The Costs of Selling By Owner

February 8, 2020

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To be honest, my husband and I wouldn’t be living in our home right now if the previous owner hadn’t listed it For Sale by Owner. We’ve had almost five amazing years in this house and spend the summers lounging on the back deck together. We absolutely LOVE our neighbors and our neighborhood. We’re raising our children here, my parents moved in and I’m building a business around it. My husband and I stalked this area for 15 months before this particular home finally popped up on some online home-shopping app at 11pm one weeknight evening in July.

This was years before I became a Realtor, but my husband and I both knew without a doubt that we had to jump on it immediately if we wanted a shot at buying this home in a price range we could afford. As it stood, there was NO WAY we could have afforded our house in a multiple offer situation or if it listed on MLS, with agent advertising and more eyeballs knowing it was on the market. Those things combined would have drawn AT LEAST an additional $50,000 for our house than what it was listed for by owner.

The lack of competition was in our favor. And not a lot of buyers have that advantage.


FSBOs are Few

According to the most recent data released by the National Association of Realtors in 2018, only 8% of home owners across the country choose to sell by owner. And this number continues to steadily decline. NAR says, “FSBO sales are currently at an all-time low since data collection began in 1981.”

In 2004, fourteen percent of homes were listed For Sale by Owner. It seems some of these Sellers started figuring out what they stood to lose by handling their biggest investment without an advisor.


The Losses Can Sting

Let’s talk about the main reason those 8% likely choose to sell by owner: MONEY MONEY MONEY!

FSBOs often go that route because the sellers think they’re saving money.

The seller of the home we bought in 2015 didn’t think he could afford to pay Realtors fees. But check this out: Inman, a Real Estate Industry trade magazine reports that in 2015, FSBOs lost about 16% of their sales price. No doubt they counted the seller of my house as one of them.

To put this in perspective, our average 2015 sales price here in the Grassland area was $644,684. This means that by the time you sold your house by owner that year, you likely lost out on more than $103,000 if your home was valued near that average.

And it’s not necessarily because you priced it too low. You could price your house too high, and then it sits on the market. And the longer a home sits, the more you lose in leverage as a seller which will ultimately run the risk of selling too low. (Six months of carrying 2 mortgages is enough to make some people cut their losses – dramatically.)

For the seller of my home, it’s not just the $50,000 he likely sold for less because he may have mis-priced the house. But other factors are at play, too. He likely lost additional money in the form of costs and fees for the effort he put into doing the job himself. He didn’t have the advertising expertise to target the right market, or networking and exposure of Realtors and the MLS. There was NO drive for competition among buyers. And there are all the additional fees and costs of selling a home that NO ONE talks about or thinks of — until you have to sign on the dotted line.

And it’s not his fault. He just didn’t know what he didn’t know. In fact, it could be the fault of Realtors! For many of us, it’s our number one goal to make the entire process as quick, seamless and smooth for our clients as possible. We want our clients to have a good experience.  We want multiple offers on our listings and we work hard for that! My business partner and I love it when our clients say to us, “Wow, that was way easier than we thought it would be.” The problem with that is there is a non-stop highly choreographed tap dance going on behind the curtain and we’re making it all look effortless.


What Really Happens

There’s A LOT that goes into a Real Estate purchase and sale.

A.

LOT.

To sum it up, Realtors spend large amounts of time and money marketing listings, studying trends, touring homes and neighborhoods to keep up-to-date on the market, networking, working and learning full-time in the industry, and we bear a great amount of legal liability.

Then there are the contracts. OH, THE CONTRACTS.

I wouldn’t for a second pretend that I could teach a class of 20 first graders without the training and experience required of a licensed teacher. (And for the sake of your children, you wouldn’t want me to – haha)

Not even in an emergency would I attempt to act as a physician and diagnose or treat someone whose life is in jeopardy.

You have to have a license to be a financial advisor and tell people how not to lose their money. And for similar reasons, Realtors are held to these standards as well.

It’s a lot harder to step into ANY role once every 5 years (or less) and be as successful as those who make a living doing it, studying it and eating, breathing and living it every single day.

Inman reports, “Homeowners selling by themselves simply don’t have the time to devote to the process, don’t know the market value, don’t understand market reports and don’t properly market the property.”

A January 2020 Inman article points out that less than 10-percent of FSBO Sellers actually succeed. That’s a risk I wouldn’t want to waste my time or money learning first-hand.


So You’ve Got Connections

We’ve all heard of the neighbors who sold or bought for a lower price because they did it “without agent fees.” They learned of a friend’s brother’s cousin through Church who was interested in buying their house.. and voila.

The huge problem with this is… PROPERTY VALUES! If you are a neighbor of someone considering selling by owner, ask them to reconsider. (Or maybe just quietly send them the link to this blog post – Ha!) It is a direct benefit to YOU AND THEM that they make more money, their home sells quickly and that they get a fighting chance at multiple offers (which gives them leverage for other terms that could benefit you down the line as well).

My former nextdoor neighbor was a proud Do-It-Yourselfer with EVERYTHING. We absolutely loved living nextdoor to him. Anything that needed to be done around his house and ours, he gladly stepped up and figured out how to do it, very confident that he “could do it better than the professionals.” Before I got into Real Estate, he announced to my husband and I that he was selling his home by owner and even back then, I cringed, though I was not surprised. He sold it quickly and never led on to us that there were any issues because, as I stated, he was proud. But when I saw the closing price, my jaw dropped. Had we not bought our house by owner at a price far under its value, I would have been sick that his home value may have affected ours so dramatically.

Take a look at these 2018 NAR sales prices, showing the difference in change between mean prices nationwide when comparing the ways a home is marketed and sold:

There is almost a $90,000 difference in home sales price alone between when an agent lists your home and finds a buyer – and you do it all yourself! So, why would you put yourself in a position that risks losing so much of your investment while you’re doing someone else’s job?!


Time is Money (Which is Why I Will Soon Wrap Up Here)

Inman reports “FSBOs take longer to sell than homes listed with an agent. For the same reasons, they can’t get the right selling price.”

And even if you just pay a flat-fee service to put your home on the MLS, which would give you more eyeballs, that likely won’t be enough. If your entire reason to FSBO is to save money on agent fees, and you’re not giving an agent incentive to bring a buyer, that could be counter-productive. After all, our market already has agent fees built into our home prices.

Finance Guru and Nashville Native Dave Ramsey says he doesn’t recommend FSBO “because you don’t save costs.”

He takes his advice a step further in this article and does a comparison using hypothetical numbers:

Using an Agent

  • Your house is on the market for an asking price of $200,000.
  • Your agent finds a buyer who offers $200,000.
  • As the seller, you pay about 5% of the sale price in commissions split between the buyer’s agent and your agent.7 This totals $10,000. (This is hypothetical. There is no set commission rate for a Realtor in TN.)
  • This leaves you with $190,000.

Using For Sale by Owner

  • If you go FSBO, the stats show you won’t get your asking price. So, let’s be generous and pretend you accept a buyer’s offer of $190,000.
  • You’ll still need to pay the buyer’s agent commission, which is about 2.5%. That would be $4,750. (This is hypothetical. There is no set commission rate for a Realtor in TN.)
  • After paying the commission, that leaves you with $185,250. And don’t forget that you did all the work, you spent money doing the job of a real estate agent, and you’ll still have to pay other seller closing costs.

Dave Ramsey continues to say, “If you use an agent, you’ll come out of this deal with more money compared to FSBO—even though you’re paying commissions to both the buyer’s agent and your own. It makes financial sense to use an agent, and it saves you a lot of work in the process.”

So, what is your investment worth to you? What is your home worth to you? What is your time worth to you? As buyers in 2015, my husband and I were grateful that our seller didn’t have an advisor asking him these questions. Don’t let this happen to you.

Thinking about buying or selling a home this year? Call me for a free meeting to see what your home could sell for – or to get pre-approved to buy. I’m a Grassland area resident, I’m a Platinum Award-winning Williamson County REALTOR® and I specialize in helping my neighbors buy and sell homes!