The Pros And Cons Of For Sale By Owner


If you want to squeeze every last cent from the sale of your home, then doing so without a real estate agent would appear to be a no-brainer. Let’s face it, the real estate agent’s commission is a big chunk of change to payout, which is why some people choose to go the For Sale By Owner route.

However.

As with many things in life, there are both pros and cons of For Sale By Owner. Before writing this article, I looked at the latest research and advice about For Sale By Owner. I often found bias, either intentional or unintentional, had crept into the information I found. Consequently, I set out to uncover the facts behind the hype and the hyperbole so I could bring you a clear, unbiased piece about the pros and cons of For Sale By Owner. 

The Pros And Cons Of For Sale By Owner

Let me start by saying that the real estate industry is much the same as any other. There are highly professional real estate agents who are not only knowledgable, but they genuinely want to do the best for those they represent. On the other end of the spectrum, some real estate agents are uninterested in their job and just treading water until something better comes along. 

Consequently, both buyers and sellers have had good and bad experiences with real estate agents and it would be imprudent to make a sweeping statement about how you would be better off with, or without an agent.

Instead, I’d like to layout for you, the pros and cons of For Sale By Owner. I’ll then summarise some of the research that has been carried out into whether a For Sale For Owner property sale results in a higher or lower final sale price. Then, it will be up to you to make up your mind as to whether For Sale FOr Owner is the right move for you. Or not.

For Sale By Owner – The Pros

You Can Put More Money In Your Pocket

It’s safe to say that the majority of people who go down the For Sale By Owner route do so to avoid paying a real estate agent fees. When a seller signs up with a real estate agent, the contract will specify how much the real estate agent will receive if a buyer they bring to the table ends up purchasing the property.

This payment is usually a percentage of the final sale price and is generally known as the real estate agents commission. You may be able to negotiate the specific percentage with an individual real estate agent, but the most common charge is 6%. The seller’s real estate agent will then split their payment 50/50 with the buyer’s agent.

Discount real estate agents often advertise a 1% commission or a set fee for selling a property. However, this usually involves the seller agreeing to pay the buyers agent the commission they would have received had you used a regular agent. Therefore the actual savings are minimal.

Let’s look at some examples of the savings you can make on commission if you decide to go the For Sale By Owner, or FSBO, route.

Here we have some sales prices followed by the amount you will pay for a 6% commission:

  • $200,000 – 6% Commission = $12,000
  • $350,000 – 6% Commission = $21,000
  • $475,000 – 6% Commission = $28,500
  • $500,000 – 6% Commission = $30,000
  • $750,000 – 6% Commission = $45,000

These are no small amounts so the attraction of For Sale By Owner is understandable.

If you want to save, you have these options:

  1. Sign up with a discount real estate agent, pay their fee, and 3% for the buyer’s agent.
  2. Sell your home without a sellers agent but offer a buyers agent fee.
  3. You can sell your home without a sellers agent and negotiate with any buyers agents as and when you receive offers.
  4. Sell your home without a sellers agent and offer zero compensation for the buyer’s agent.
  5. Sell your home with the same agent representing the buyer and seller and pay only one commission.

I’ll look at the downsides to these options in the “cons” section.

You Set The Asking Price

Many homeowners have issues with their real estate agent when it comes to setting a listing price. Yes, theoretically, you are the boss, and the agent is working for you, but there are plenty of sellers who have fought tooth and nail with their agent over price.

Some of these sellers are unhappy because they feel the asking price is set too low. These homeowners may get a quick sale but with that comes lingering doubts over whether or not they could have sold for more. This is especially true when the same agent, or agency is representing both buyer and seller. The agent can afford to sell the home cheap and take a hit on the seller’s commission because they’re also receiving the commission from the buyer’s side of the deal. 

Other sellers might feel their home has been priced on the high side and that their agents holding out for the higher price to receive a higher commission. While this is rarely true, it can still be a niggling doubt for some sellers. On the other hand, some sellers may run up against a real estate agent who refuses a listing because they disagree over the selling price.

However.

Setting an asking price takes rather more knowledge and experience than the average homeowner has at their disposal. So if you do take the FSBO route, take the time to research comparable properties in your area thoroughly. Then, unless you are in no hurry to sell, set your price per the market and not with what you want for your home.

You Have More Control Over The Sales Process

There are plenty of sellers who have felt railroaded by a real estate agent. For example, some homeowners have complained that their agent:

  • Pushed to have the home listed before they were ready.
  • Pressured them to accept staging, decorating, landscaping, etc. services.
  • Commissioned a professional photographer and then charged them for the photos.
  • Phoned or texted and expected them to pick up or reply at inconvenient times – .e.g. When they were at work and unable to take a call.
  • Hurried them into accepting an offer before they were ready.
  • Made them feel unreasonable over a detail of the negotiation.

The list goes on and on.

When you sell your home without a real estate agent, you have total control over everything, for example, whether to stage your home or to leave it “as is,” You decide which elements of the contract you are willing to concede and the ones on which you wish to stand firm.

The Sale Of Your Home Has Your Full Attention

It can fall one of two ways when you choose a real estate agent. One – they are excellent agents who are in high demand, in which case they will be splitting their attention between your home and all of the others they are representing. Two – they have all of the time in the world to devote to your home. In this case, you have to ask yourself, “Do they have all of this time on their hands because nobody else wants to use them?”

On the other hand, if you go the For Sale By Owner route, you can devote all of your time and energy into preparing, marketing and showing your home.

There’ll Be No Working With An Agent You Don’t Like

In an ideal world, you will take the time and trouble to research real estate agents, interview a shortlist, ask them questions, weed out the ones you do not “gel” with and end up with a real estate agent whom you both like and trust to get the job done.

In reality, you may have little choice but to hire a real estate agent who is just not your cup of tea. It may be that there are few agents available in your geographic region, that only a handful of local agents have the space to take on your listing, or that you hire someone you don’t like because they get the best results.

No matter what the reason, you may end up with an agent, you don’t like.

The FSBO process will allow you to sidestep this issue entirely. You will never have to “make nice” with an agent you don’t like if you sell your home yourself.

You Can Speak Knowledgeably About Your Home

Nobody can know your home and the surrounding area as well as you. From the path, the sunlight takes across the garden, to the way the prevailing breeze blows into the upstairs windows in the summer, you can share all of the little extra details that a real estate agent never could.

This is especially advantageous if you have fabulous neighbors, a strong tradition of community events on your block or other social highlights you can share with prospective buyers.

For Sale By Owner – The Cons

Of course, there is the other side of the coin, and for every positive point, there is a potential negative to selling your home your self.

Staging The Home Is Best Done By Professionals

Real estate agents bring in professional stagers not only because they have the knowledge and experience to do a great job but also because they have no attachment to your home.

Owners can choose colors and patterns for decorating that may not, to say the least, be to everyone’s taste. Prospective buyers will not see strong color statements or other unusual decorating choices as a selling point. Instead, they will see them as something that will need to be fixed when they move in.

The same goes for decluttering and staging. You may think that by stuffing everything into the cupboards and only displaying your Marvel Comic book superhero figures that you are doing a good thing. However, those packed cupboards will scream “there’s not enough storage,” and your personal items will prevent potential buyers from imagining themselves in the home.

You may see neutral decorating choices as bland and boring, but there is no arguing with the fact they sell houses.

Pricing Your Home Is An Art

Despite how it may appear to some people, real estate agents do not pull a random asking price for your home out of their hat. Agents have experience in assessing the highlights and lowlights of a home, comparing it to similar properties in the area that have recently sold and adjusting those prices to reflect the details of your listing. 

You might see that another 3-Bed, 2-Bath rancher in your neighborhood sold three months ago for $400,000 but that doesn’t mean your 3-Bed, 2 Bath Rancher will do the same. Maybe the other home had a newer kitchen than the one in your home, or perhaps they had just purchased top of the range appliances to encourage buyers to make an offer. You do not know the intimate details of another persons home or the sale details, and as such, it is challenging to understand how to price your home in relation to others in the neighborhood.

Selling A Home Is A Time-Intensive Pursuit

While an excellent real estate agent will have several listings to juggle, they are also likely to have administrative support and the experience to plan their days, so they get everything they need to do, done. It is unlikely they got to be as good as they are at the job without knowing how to make the most of their time.

If you’re going to sell a home yourself, then you have to be prepared to take, as well as respond to, phone calls, e-mails, and texts at all times of the day and night. You also have to:

  • Show your home when it is convenient for potential buyers. This can be in the evenings and on weekends but is just as likely to be during the day and on a weekday.
  • Be available for home inspectors, appraisers, contractors who are providing quotes for repairs and renovations, etc.
  • Engage in the legal and financial side of the sale such as title searches, interactions with the buyer’s lender, etc. all of which require time, knowledge, and attention to detail.

Completing The Paperwork

The paperwork side of a sale is one of the most significant issues for those who wish to sell a home themselves. 

To begin with, the details in the listing must be accurate and truthful. When your buyer presents you with an offer to purchase there is no legal requirement to respond to the proposal, but if you do,  it is vitally important that you read the offer to purchase very carefully before accepting because once you do, you are locked into the sale. Alternatively, if you make a counter-offer then be aware that once you make that counter-offer, it becomes legally binding. 

The sales contract should include:

  • The address of the property and the details of the buyer and seller.
  • The purchase price and closing date.
  • A list of all of the fixtures and fittings and other items that are included or excluded in the sale.
  • Earnest money and financing arrangements.
  • Contingencies, how the bills for utilities etc. will be pro-rated, and how the closing costs will be divided and paid.

Then you must ensure that all of the correct information is disclosed according to the federal requirements and the regulations in your state.

A standard home sale contract usually has a clause that requires a current survey of the property detailing the boundaries, and any encroachments into, or by a neighboring property. It will also show what you own and what you intend to sell to the buyer. 

For the transfer of the deed, you will need the legal description of the property, which can be found on the certified copy on file at the county clerks or recorders office. You will also need a state-approved, blank deed form with which to transfer the property.

The form will require details of both the buyer and the seller as well as the property tax number and the amount of property tax paid. 

You will also need:

  • Plans and permits for any work that has been done on your home.
  • Warranties for any construction, remediation, and appliances.
  • A certificate of occupancy from the local authority to prove the home is compliant with building codes and is safe to live in.
  • The latest utility bills for your home.
  • Proof of homeowners’ insurance so that the buyers can be sure the home is protected until the sale is completed.
  • Homeowners Association covenants, rules, and regulations and any other relevant information that impacts how the buyer can enjoy their home.

If any of these elements are incorrect or missing, it could scupper the sale, cause you to lose money, cost you money, or even cause you to be legally liable for any issues or mistakes.

You’ll Need To Qualify The Buyers

Not everyone who views a home is interested in buying it. Some people make a hobby out of driving around the community, attending open houses and booking viewings, just because they enjoy seeing inside other people’s homes. In addition, other local homeowners who are thinking of putting their houses on the market are known to visit open houses to see their “competition.”

When you have a real estate agent working for you, there is someone to filter out the people who are not really considering your house as their next home.

However.

When you have a home which is For Sale By Owner, you’re more likely to end up showing your property those without genuine interest. Not only that, but you may also find many of the viewers could not afford your home, even if they wanted to.

One way around this is to ask for a pre-approval letter from anyone who asks to be shown your property. This way you have some assurance that their lender has asked for, and seen, proof of income, assets, debts, etc. and that they could, in theory, gain approval for a mortgage large enough to cover your home.

The downside to this is that by only showing your home to those with a pre-approval letter you may be missing out on buyers who could afford your property but haven’t asked for a pre-approval, or who do not need a pre-approval because they have cash.

Finalizing The Sale On Time

If you are the type of person who finds it easy to juggle several things at once and has no problem getting things done on time, then this may not be an issue for you.

However.

For anyone who is likely to put things off until another day, or ask someone else to do things and not check they are done, then having everything ready for the closing meeting can be an issue. Not only that, but the closing meeting isn’t something you can just postpone for a week, or even a day or so, just because you are not ready. Any delay in the closing meeting can scupper the entire sale and has the potential to see the seller suffering disastrous financial penalties.

You Do Not Have A Sellers Real Estate Agent Network

Selling a home is about more than putting some adds online and sticking a lawn sign in the garden. Real estate agents spend years building a network of buyers and sellers agents, as well as investors and direct buyers who might be interested in a property.

When a real estate agent takes on your listing, they will know which people in their network are looking for a particular type of home, or who may be interested in your property. The buyers that come in through marketing efforts such as web listings and hard copy advertising are only a drop in the pool of potential purchasers.

While the internet has expanded the number of people a For Sale By Owner listing can reach, it has not yet reached the point where it can take over from a good real estate agent with an active network.

You Do Not Have A Sellers Real Estate Agent Network Pt. 2

A seller’s real estate agent not only has access to a larger pool of potential buyers, but they also know local home inspectors, appraisers, contractors, loan officers, permit officers and many, many more professionals involved in a sale.

Homeowners who are selling their own homes rarely have these professionals on speed-dial. Not only that but when you call a random contractor etc. you are likely to go to the end of their queue of call-backs which means you could wait forever for an answer to your questions.

If a potential buyer would like to know how much a new roof would cost, whether or not they can get a building permit for an addition or anything else that might impact the sale, having someone on hand who can answer asap can mean the difference between hooking a buyer or seeing them move onto the net property.

You Have To Be More Concerned About Your Safety And Security

If you have a For Sale By Owner sign in the garden, you are likely to have random people come to your door “Just on the off chance” that they might be able to view your home right now. You will then have to make an on the spot decision over whether or not to let this stranger into your home. The same goes for pre-planned viewings and open houses.

The majority of people being shown properties by real estate agents will, at the very least, have provided their names addresses and contact details — this lesson the danger to the agent themselves, the homeowner and the homeowner’s property.

If you are selling your own home, you should, at the very least, carry out some basic checks on people who wish to view your home.

Do Homes Sold By Owners Sell For Less?

Although we have discussed setting the price of a home, it is worth also addressing the assertion that For Sale By Owner homes sell for less than those sold by real estate agents.

On July 15th, 2018, The National Association of Realtors tweeted this graphic:

https://twitter.com/nardotrealtor/status/1018623794498416640?ref_src=twsrc%5Etfw

This suggests that a For Sale By Owner home sells, on average for $60,000 less than a home sold by a real estate agent. That means an FSBO home sells for 24% LESS than a Realtor home and when you look at homes sold to someone the seller knows that goes up to almost 39% LESS.

From these figures, it would appear that selling your home through a real estate agent would still net you more money, even if you are paying a 6% commission.

But then there’s the whole story.

You see, these figures are technically correct but are an excellent example of what you can prove with statistics if you only use a small sample to get your data and you don’t adjust your sample to reflect the “real world.”

The Facts Behind The Figures

Now, to begin with, let me make it clear that these figures released by the NAR are absolutely correct. There was no manipulation of the numbers; the problem is that the explanation of the statistics does not tell the real story.

Let me explain.

To arrive at these figures, the NAR used information from less than 8,000 sales, across the entire United States. Then they failed to adjust those figures to reflect the types of homes sold accurately, and where those homes were located.

Why is this a problem? Well, you can’t compare the details of a sale of a condo in Manhatten against the purchase of a mobile home in Virginia, yet that is precisely what the NAR did.

Why This Doesn’t Work

The less expensive the home, the more likely it is to be a FSBO home. Likewise, rural homes are more likely to be For Sale By Owner than urban properties.

Therefore the NAR was comparing a group of homes that were likely to be selling for less, regardless of whether or not they were For Sale By Owner.

So what happens when you adjust the figures to take this information into account?

A team from the National Bureau of Economic Research took a sample of 15,606 single-family homes sold in Madison, Wisconsin. They took into account where the properties were located and adjusted the figures to reflect the differences in price caused by the location of the home. 

The difference in price between homes sold by real estate agents and FSBO homes? 0%.

Yes, you read that right.

There was no difference in the price.

Final Thoughts

For some people a real estate agent to sell their home is a must, while others can find success with an FSBO sale.

There are pros and cons of both approaches, but neither is universally better than the other. Instead, if you are choosing between using a real estate agent and selling your home yourself, carefully consider your strengths and weaknesses and how much time you have to devote to the sale. Then balance that information against the pros and cons of using a real estate agent and make your decision based on your personal circumstances and not on an arbitrary “this is better than that” list.

About The Author

Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.

Check out the Full Author Biography here.

 

This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.

Geoff

Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.

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