For Sale By Owner (FSBO) – Does It Save You Money?

I have spoken recently with a few FSBOs – short for For Sale By Owner.   Those who choose this route do so generally to try to save on the 6% commission cost to sell their home.  The reality is, in a best case scenario they may be able to save 2%, but even that is questionable and I’ll show you why.  (For the sake of this discussion, I would include limited service listings as well where the agent or public comments on the MLS say that any interested party must contact the seller directly including requests for showings as well as offers).

Any agent who has brought the buyer for a FSBO property knows that it is going to take a lot of extra work on the agent’s part to see that this transaction successfully closes.  Because the buyer’s agent has to deal directly with the seller, there is not another licensed professional to make sure the transaction moves forward smoothly.  I will certainly show FSBO properties and limited service listings, but I’m not going to go out of my way to encourage my buyers to make offers on those properties.  It’s often too much work, but more importantly, I have to deal directly with the seller.  There is no buffer.  9 out of 10 times those properties are overpriced…sometimes way overpriced.  There is no buffer of another agent.  This is a major issue.

The fact is that buyers also don’t like dealing with sellers.  Buyers would much rather hire an agent to go deal with the seller.  So the seller is hoping they can sell their property without having to pay any commission, but the likelihood of that is very slim.

Because working with FSBOs requires more work, most FSBOs list their properties on the MLS with a 3.0% payout or higher.  When properties are listed with an agent, they tend to have payouts of 2.7%.  Some are 3.0 – 4.5%, but those are a little more out of the norm.  The general practice is 2.7% and that’s because on a 6.0% listing, the listing broker keeps 3.3% if they sell it and they pay out 2.7% to the buyer’s broker.   So with a FSBO, they really should pay at least 3.0%.   It then costs them about 1.0% to get the property listed, buy signs, put it on the internet, take professional pictures, produce brochers, hold open houses etc. etc.  That doesn’t include time spent following up with prospective buyers or trying to get feedback from agents who just want to list your home.

So all told, a FSBO’s costs are likely going to be in the range of 4%…not zero percent.   They pay out 3.0% and it costs them 1% to market it.

They save 2% and on a $350,000 home, that’s $7,000.  That’s a lot of money.  But here’s the catch.  If the home is not priced right, and in most cases it is not, it’s likely going to cost the owner far more than the $7,000 he had hoped to save.  On top of that, if it’s not priced right, he will extend the period of time his home is on the market further hurting his final selling price and driving up the frustration level with the selling process.  Since he’s not in the market every day to know what’s going on with competiting properties as well as what some of the issues are with getting transactions completed today, he’s at a significant disadvantage.  I would argue that disadvantage will be far more costly than 2%.

And here’s the other catch…when I’m looking at a FSBO, right away I suspect the home is priced too high.  But let’s just say the home is priced right.  If my buyer isn’t in a competitive situation, which most likely he’s not, then I’m going to take 3% right off the top of the home because I know that this FSBO is thinking he’s saving 3% by not hiring me – or another agent to sell his home.  So, that savings, in my opinion, will go right back to my buyer in a reduced purchase price.  In the negotiations, the seller is also at a disadvantage because he doesn’t have someone who is in the market to bounce ideas off of and take cousel from.

Most FSBOs end up hiring an agent.  I can understand the lure of wanting to try to do it on your own, but in this marketplace, it’s extremely difficult to do unless you’re willing to just list your home way under market value and let the offers come flying in!