FSBO, or "For Sale By Owner," is a term used to define a homeowner selling their home without the assistance of a Real Estate Agent. When you look at it on paper, it makes sense why a seller would choose to sell their home on their own. In most cases, the homeowner wants to "save" the cost of the commission that comes with using a Realtor, and who can blame them? It certainly represents a significant amount of money that could end up in their pockets, rather than the pockets of a Realtor. The reality of things, however, isn't so simple.
FSBO By The Numbers
In 1981, homes sold FSBO represented 15% of all home sales, while the remaining 85% were agent-assisted. That percentage has since declined to only 8% of home sales in 2020. Interestingly, half of the sellers knew the buyers, while the other half did not. The FSBO sellers who knew their buyers, whether they were a friend, relative, or neighbor, had a market time of less than a week and received 100% of the asking price (less expenses, of course).
According to the National Association of Realtors 2020 Profile of Home Buyers and Sellers, 50% of FSBO sellers determined the asking price of their home using recent home sales in the area, while slightly more than 1/3 used an appraisal. 41% of sellers stated that they did not want to pay a fee or commission as the main reason for selling FSBO. Another 30% did so because they had a relative, friend, or neighbor who wanted to buy their home.
The Risks of FSBO
While the potential to save thousands of dollars in commission may seem like a no-brainer, there are many other factors that can cause problems for FSBO sellers and ultimately result in them losing money overall.
Exposing Their Home to the Marketplace
One of the main benefits that sellers have when working with a licensed Realtor is the ability to have their home listed on the MLS, or Multiple Listing Service. This is the largest database for real estate listings, and it's the source where online marketplaces (e.g. Zillow, Trulia, Realtor.com) pull information. In short, if you want to be on any of those websites, you have to be on the MLS. While there are certain resources that allow someone to independently list their home on the MLS for a fee, these are typically very bare-bones services that require the seller to do all of the footwork. There are also a lot of important considerations and details that can be overwhelming to someone with little experience. A licensed Realtor, on the other hand, can (and does) handle this process with ease. Why do you want to be exposed to the marketplace? Because there are more buyers there. In the current market climate, where homes are going for well above the asking price, you forgo this when you don't cooperate with all of the potential buyers on the market and their agents. This could lead to leaving literally tens of thousands of dollars on the table, all to save a commission.
Why do you want to be exposed to the marketplace? Because there are more buyers there. In the current market climate, where homes are going for well above the asking price, you forego this when you don't cooperate with all of the potential buyers on the market and their agents. This could lead to leaving literally tens of thousands of dollars on the table, all to save a commission.
Whether or not you decide to list your home on the MLS, there are a number of factors that influence the value of a home on the market that may not always seem obvious. These can include professional photos, interior design choices, or small-scale repairs/updates to certain rooms. A Realtor will intuitively look for these things and offer advice on ways to elevate the appeal of your home for little to no added cost.
Having to negotiate on their own behalf is another concern for many sellers who choose FSBO. One might think that once you and the buyer decide on a closing price, you're good to go, but there are so many different people and entities with whom negotiations must be made before a home can close. In addition to most FSBO sellers not truly understanding the value of their home (we most often see them selling it for FAR less than could be obtained in the current market with an agent), but there are other terms that matter greatly as well. Other negotiable terms include financing concessions, closing and possession dates, inspections, and earnest money. The negotiations could even continue well up to the moment of closing with repairs, appraisals, and other unforeseen circumstances. There could also be negotiations with the appraiser, inspectors, mortgage company, or escrow company. This is where Real Estate professionals come in. They are trained to de-escalate sensitive areas so to keep things calm and orderly, and they act as a go-between to ensure that you are accurately represented at the negotiations table.
Lack of Protection
The biggest unspoken benefit of using a Realtor is the legal representation that they or their brokerage can offer you. In certain situations, buyers will seek out FSBO sellers in order to take advantage of their lack of industry knowledge and get a good deal on a home that was worth much more. A Realtor can easily spot when someone is trying to do this, and they will ensure that it never happens. In even the worst-case scenarios, they are legally backed by their brokerage to ensure that you don't feel the effects of any illicit dealings.
Another factor that can prove daunting for FSBO sellers is the sheer amount of documentation that goes into a Real Estate transaction. This is a crucial part of the transaction where a misstep can result in the seller missing out on value that they could have otherwise claimed for their home.
In a seller's market, a FSBO seller can sell their home fairly easily, but most often, they are forgoing a dramatic amount of money, and there's so much more that goes into a home sale than whether or not it happens. It is easy to sell your home on MLS right now, and in some cases, our clients are getting dozens of offers! Why would you not take advantage of that? In addition, protecting a large financial asset is important, and sellers deserve the peace of mind that a real estate professional provides, along with the fiduciary duties that accompany them. The median price achieved by FSBO sellers is considerably less than the median price sold by agents. While there may be other factors involved, it certainly begs the question "Do FSBO sellers receive the highest price with the best terms and the fewest problems?"
If you're interested in working with an industry-leading team of Realtors in the southwest Twin Cities metro, then The Hancock Group has you covered! Our Realtors are regional experts with years of experience buying and selling in Minnetonka, Chanhassen, Victoria, Waconia, and more! On top of that, they're backed by a team of administrators and marketing professionals who work diligently to ensure that you get the most value for your home and that the process is as stress-free as possible!
Contact us today to learn more. We're looking forward to hearing from you!