Thinking of Selling FSBO? 7 Reasons Why It's A Mistake

It’s not surprising to hear a Realtor say that they recommend hiring an agent in order to sell a home well versus selling it For Sale By Owner (FSBO), but there are many legitimate reasons to heed this advice. The rationale for selling FSBO is frequently based on cost-cutting measures, especially when the market favors sellers and homes seem to be flying off the shelves. Traditionally, homes sold FSBO sell for 8% less on average than those sold with agent representation. Selling a house isn’t as simple as sticking a sign in the yard and calling it quits— there is a lot that goes on behind the scenes prior to listing a house for sale and between contract acceptance and settlement. What complicates things further beyond navigating this already tricky process is selling amidst a global pandemic that has shaken up everything from house showings to lending guidelines and more. Before opting to sell your house FSBO, consider the following:

1. Price— arguably the biggest reason people opt to not hire an agent is to avoid paying a commission. What many people don’t know is that housing prices are calculated to include the cost to compensate two agents and their brokerages. The data used to pinpoint the sales price of a home are based on comparable homes that have sold with two-party representation included; if you take an agent or two out of the equation, buyers will expect a substantial price reduction. If the asking price does not take this into account then this can create distrust for buyers who may question why they are paying full price for a house to not have professionals handle the transaction. Furthermore, sellers still have to pay one commission— the buyer agent’s. Buyers rarely want to navigate the process without representation and 99% of buyers engage a buyer agent. In 2018 FSBOs accounted for 8% of home sales and typically sold for $217,900 while agent-assisted home sales averaged $295,000.

2. Liability— buyers are reluctant to get involved in an expensive transaction with someone who doesn’t have deep pockets. When sellers are represented by a brokerage there is someone to be held accountable in case something goes awry. Brokerages have vast resources and attorneys on staff to help resolve issues should they arise, but someone who buys from an unrepresented seller has little recourse should the transaction hit a snag. Furthermore, buyers can build more distrust when faced with a seller who chooses to go outside of the system that the vast majority of people use. To put it another way— if you are buying a used car from a dealership and you require assistance, the dealer is there to help; but when you buy a used car from someone on Craigslist, there is less accountability for the seller and more risk for the buyer.

3. Managing access— it’s no secret that we are in the midst of a seller’s market and buyers are scrambling to purchase what little inventory there is on the market. But many sellers are not prepared for a deluge of buyers who want to see their home and managing access and showings is not only a timing concern but a safety one. Listing agents are able to limit showings so that buyers don’t take too long on showing appointments and preclude other buyers from seeing the home. They are also able to ensure there is time built in for buyers and their agents to complete pre-inspections of the home so that they can write stronger offers with fewer contingencies. But in the age of coronavirus, making sure that regional protocols are followed to keep people at a safe distance ensures the safety of the seller and of buyers. Furthermore, agents have sophisticated lockboxes that record an access log of individuals who have toured the home and what time they were there.

4. Exposure— there is more to selling a home than sticking a for sale sign in the ground and waiting for buyers to come running. Agents tap their network to connect eligible buyers with homes that will suit their needs, utilizing both the Multiple Listing Service (MLS) and private networks. Savvy agents use paid advertisements to market homes all over the internet to widen the buyer pool as much as possible and garner interest in the home. Pre-marketing listings gives sellers more options to sell either on-market or off-market, depending on their real estate goals and current circumstances.

5. Expertise— having strong connections in any field is a plus, but it is essential in real estate. Agents realize how invaluable relationships are with a variety of people, from contractors who are readily available and reasonably priced to attorneys who can advise on thorny legal issues. If an unexpected obstacle threatens to derail the deal, agents know who to call to resolve the issue and get the transaction back on track. For buyer’s agents, many are reluctant to show houses that are being sold FSBO to their clients in an effort to protect their best interests. From the buyer’s perspective, an unrepresented seller is likely to be difficult and doesn’t understand the value that agents bring to the table. Furthermore, the buyer’s agent knows that they will have to do double the work if there is no listing agent and that if they get into a pickle with the seller that there is no manager to call to rectify the situation.

6. Perception— if there are bumps along the road that lead to the deal falling through, returning to the market leaves a negative impression on buyers who have more questions than answers and who will assume the worst, even if there is nothing wrong with the home. Or if a home is priced too high and languishes on the market, it can also damage the perception of the home and ultimately drive down the sales price.

7. Solving problems— what do you do as a FSBO seller when your buyer loses their financing? How do you parse through the legalese when choosing which offer to accept in a multiple-offer scenario? What do you do when the appraisal comes back below the sales price and the buyer wants to walk? These issues are insurmountable for the layperson but for an experienced agent, they know exactly what to do. For example: with mortgage rates so low many people are taking out loans or refinancing their homes, which is backlogging lenders. This leads to delays and possible appraisal issues, especially because of a lack of comparable data due to lean inventory and bogged-down appraisers. Experienced listing agents know that they have to do the appraiser’s job for them and provide relevant data to support the sales price of the home, otherwise appraisal values frequently fall below the agreed upon sales price and the price is either lowered or the buyer walks. Shrewd agents know how to navigate the appraisal appeal process in case of a low appraisal, otherwise buyers have to bridge the gap in cash or walk away from the deal. For the seller, this creates more risk by losing the buyer and having to return to the market. There are inestimable issues that can arise between contract acceptance and settlement that only an agent knows how to effectively navigate.

Ultimately the seller has the choice whether or not to hire an agent to sell their home, but it is clear from the data that hiring an agent is a wise investment in what is an extremely important transaction and milestone for both parties. Sellers aren’t just paying someone to install a sign in the yard, display the property on the MLS, and take some photos— they are paying for someone who lives and breathes real estate, who has their finger on the pulse of the market and the area, and who wields the knowledge and connections to guide them safely to the finish line.

 Source for data: www.nar.realtor/research-and-statistics/quick-real-estate-statistics