FSBO vs Using A Real Estate Agent When Selling Your Property

[Tim Soto]

This was a question in the forum that I responded to. Seeing as I went in-depth with my response, I decided to make it into a forum post, in hopes this information may be helpful to other newbies. Please keep in mind that this information is based on my personal experiences, knowledge, and observations. Also, I'm referring to FSBO sellers as new to real estate investing.

Selling your property through FSBO route is not an easy task, especially if you're trying to get your price-point, and for any beginner, it may also be a challenge understanding the escrow process. Your main focus should be on pricing the property right and getting as much exposure as possible.

Typically, a FSBO would market through Craigslist, yard sign, open house, FSBO website (which may require a fee), and social media platforms. I would recommend using as many of these resources as possible. Some issues sellers may run into are getting low-ball offers; lack of exposure; and in some cases, buyers may have the perception that a FSBO seller is more likely to overprice their property. If you think about it, most sellers, who go through the FSBO route, do so to save on Realtor® commissions and may give a potential buyer the idea that the seller may not be negotiable. This is not the case every time. I'm just pointing out that it can be an issue for a newbie seller.

If you're going to sell FSBO, one way that I like selling a house, which doesn't require an agent, is to make flyers or door hangers for your open house. Include your list price, pictures, and property description. I would then go door to door inviting all my neighbors to my open house (about 2-3 block radius). I prefer handing out the flyers door to door as opposed to door hangers because then, as I'm handing the flyer to the neighbor and inviting them to my open house, I can mention that if they know someone, who is interested in in moving into the neighborhood, please bring them along. Best case scenario for any FSBO situation is getting an acceptable offer from a cash buyer with no contingencies because then it'll make the escrow process a lot less confusing. Once you start escrow with a buyer, who's using a loan and/or a Realtor®, then you start getting into disclosures, contingencies, appraisal, inspection, and termite reports, and making sure your buyer and the property meet the lender's guidelines, and ultimately close on time.

FSBO process in general and based on my experience:

1. Buyer and Seller sign Purchase Agreement/Contract. If it's a cash buyer, contract doesn't have to be the state template, i.e. California Association of Realtors (CAR), although it's preferred. When selling through FSBO, I've never sold to a buyer, who needed to use a lender, so I'm not 100%, but I'm sure the lender would require the state contract because they have to approve the loan, appraisal, inspection, termite, and title reports, which are contingencies in the contract.

2. Buyer and Seller meet at title/escrow company and submit contract, escrow instructions, and earnest money deposit (EMD), at which time escrow is opened.

3. I might be a little vague here, but from my understanding, Escrow officer pulls Preliminary Title Report to make sure there are no liens or encumbrances (unpaid taxes) that both parties are not aware of. To make sure the title is clear the seller (usually) pays for Title Insurance, guaranteeing clear title. The title/escrow company makes sure that the property cannot change possession without a clear title.

4. If buyer is coming in with a lender, then the seller has the responsibility to make sure the buyer is following through with the lender’s conditions. Most likely, the lender orders the appraisal, which the buyer pays for. The buyer arranges the inspection and pays for that too. Usually, the seller has already done a termite report and submits to buyer or lender upon request. Once the lender approves those conditions, then the buyer can remove the contingencies form escrow instructions and proceed closer to finalizing escrow. In order to close and fund, the buyer has to go through the approval process again with the lender’s underwriter to make sure nothing from the buyer’s financial standpoint has changed since the originator first approved them for the loan.

5. Closing, recording, and funding.

This may be an overwhelming experience for those, who are new to the industry, so you may want to consider the agent option. One way to research your options is to Google "selling home FSBO vs using an agent." From what I've researched, and although it's not always the case, statistics will show that it's more likely, using an agent will get your property sold closer to the market value and sold sooner than doing FSBO.

You can interview a few agents in your area and find the right one for you and your situation. One of the pros when using an agent is that your property gets more exposure to buyers through the MSL and other hubs like Realtor.com, Redfin, Trulia, and Zillow. You would not be able to list your property through those sources on your own without a license. Agents may also include a broker's open, broker's caravan, and other marketing techniques to create a buzz even before listing it on the MLS. They can do a market analysis report to show you comparable sales in your area, which helps determine your price-point. They'll also be able to ensure the escrow process is moving along, that you know every disclosure you signed, and can even help you pre-approve a buyer. Also keep in mind, like any other profession, not all agents/brokers are the same. Do your due diligence when interviewing them. One last thing, I would not dilly dally with the standard commission rates. I've noticed that sellers, who try to negotiate the commissions lower, receive subpar service. You'll end up losing more money trying to save on commissions. I know this is a lot to digest, but I hope it was helpful to the new folks here on BP. Please leave a comment and let me know what you think. Thanks!

[Brian P.]

FSBO's Want to save the commission. That is wrong thought number one. Every deal has a built in commission amount whether it is declared or not. It is a matter of who gets it, the seller, the buyer, or an agent or a combination thereof. The first thing a FSBO needs to understand is they are not going to save a commission, the need to know they are going to earn a commission.

Back in about 1964 the California real estate department had a very thorough study done and it was a rare that a fsbo saved any money at all. Their best chance to save money was to do what most brokers do when they sell their own property, put it on the MLS and co-op and you do this through a flat fee broker that puts it on the mls for a couple hundred and offer the selling agent the normal percent they get at least. Put on your fsbo sign, broker co-op, and leave off the by owner and agent will be more willing to show. Even buyers are less likely to automatically knock off 6%. It is the old half a loaf theory is much better then no loaf at all.

Yes many normal fsbo's do sell but the studies have shown through the years they saved peanuts if anything for the effort. What they net is the key. This happens even on listed property, a seller will get a 1% cut or more off the agents normal rate (loser agent willing to give up a third or more of his income right off the bat, I'm sure this agent will get me top dollar), but the general result is they lose twice as much or more in the final sales price they get. Yes the brokerage fee is lower on the closing statement but the net to the seller is much lower too. False economy.

Things really didn't change much over the years, the do it yourself sellers went through a lot of time, money and effort and what they saved barely made it worth while. The number one mistake was most overpriced their property and created a big resistance factor at the start. In my area we didn't call them fsbos we called them 10 percenters because it was uncanny that most of them came on the market 10% overpriced.

When a fsbo says he wants to save 6% he would normally have to pay, I laugh. I ask why do you think you are paying 6%?  Who is giving you the money to pay the 6%, why the buyer of course. So don't get greedy, give the buyer some of the commission he is really paying anyway, you save some money and the buyer saves some money, you both win.