With low supply and limited equity, many sellers are escewing listing agents

With inventory being in such short supply, anything put on the market is likely to sell easily. Two years ago when there were far more properties for sale than buyers who wanted them, professional marketing and broad exposure was necessary to attract a buyer’s attention. Not so today. This fact is prompting many to try to eliminate at least half the real estate commission and list the properties themselves.

Going for-sale-by-owner or FSBO is not without its drawbacks. First, the presentation of FSBO properties on Craigslist or the MLS is often dismal. Go to Redfin and see for yourself. Second, if the seller is unwilling to pay a buy-side commission, buyer’s agents often won’t show the property, or they will only do so if the buyer insists on it. Why would they? If their buyer chooses to deal directly with the seller, the agent won’t make any money. Third, most people don’t understand the nuances and complexities of a purchase and sale agreement and the numerous contingencies and requirements of the sale. Despite these hurdles, the lure of saving 3% to 6% on the sale entices many to give it a try.

The Cost of Recovery: FSBOs are BAAAACK

Written by: Steve Cook   Mon, March 11, 2013

In the hottest markets around the nation, “for sale by owner” signs are popping up in yards as penurious owners try their hands at selling their own homes.  It’s another sign of recovery that’s raising echoes of the real estate boom seven years ago.

“In Silicon Valley we have returned to the market conditions where nearly everything sells as soon as it hits the MLS.  This seems to cause two things to happen; the return of “quick buck agents” and FSBOs.  The “quick buck agents” are those who get their license in a hot market hoping to make a few dollars off friends and family.  They’re the ones who come and go with every boom market.  The bigger concern is the FSBO,” blogged Los Altos broker  Bryan Robertson on the Active Rain site two days ago.

We don’t have many “quick buck” agents operating in Orange County right now. With so little supply, the dealflow isn’t so great that part-timers can make a go of it.

Within hours several dozen Realtors chimed in.

“We are seeing a new wave of FSBO signs in 2013.  With the return of the strong seller’s market, it’s just a fact.  It’s just something new to work with again, when they had virtually disappeared in the past few years,” agreed Realtor Michelle Francis of Buckhead Atlanta.

“FSBO’s have made a comeback here in the Phoenix metro area, especially in the lower priced home market.  When homes were bought at the bottom of the market and now want to be sold, some people can only sell for a small margin.  Our market has not recovered in some areas enough to pay all the real estate costs for the seller.  Therefore, he does a FSBO,” reports Associate Broker Barb Merrill. …

Many sellers are just emerging from being underwater. Their loan modification terms are set to increase their payment, and with collateral value backing the loan, lenders are unlikely to extend the favorable terms further. This puts pressure on many to sell when they finally can. This leaves little or no margin to pay an agent, so many try to sell on their own.

“It is much easier to sell a home on your own now…at one time Realtors pre-qualified the buyer now banks give them a letter of prequalification….with homes selling fast you can anticipate more and more FSBOs Of course once the negotiating starts the sellers lose their stomach for it in many cases, ” said Edward Gilmartin of Boston Homes.

Not everyone can successfully negotiate the sale of their own homes. Most often people have irrational attachments and an inflated sense of what their house is worth. Everyone can justify in their own minds that their house must certainly be worth 10% more than other comparables due to the wonderful improvements they made. Getting over these attachments and unrealistic values is an obstacle many FSBOs cannot overcome.

“Had a FSBO call me today saying he was using the comps I GAVE HIM and go it alone.  But.. Understand he would pay me 3% if I brought him a buyer.  Imagine that……” said John McCormack.

It’s easy to imagine. Was taking 20 minutes to pull some comps really worth 3% of the purchase price? realtors have no sense of the value of the services they provide.

Realtors report their strongest defense against sellers who go it alone are legal requirements that sellers disclose problems with their homes in writing or risk liability.  “The number one thing sellers forget to do is provide proper disclosures.  Even with all the advice out there, it’s unlikely a seller will prepare the documents to cover all the disclosures necessary.  They might even be hiding something.  This is one of many reasons why you need an agent,” said one.  ” If you get sued for not disclosing something, you’re likely to lose out on any savings you might have achieved.  It’s not worth the risk,” agreed another.

This is a compelling argument, but it doesn’t require a full-commission agent to provide that advice either.

For sale by owner transactions, or FSBSs, reached an all-time low of 9 percent last year and in more than half of those, the seller already knew the buyer so a great deal of marketing was not necessary.  In the seven year buyer’s market since the real estate crash in 2007, FSBOs have dropped like a rock, from a high of 14 percent of all transactions in 2004.  Now however, reports from the across the nation suggest that there may be more FSBO yards displayed this spring buying season than in nearly a decade.

One way sellers can save on commissions today is to use a flat fee broker, who charges by the service provided rather than a percentage of the transaction.

According to the National Association of Realtors (NAR), more sellers are choosing to discounted agent services. The percentage of homes sold on a flat-fee basis rather than a commission grew from one to three percent.  For the past few years, 20 percent of homes were sold by agencies that provided limited services such as listing on the MLS.  The growth in flat-fee listings is coming from sellers need to go through brokers who are members of multiple listing services to get listed, but want to save on commissions by doing their own marketing.

It’s important for potential FSBOs to understand how the deep discount listing services make their money. Many of these services will list a property for as little as $300, but sellers soon realize they need help processing the paperwork, and that’s when the fees balloon to thousands of dollars.

On RealtyTrac last week, OurBroker Columnist Peter Miller argues that brokers are more important now than ever, even for the buy side of a transaction.

“When I first started in real estate, do-it-yourself transactions actually made some sense. Contract agreements ran one or two pages and real estate brokers did not have much training beyond what a reasonably informed member of the public might have. In fact, when I first began looking into real estate, I found it was possible to get a six-month temporary brokerage license, meaning you could buy and sell property for others with no training and no testing at all.

“Long ago the idea of buying and selling without a broker was both attractive and doable. That’s just not the recommendation I would make today. I now tell owners to list houses with successful professionals and I tell purchasers to find an experienced buyer broker as well as a good home inspector. With something as important as a home purchase getting such help in today’s world simply makes sense,” he wrote.

Do you need a listing agent? Some people do, and some people don’t. Many people lack either the time or the expertise to market and sell their own home. For those people, a listing agent is a necessary evil. For some selling their own home and keeping at listing side of the commission is an attainable goal. If you think you might be one of those people, sign up for our free guide to selling a home without a realtor today.