List it or FSBO it?

List it or FSBO it?

I'm a Realtor(R). I help people buy and sell real estate full time. I genuinely feel that I provide value to your transaction, whether you're buying or selling. When I get paid for doing my job, I don't have any reservations that I'm worth my fee. If I did, it would be difficult to go out there on a daily basis and talk to buyers, and particularly sellers, about why they should hire me to sell their house, when technically they could do it on their own.

Despite my opinion that I (or any *good* agent) am worth my fee, there's always some segment of the population that's going to list their home For Sale By Owner. And while I can get into the specifics of why my fee is worth it just for all the service I provide, let's talk about the real reason people don't use real estate agents. The vast majority of FSBO's want one thing: to save money.  Let's talk about whether going FSBO saves you money, and if so, how much.

HOW MUCH CAN I SAVE GOING FOR SALE BY OWNER?

Let's start with the assumption that you will get the same sale price whether you list the home with a Realtor or if you sell it yourself (a bold assumption, but more on that later. And I hope at least you’ll grant me that you probably won’t sell it for MORE if you sell without a Realtor ).  If that's the case, then you're really only using the Realtor for the service they provide, so if you're willing to do the work yourself, you can save a little bit of money.  Typical listing fees range anywhere from 5 to 7% depending on the community and brokerage, which is not insignificant.  So, if you go FSBO, are we really talking about saving that much?

At my brokerage, Greenridge Realty, we charge a 7 percent commission for a listing. You can find brokerages that will work for less, but I'll use 7% because it will show you the most savings. When I take a listing, I offer out 3% of that commission to a buyer's agent who ultimately brings the buyer who purchases the home.  This buyer's agent fee is important.

According to the National Association of Realtors, who research such things, 88% of buyers purchased their home through a real estate agent or broker in 2014 — a share that has steadily increased from 69 percent in 2001. This figure has been steadily increasing for several years, as more and more buyers are recognizing the importance of having representation when making the most important and expensive purchase of their lives. These buyers have contracts with their agents that state that the buyer will pay up to a certain percentage of the purchase price as a fee for that representation, with the caveat that the agent will collect that fee from the listing agent.  If a buyer buys a house that's listed on an MLS, the listing agent pays the buyer's agent, and essentially the buyer is getting that service for free.

Now, most FSBO sellers recognize that any buyer who might be interested in the home is very likely to be working with a buyer's agent. Even if they're not aware of the intricacies of a buyer agency contract, most FSBO sellers are aware that they may have to offer something like a 3% commission to any buyer's agent who brings a buyer to the home.  Those who don't know about this are quickly going to learn about it as they begin getting phone calls from agents wanting to set up showings and asking if the seller is willing to "cooperate" with a buyer's agent.  So, immediately, that savings drops from 7% to 4% as soon as the buyer's agent is in the picture.  (More on the situation when a buyer is not working with an agent later.)

But, I hear you saying, just because a buyer is working with an agent doesn't mean that the seller is obligated to pay this 3%, right? If the buyer wants representation, he can pay for it himself! While technically true, I can tell you what will happen in reality. If the buyer wants to (and has cash to) pay his own agent, he's simply going to offer 3% less than what he otherwise would for the property.  In the end, the net is the same.

So what about the buyer who isn't working with an agent. Well, there's really only one type of buyer these days (aside from someone who is just unfortunately ignorant of the option) who is not working with an agent.  And it turns out that he looks a lot like the seller who is going FSBO.  He's trying to save money. He doesn't understand how buyer's agents get paid, and he's approaching FSBO properties particularly because he believes he can get them at a lower price.  If a FSBO seller thinks he's saving money with this buyer, he may be keeping a higher percentage of the sale price, but I truly doubt he's netting more money on the sale than if he listed. And here's why.

DO YOU REALLY NET MORE MONEY WHEN YOU SELL AS A FSBO?

Or in other words, do you actually realize 7%, or even 4%, more on your home when you list it FSBO?  The statistics will tell you that you probably don't.

According to the National Association of Realtors, listed homes nationally sold for $230,000, whereas homes sold without an agent sold for $184,000.  That's a difference of 20%  If you do the math, it quickly becomes clear that the average listing beats that 4% to 7% "spread" pretty handily. I've heard it argued that higher priced homes are more likely to be listed by a Realtor because rich people can afford the "luxury" of a Realtor's service, so that skews the data. But we're talking about percentages here, so I don't know that I buy that argument.  The reality is that a home listed by a quality Realtor is inevitably marketed better and exposed to more buyers in such a way that it leads to a better sales price.

SO ARE YOU SAYING I'M DUMB TO TRY TO SELL MY HOME WITHOUT A REALTOR?

No, I'm saying you're dumb to try to sell your home without using ME as your Realtor.

Just kidding.

Obviously, every transaction is different and the world of real estate is complicated. The points I'm making above are general rules of thumb. In fact, I know someone personally who went the FSBO route recently who sold the home for well above what two reputable Realtors thought it would sell for, to a buyer who didn't have an agent. But I truly believe this was an exception. This seller got lucky.

And that really is how I feel about going FSBO.  Doing so versus listing your home is like buying a lottery ticket as opposed to investing your money wisely.  Sure, if you buy a lottery ticket, it's exciting and it feels good, and you just might win. And if you don't, hey, you're not out much and you can always start investing later. However, if you invest wisely, you always win over time. And you almost always end up in a better position than if you simply played the lottery.

I can't tell you whether you should list your home or try to go FSBO. But I think you can guess my opinion.  

Are you a gambler, or an investor?

What is a Home Inspection? And How Does it Work?

"For your protection, get a home inspection!" - HUD

Almost every buyer gets a home inspection as part of the process of buying a home.  And that's for good reason.  If you don't get a home inspection, you open yourself up to a lot of risk that could be detected and avoided by having an inspector come through the home.  In fact, if you buy a HUD home (a foreclosed home owned and listed by the federal government), you sign a full page warning dedicated to the idea that every home buyer should get a home inspected.  In the old days, it was "caveat emptor - buyer beware!"  These days, most everywhere, including here in West Michigan, there is an inspection period written in to the purchase agreement.  So what is an inspection and how does the process go?

Inspections are done so you can fully appreciate the condition of the home and so you can make yourself aware of health and safety issues that might make make you reconsider your offer.  An inspector is going to be knowledgeable about many facets of a home, although not necessarily an expert on any one thing.  He'll be able to give you a pretty thorough report on the home.  It's important to remember that in most cases you're dealing with a "used" home. There is going to be wear and tear.  There are likely going to be some quirks about the home.  But from a negotiation standpoint, you're really looking for health and safety issues.

When you as a buyer write an offer that has been accepted by the seller, that document that started out as an offer is now a purchase agreement.  It lays out the rules for how we get from that point to closing. Paragraph 13 of that agreement says this:

It continues on the next page of the agreement:

In plain English, what that means is this.  You, the buyer, have ten days from the time the seller accepts your offer to have the home inspected and make a decision based on that inspection.  You can decide to accept the house as it is. You could ask the seller to fix certain issues.  Or you might ask the seller to reduce the sale price that you had agreed to in an amount that reflects the cost of fixing something that came up unexpectedly at the inspection.  I say unexpectedly, because presumably your offer took into account issues that you already knew about before the inspection.

Hopefully, the inspection goes well and there's no request that needs to be made. The inspector will give you a full report with pictures and explanations, and I will go over it with you to help determine whether there are issues that need addressing. If you do make a request of the seller, they must respond to your request within three days in one of a few ways. They could agree to or simply reject your request. They could propose a different solution.  Or - and this one is important to remember - they have the option to cancel the contract SIMPLY BECAUSE YOU ASKED.

Why would a seller want to cancel a contract like that? I mean, they want to sell, don't they? Well, in our current market (early spring of 2014 as of this writing) it's not uncommon for sellers to receive multiple offers or even have offers come in after they accept one.  A seller might feel, especially if your request is borderline reasonable, that they can find a better deal with a different buyer.  Or maybe they get seller's remorse and just decide not to sell.  It doesn't happen often, but it can happen. So, in the case of inspections, it really can hurt to ask.  I usually counsel a buyer not to make a request unless they're willing to lose the house over it.  It always comes down to what your comfort level is.

If you can't reach an agreement as to what is to be done following inspections, and assuming you've made a timely request in writing, you, the buyer, will be entitled to cancel the agreement and get your earnest money deposit back.

Now, from a seller's standpoint, my job as your listing agent is to help you consider a buyer's request, understand whether it's a reasonable one or not, and decide how to respond.  Understanding what is typical in our market and what is not plays a huge role in considering these things.  I see it as my job to lay out the options, tell you the best and worst case scenarios, and allow you to make a decision. 

Inspections have become an integral part of the buying and selling process.  With a little help from someone who deals with them on a regular basis, you can feel confident that you are making good use of the inspection opportunity.  And of course, if you need a referral to a quality inspector, I can introduce you to a couple of inspectors who come recommended by my clients and have done good work for them in the past.  That's just one benefit of working with me as your agent.