls, opening the house for showings, reviewing offers, negotiating repairs after inspections, completing paperwork to prep for closing – these are just a few of the things that you should expect to consume your time if you do a FSBO listing.
And that’s if nothing goes wrong. What if a buyer backs out? Start over!
So if everything goes just right, maybe you spend about 50 hours selling your home. At $25 per hour, that’s $1250. You might spend more or less time and your time might be worth more or less than $25 per hour, but these are reasonable numbers.
At this point, the potential savings is $5250.
But we’re not done yet. Would you agree that in order to sell a home (or anything else) for top dollar, you need maximum market exposure? Is a FSBO listing achieving maximum market exposure by NOT being listed in the MLS (Multiple Listing Service) for all real estate agents to view it?
Of course not.
How much less do FSBO listings sell for, as a result of limited market exposure? Although many research studies claim to answer this question, the truth is that no one will ever know. It’s impossible to sell a home via FSBO – then sell the same home via MLS and compare the two results.
What we do know is that, in theory, a FSBO listing will sell for less.
What about negotiations? Can you, who have most likely never negotiated a real estate sale, get the price and terms you want from a buyer? Could an experienced agent get you a better price and more favorable terms? (I sure hope so).
Right now, we’re a long way from saving $5250. In fact, after accounting for limited market exposure and a lack of experience with real estate contract negotiations, you’re most likely in the red. And you’re still doing all the work.
But what if you get the price and terms you want without an agent?
Here comes the bomb… Inspections! No matter how well-maintained your home is, an inspector will always find several items that need repair or replacement. Most buyers will request that you repair or replace these items at your expense.
Just say no, right?
Well… If you say no to ANY of the buyers’ requests, the buyers are allowed to terminate the contract and get their earnest money back.
So how would that go differently with an agent working for you?
Experienced real estate agents know which items are major concerns for most buyers and which items most buyers are willing to ignore. Buyers usually request all but a few recommended items, regardless of importance. If you say no to one of the buyers’ major concerns, you may lose the deal and have to start over.
Even if you manage to sail through inspections with no problem, there are other contract contingencies that can blow up the deal.
What happens if the appraiser thinks the home is worth less than the purchase price?
What if the buyers’ employment status or credit score changes?
What if the buyers have second thoughts during the final walk through, right before closing?
If the deal goes south for any reason, starting over will be costly. The monthly mortgage payment plus utilities for a $250,000 home is nearly $2000. With an extra two or three months on the market, this expense alone could turn your FSBO savings upside-down.
Getting stressed just thinking about it? How do you think homeowners feel when they’re living with this scenario?
How much would you be willing to pay to make it all go away? To get your time back? To maintain your sanity?
3%? 6%? More?
Look. There’s no guarantee that a FSBO listing is going to be a disaster. And there’s no guarantee that listing with an agent is going to be sunshine, lollipops, and rainbows everywhere.
But I think we can see which option has less risk.
Maybe you’re up for an adventure. Or maybe you just want the satisfaction of saying you did it all by yourself.
If that’s the case, I wish you the best of luck.
If not, let’s talk.