For Sale by Owner

The primary reason a seller lists a home on their own is to make more money off the sale of their house by saving money on commission. I get it. Who doesn’t want to keep more of their money?

Many real estate agents charge between 4% to 7% to sell a house. The agent that brings the buyer usually gets 3% of that. If you sell your home yourself, you should probably still offer to pay a buyer’s agent 3% since close to 90% of buyers use an agent to buy a home.

That means, to make more money without an agent, the owner would have to sell the house for around 97% or more of what an agent would sell the house for (if you offer the buyer agent a 3% commission).

For example, a house that sells for $210,000 without a listing agent could save the owner $6,300 in fees, while still paying a buyer agent $6,300.

$6,000 is a nice chunk of extra money. Or is it? It’s possible that real estate agents might sell homes for more than FSBOs, making their commission and then some out of the higher selling price.

That means, to make more money without an agent, the owner would have to sell the house for around 97% of what an agent would sell the house for (if you offer the buyer agent a 3% commission).

According to Realtor.org, the typical FSBO home sold for $210,000 compared to $249,000 for agent-assisted home sales. If that same house above sold for $249,000, the owner would make an extra $30,000 after paying the agents 6%.

If that’s the case, it’s a no-brainer. Use an agent. But I get that it’s a little more nuanced than what my organization reports. For one, it’s a bit of a conflict of interest for the National Association of Realtors to report that real estate agents sell houses for more money than non-agents. That’s like Welch’s Grape Juice telling us that concord grape juice improves brain function. Perhaps the Realtor.org numbers are comparing apples to oranges. FSBOs tend to be less expensive than agent-marketed homes, which might explain the bulk of the difference.

An agent would have to sell the house for about 103% or more of what an owner would sell the house for to make the homeowner money using a listing agent. Obviously money is important, but it’s not the only thing to consider when selling your house. More on that later.

If pricing is your primary concern, here’s how to come up with the right figure.

Do a Property Comparison

Select similar properties that have recently sold or are currently on the market to determine the best list price. Here are some things to avoid:

  1. Looking back to the value of neighboring listings from years ago.
  2. Referring to the value of your own home from a past home loan refinance.
  3. Using different styles or types of homes (i.e. comparing a bi-level to a ranch).
  4. Comparing competing properties currently listed that are overpriced or not moving.

Referencing the wrong homes for comparison will lead to incorrect values and in many cases overpricing.

Adjust Your Price Based on Differences

Another facet of pricing is making adjustments for differences between comparable properties. It is nearly impossible to come across two identical homes, so adjustments are generally made for living space, amount of land, and amenities such as parking spaces, bathrooms, fireplaces, condition and renovations. Homeowners commonly use the amount paid for renovations. Unfortunately, the resale value of different alterations do not often match the price paid for them. In fact, certain repairs will not result in any value. Real estate agents are educated on what appraisers will apply for adjustments and will apply those accordingly for pricing.

Incorrectly priced properties can cost sellers valuable time and money. Listings can sit on the market with no activity or with activity from buyers that are merely wondering why the price is so high. Furthermore, buyers have a negative view on properties that have been listed for a long time and are likely to pay less even if the price is lowered to the correct range later. In a declining market, a property can naturally drop in value by the time it sells. All of this can cause a for sale by owner home to go for less than it could have with the experienced advice of a real estate agent.

And that’s how a homeowner can lose money, rather than save money by selling a house by themselves. That doesn’t mean you will lose money. About 8% of homeowners sell their homes themselves and I’m sure quite a few do OK.

What Comes After Setting the Price?

If the story ended there, maybe more folks would say, “That’s not so bad. I can set the right price and sell my house myself.” And for some who have a buyer lined up and the time and ability to evaluate contracts, it could work out just fine. Just as DIYers can buy insurance, book vacations, do their taxes or complete home repairs themselves – so, too, can some homeowners successfully sell their homes themselves.

If only it were that easy. Setting the price is just the beginning. Other things to consider include:

  • Attracting buyers through personal connections and professional marketing (MLS marketing, other online marketing, photography, flyers, signage and more)
  • Showing buyers your house at various hours (Buyers often don’t want the owner to be present while viewing the house)
  • Evaluating and negotiating a contract to make sure it meets your needs
  • Understanding the differences and implications of the buyer’s financing (Some loans require owners to pay termite inspection fees, while other loans are very strict about the condition of the home in order to loan money.)
  • Choosing and working with a title company
  • Mitigating and following up on hiccups in the process. Most deals involving hundreds of thousands of dollars rarely go off without a hitch. Most deals involve financing, appraisals and inspections – all involving several different parties and people. Real estate deals require lots of follow up to make sure all of the parties are in line and doing what needs done to get the house sold.

Can you sell your house yourself? Absolutely. Just remember to understand the process is much more than setting the correct price.

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