WatchMaybe you can, but will you get the most money? The market is changing fast and going it alone can be a costly mistake.
Here's the story of three pool homes in a cookie cutter neighborhood. Two homes went FSBO. They were both 4 bedroom homes with identical floor plans.
The owner of the first home did his homework. He even had an appraisal done. He was thrilled to get a few thousand dollars over the appraisal from a cash buyer.
When the owner of the second home heard what Owner 1 got, she priced her home at 9% less because her place didn't have as many upgrades and her lot wasn't as nice. She got her asking price.
The owner of the third house is me. My home is only a 3 bedroom. It has nice upgrades (comparable to the first house) and the lot is better than Owner 2's, but not as valuable as Owner 1's. My house is under contract for 5% more than the first house. Remember, it is a smaller house.
The problem for my neighbors was that appraisal. All the homes sold for cash. Most deals are cash now. Prices are going up and the appraisals are behind. The first guy could have paid a 6% commission and still made more money. The lady could have matched the Realtor commission
with an extra 6% in her own pocket. Her home sold for at least 12% less than it could have.
I am saving on the commission because I am licensed, but even if I paid a whole Realtor fee
myself, I would still be getting more for my home than Owner 2.
All of these sales are currently pending and will close within 30 days of each other.
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Monterey, CA
How much are these homes going for?
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The shocking part of this story is you have sane FSBO's going on. All the FSBO's where I live are on par with Zillow's "Make Me Move". They all have their house listed at laughable values, which makes me think they want to compelety shaft someone and/or a realtor wouldn't waste his/her time trying to sell something priced so high.
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robertoaribas's website
FloridaBill says
you can't actually add and subtract percent changes.... (think if something went up 100% and down 100% for example) the math for home 3 should be
x*(1.05)*(0.94) = .987x
But, in most neighborhoods, no way in hell a 3 bedroom home would sell even close to what a 4 bedroom home sells for, so the fact that he is selling at a mere 1.3% less, with one less bedroom is still noteworthy.
I am seeing the same thing WITH agents: they use recent comps, which compared to what is available today, are way too low...
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Clearwater, FL
Good catch Roberto,
Math Fail for me.
In the terms above I should have had this for Home 3
Home 3 = X + .05x - .06(x+.05x)
It makes things a bit more confusing, but plug everyting into Excel and its nice.
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FortWayne says
Very true...
I've sold three houses without the "help" of the listing realtor.... In two out of the three cases, the "professional" realtor wanted me to drop my listing price by about $20K each time..
Good thing I didn't listen to the "professionals"....it would have cost me some big bucks!!!
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ordertaker says
Agents will work harder to sell their own homes than they will when selling a clients home.
Study has shown that:
"Using a data set of nearly 100,000 home sales, of which roughly 3,300 are agent-owned, we find that agent-owned homes sell for about 3.7 percent (or roughly $7700 at the median sales price) more than comparable houses and stay on the market an extra 9.5 days (about 10 percent) longer, even after controlling for a wide array of house and neighborhood characteristics."
When it is not their home there are strong financial incentives for an agent to encourage a seller to accept bids lower than what the agent thinks the home could go for.
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leoj707 says
That is exactly the situation... If you run the numbers based on the actual commission the listing agent will make, for every $10K they can get you to drop the price to get a quick sale, it only affects their commission maybe $100 to $150.
They are willing to lose a few hundred dollars to push a quick deal through and get the sale done.
But, if you listen to them, you end up taking $10k to $20K less, or more, which is a HUGE hit to your net profit from the sale.
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leoj707 says
Poor logical conclusion. After 20 years in this business, I know EXACTLY what needs to be changed in a home to get maximum dollar, and suspect most other agents do to.
You have no idea how many things owners do, contrary to their agent's advice that making selling their home for them at all very very difficult, let alone maximum price.
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robertoaribas says
OK, hmmmm...perhaps I do have no idea; let me see if I can come to a less poor logical conclusion.
So...a real estate agent when doing "EXACTLY" what needs to be done to get maximum dollar for a house takes 10% longer to sell it, but gets a 3.7% bump in the sales price.
So...let's say an agent -- let's call him...I don't know...let's say Bert -- anyway, Bert only has so much time in a year that he can spend selling houses. To make the math easy, Bert sells 10 homes in a year at 100k each. With his 3% share of the commission on each house Bert is pulling in a cool $30k a year for his efforts. Bert just dinged in on 20 years of expertise selling homes! Go Bert! Now, he knows EXACTLY how to get "maximum dollar" during a sale -- if only those bone-head owners would listen to him.
One day Bert finally gets those dolt home owners to realize that he knows best. So, now Bert is bringing the owners $103,700 for their homes! Nice job Bert, you are truly doing your unworthy clients a service.
But, wait...doing EXACTLY what is needed is taking Bert 10% longer to sell a home. Now Bert is only selling 9 homes a year. While his commission has increased a whopping $111 per/home his total yearly take is now down to $27,999.00. WHAT! Selling homes the "right way" has resulted in a $2,001 salary cut for Bert.
Hmmmmm...
AaHmmmmmmm....
Ah..hummmmmm...
Hmmmmmmmmm....
mmmmmmm...
mmmm...
...
hmm...
m--
Yes, I see it now! The logical conclusion is that the stubbornness and naiveté of home owners is the reason why real estate agents are not selling clients homes for more. Yes, that is a much more logical conclusion than my original.
But wait....
What is this...
Could it be?!?!
http://www.northwestern.edu/newscenter/stories/2007/06/fsbo.html
"A provocative new study shows that sellers who joined a for-sale-by-owner (FSBO) Web site got at least as much for their homes as sellers who did their real estate business through the use of an agent and the Multiple Listing Service (MLS)."
My, my that is provocative!
http://moneyland.time.com/2010/11/02/study-no-reason-to-pay-realtor-commissions-when-selling-a-house/
"There’s an assumption that the 6% typically paid in realtor commissions on a home sale is worth it because the seller will command a higher price than if he’d gone the 'for sale by owner' route. But a trio of academics who researched years of home sales says that this assumption is false. In fact, they discovered that owner sellers got higher sales prices than owners who involved—and paid a commission to—real estate agents."
Oh, my robertoaribas we may have to revise our "logical" conclusion. It appears that while agents are capable of selling their own homes for more, they are not selling their clients home for any higher price that the client could get through FSBO. The agents don't even cover their 6% commission.
What do you think? How can we make this discrepancy in the final sales price the fault of those stupid home owners (who don't know how to eek our that extra 3.7% on the sales price), and not the fault of those hard working and honest real estate agents who are more than willing to put their clients best interests first, at the expense of their own paycheck?
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ordertaker says
BTW, congratulations your logical fallacy has been anecdotal.
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leoj707 says
You make good points but do yourself a disservice with the sarcasm.
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swebb says
Hmmm, yeah...perhaps I overreacted a tad to having my logic called "poor", but still, if not to read, at least it was amusing to write.
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robertoaribas's website
I tried to sell my own home without the mls, at 350K. This was in 2005, when the bubble in Phoenix was in full effect. I had open houses, ads in the paper... I have enough open home signs to direct traffic from LA to my house... A good 50 people walked through without an offer... nada... hell I might have taken $340K at that point.
I listed it on the mls at $375K and got a full price offer within 2 weeks. Do your own math on whether or not the 2.5% cobroke was worth it, or even a full 6% a regular seller would have paid.
Ok, that is only one data point, but take it for what it is worth. There simply aren't that many people are both A. serious, qualified buyers, and B. not working with a buyer's agent.
What I see from sellers all the time is an unwillingness to repaint or recarpet. An unwillingness to store a bunch of their junk so the home will look bigger and better...
Less than 1% of buyers have any imagination, they buy on emotion, and a home that looks good will command much more in price than one that doesn't. A credit for carpet doesn't do anything to change the fact that they "just don't fell like home" in the house with old carpet and paint...
A good listing agent takes the time to convince sellers how to prepare their home to sell. Explains how the process will work. (no, you can't shew away half the people that want to see it, you have to make it available.)
And, right or wrong, without the mls you are missing way over 90% of your target buyers.
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And yet, people still sell their homes without using the mls. That's because people with realtors use the mls (and pay comissions), while people who don't place ads and make 7% more.
By the way, realtors don't have a market on finding comps. The information is readily available with some research.
Serious, qualified buyers don't always use realtors. "So you think you can sell your own home" is the title of this thread. And the answer is "Yep." Hundreds of thousands of people do it and are satisfied with their transaction. The sky didn't fall.
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leoj707 says
I'll give you a thumbs up on the amusing part!!
leoj707 says
There's the important part... Bert only has so many hours in the week, so he wants to move and sell the house as quick as possible with the least amount of effort. Taking a little less commission (lower list price) but moving more houses each year is to his benefit!
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Vero Beach, FL
joshuatrio says
Mid 100's
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leoj707 says
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ordertaker says
That makes a little more sense. A lot of people on this board would pay cash for a house in that price range... Sad thing is that everything costs 5x as much out here.
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Vero Beach, FL
The whole point of the post is that there are NOT reliable, accurate sources available to the general public for valuing property in a rapidly rising market. Conventional methods used by Realtors for running CMA's include the use of recent sales and currently listed properties. It would be better to use the contingent and pending ones and deduct 5-10 percent, assuming the price was haggled downward. Recent sales should only be used if they are less than 30 days old. Yeah, the market is changing that quickly. I'm in Florida and I believe we are in a mini bubble spurred by investors with cash.
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joshuatrio says
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@ordertaker It looks like your reply's are ending up inside the quote you took.
You might want to make sure that you type your reply text outside the blockquote tags.
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ordertaker says
You only use anecdotal evidence to support your conclusion: people get a worse sales price for their home when they go FSBO.
This is a logical fallacy.
Yes, in the scenario that you posted the FSBO homes sold for less than your home sold by a agent-owner. Anecdotal evidence can be an interesting way to illustrate a greater point supported by additional data, but on its own your personal story does not make a convincing argument.
In fact if you followed the links that I posted you would see that people who do a FSBO on average don't get a worse selling price (perhaps even slightly better when taking the commission into consideration). Also, the only time that real estate agents get a better price for their home is when they are selling their own home (as in your example).
The actual objective evidence is contrary to the story your told. Which means that your story would be the exception -- not the rule.
And to speak frankly -- when someone uses a story to illustrate a fallacious point (to which they have a clear bias towards) it makes me question the veracity of the story in the first place.
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robertoaribas says
Yes, but apparently this does not result in more money for the seller at the end of the day v. those that go for FSBO. What it does seem to get a seller is a quicker sale for a similar price (maybe a little less) they would have gotten doing a FSBO. Having a quick sale may be an important service to some people.
Real estate agents are certainly capable of getting more money for a home if they give it more time, but for one reason or another it does not work out this way when they are selling for someone else.
robertoaribas says
It could be that people who are unmotivated to even do basic changes would be even worse off trying to do a FSBO, and those are the ones that agents get stuck dealing with.
robertoaribas says
Yep, I can totally see this being the case. I realize that I am rare in that I would prefer a carpet credit that would give me the freedom to put in the carpet that I wanted.
Anyway...
I am not opposed to the idea of real estate agents in general. For many people they could provide a valuable service. I am sure that there are may agents out there that are generally good people and want to do a good job for their client.
However, the whole house selling process fosters and encourages corruption and the relationship between the seller/buyer and the agent(s) is a perfect example of the principal–agent problem.
If someone is motivated and capable of going through with a FSBO they are probably better served by avoiding a horribly flawed home selling process.
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leoj707 says
Thanks. I am new to this IPad.
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46 male
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So is there a potential role for Patrick.net in helping people to sell their house without a realtor?
What can I do to help sellers as well as buyers, without getting involved in the commission game at all?
* paperwork checklists
* referrals to hourly agents or lawyers
* advertising
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Patrick says
Help get the houses listed on the local MLS... once they are on the MLS, I believe they get picked up my Realtor.com. Once they are on the MLS, they will be found by potential buyers.
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@ Patrick: why not get your broker's license and start a flat-fee agency? Your sellers would pay you say $395 and 2-3% to the buyer's agent. You would enter the listing on the local MLS, which would then go to Realtor.com and some of the other Internet RE sites. You would present offers, which become contracts when signed and forward those to the title company or closing attorney. Nearly everything could be done with email. Even the photos could be taken by the seller and sent to you. A lock box can be mailed to the seller to be placed on the front door. The buyer's agent would be opening the house for them along with their inspectors and appraisers. Escrow deposits can go directly to the escrow/closing agent. If there are any California Realtors on here, maybe they can say why this would or would not work as I am only familiar with Florida law.
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Why pay any percentage to anyone? The commission is the source of most of the corruption in real estate.
Also, why not skip the MLS fees and just give the listing to all the sites that want to show it? The funny thing about real estate listings is that they are valuable content to websites, so you should not have to pay them to take it.
I'm pretty sure Zillow, Redfin, Trulia, and Movoto would all be happy to pick up the listing for free.
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Vero Beach, FL
Patrick says
Something told me you wouldn't want to be a Realtor. Lol. If you list at whatever a seller pays you to list at, the onus is only on the buyer's agent to get their customer the best price. Your hands are clean. I didn't think the objection over commissions was with the buyer's agent as much as it is with the seller's.
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FloridaBill says
Yes, Roberto is very good with 3rd grade math. He starts to trip up on logarithms and differentials, though.
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ordertaker says
That's a good start but it needs to go a step further. In the normal process, why does the "seller" get stuck paying the commission to the "buyers" agent? Why shouldn't the buyer pay their own agent for services rendered???
I think a buyer, if they need help with the purchase, should pay their own agent. Think about this:
The buyer pays for his own attorney to handle the legal work.
The buyer pays for his own title search.
The buyer pays for his own home inspection.
The buyer pays for his own survey.
The buyer pays for his mortgage application fees.
The buyer pays for other services related to the sale on his behalf.
The buyer pays of all these "services" that he needs to purchase his house, but..
The "seller"gets stuck paying the commission for the services provided by the buyers agent for the buyer... This is screwed up!! The "seller" gets stuck paying for all the time the buyers agent spends showing this buyer all other houses in the area before he decides on your house.
If the buyer looks at 15 other houses with his agent before making an offer on yours, you as the seller pay for all that time and services....
Does that really make sense???
If a buyer needs his hand held through the process, he should pay for those services, just like everything else in the list above.
If this was to happen, houses would become more affordable.
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Call it Crazy says
I've priced homes for over 1500 sellers FSBO and MLS and in over a 1000 were able to watch the effects. I've found if you price it too high you don't get any serious action. Either no action at all if it's way high or "tire kickers" if it moderately high. If you price it too low you get multiple serious offers. Getting pricing just right is another myth started by guess who.
You price it according to the amount of time you have.
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Fort Lauderdale, FL
leo707 says
I worked at a FSBO franchise and saw it all. With FSBO you have the seller wanting to save the commission. So they expect to pocket the 6% they save. So they price the house with the commission added. They deserve it they think since they're doing all the work.
Now we have the buyer. They expect to save money because the seller isn't having to pay commission. They deserve it. The seller doesn't have a Realtor why should they pay the seller for nothing?
Both sides think they're entitled to that 6% savings. LOL
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Patrick says
That will give you minimal results because they are National sites. They don't focus their advertising on a particular area. Your buyer will most likely be LOCAL so the bulk of your advertising needs to be focused on where your SERIOUS buyer will be looking for you.
That's what makes the MLS so powerful. It's got local Realtors doing their own local advertising and networking AND it syndicates to all the National sites and Realtor.com. And anyone who's willing to put up with a Realtor is usually serious.
You're fooling yourself if you go FSBO for financial reasons. But if for moral reasons you insist on just doing it FSBO just make sure to spend your time and money on local efforts like putting out signs, infotubes, flyers, newpaper ads, and word of mouth. Sure, put your listing in all the sites but don't live in hope that these FSBO websites are going to bring you your buyer. They're still the long shot. The Internet works great for selling things that anyone in world is interested in. Like electronics or porn. But for houses, not so good.
I like to start with www.postlets.com because they sydicate to a bunch of sites automatically. They're now owned by Zillow. It also generates you the code you need to easily post a nice ad on Craigslist. Never forget Craigslist! It's free and it's highly local.
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Fort Lauderdale, FL
Call it Crazy says
I would like to see it be made illegal to show someone a home without a contract with the buyer. This way the buyer would think twice before hiring a Realtor and they would know which side their agent is on. The way things are now both agents are working for the one who is under contract. However in Florida the default is Transaction Broker. Both sides are just "facilitating" the transaction. In practice however everyone know who the king is.
Granted some agents in their heart believe the're on the side of the buyer when they legally are not. The most idiotic and hard to deal with agents out there are the ones who truly believe they are on the side of the buyer.
In reality the listing agent did the real work and tied up their commission for them. And then they think that just because they are tagging along, that this is "their" buyer.
Really all the buyer has to do is deny that they even exist. Or better yet feed them to ApocolypseF. Instant discount!:)
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El Cerrito, CA
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Patrick could set up showings with agents and ApocolypseF and make videos/sell tickets.
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El Cerrito, CA
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Patrick says
I don't know why Google stopped their mapping of houses for sale but I used it all the time as did many who were interested in buying. If you had a FSBO site that charged a small fee per month to put their house on a map with contact info it might fly.
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taxee says
I've already tried, and one thing I run into is that sellers are very wary about listing on Patrick.net because of the general anti-debt and don't-overpay message.
The book cover with the giant bear trap and house as bait probably doesn't help.
One idea to overcome seller's reluctance to list here was to let people who list be able to moderate comments on their listing. But so far that doesn't seem to have helped at all.
Ideas?
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One issue is timing, because the Fed is propping up housing prices so most listings are artificially high. There might be an opportunity to get ads from companies that sell financial products betting on housing prices to fall:
http://www.newyorker.com/archive/2006/05/08/060508ta_talk_surowiecki
Various derivatives offer this type of bet, e.g. options on REITs, and some of the companies that sell these products might be suitable advertisers for PatNet. People interested in housing prices might logically be interested in financial instruments related to housing prices, regardless of whether they plan to buy a house or not. An issue might be curating who is allowed to advertise, because your name would become at least indirectly associated with them and you wouldn't want your objectivity to become too clouded by their interests (e.g. "gold bugs" tend to reinforce each other's pessimism about the state of the world).
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Thanks, that is a good idea. I probably should be somewhat cautious though, since I had a complaint from a reader who invested with Peter Schiff and lost money, then complained that he got the idea to invest with Schiff from links on my site. And those were just links I thought were interesting, not even any kind of advertising.
I don't want to have to label everything with "I don't necessarily endorse this advertiser" but I don't want people to make too many assumptions either.