Investor · New Waterford, OH · Member since 2015 · 81 posts · 14 votes
My cousin is trying to sell his house without using an agent (For Sale By Owner, FSBO). He called me a couple days ago saying that he received a verbal offer from buyers using an agent. He was frustrated because his intent of not using an agent was to save the commission. The conversation he had with the agent seemed to have a lot of focus on whether or not he would pay her a commission.
So I asked him, "Why would the buyers use an agent when you have it FSBO?" He said that they are first time home buyers, so they were nervous. Understandable.
So I recommended to him that since they are first time home buyers, they are most likely going to only want to pay the down payment and whatever other minor closing costs they have to so that they are using as little out of pocket as possible. Because of this, he should say that whatever price they agree on, he'll divide it by 0.97 and give the agent the 3% (typical split commission if my cousin were to have used an agent), he's not losing anything extra, and the buyers have that cost tied into their mortgage and aren't out that amount themselves.
I'm curious what other techniques people have used if selling themselves and are approached by a buyer's agent?
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
10y
I'm not following you on the .97 thing. What exactly is going on there?
As for FSBO and real estate agents. This is how it usually goes down.
A buyer's agent begins working with clients. The agent always presents them properties that are on the MLS. Sometimes the clients see a FSBO on Zillow, Trulia or while driving around town. The clients ask their agent to show it to them. After getting off the phone with the client the agent usually slams their head into a wall or their desk then reluctantly calls the FSBO. The conversation involves the agent telling the FSBO that they have clients who are interested in looking at their home. The agent will then want to make sure they will get paid a commission (3% is common in this scenario) if they show it so they will ask the seller to agree to a commission if the agent's clients buy the property. I have my agents get this in writing prior to showing their clients.
If the seller does not want to pay a commission the agent would then have to work for free or ask their buyer clients to pay the fee. Working for free is typically not an option and the buyer client paying the fee is also typically not an option. This leaves the seller with two choices. Pay the agent the fee or have the agent and the agent's clients move onto another property.
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
10y
I'm not following you on the .97 thing. What exactly is going on there?
As for FSBO and real estate agents. This is how it usually goes down.
A buyer's agent begins working with clients. The agent always presents them properties that are on the MLS. Sometimes the clients see a FSBO on Zillow, Trulia or while driving around town. The clients ask their agent to show it to them. After getting off the phone with the client the agent usually slams their head into a wall or their desk then reluctantly calls the FSBO. The conversation involves the agent telling the FSBO that they have clients who are interested in looking at their home. The agent will then want to make sure they will get paid a commission (3% is common in this scenario) if they show it so they will ask the seller to agree to a commission if the agent's clients buy the property. I have my agents get this in writing prior to showing their clients.
If the seller does not want to pay a commission the agent would then have to work for free or ask their buyer clients to pay the fee. Working for free is typically not an option and the buyer client paying the fee is also typically not an option. This leaves the seller with two choices. Pay the agent the fee or have the agent and the agent's clients move onto another property.
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y
It seems your cousin was not aware that even if he were trying to sell it FSBO he would most likely have to still pay the buyers agent. That is pretty typical standard operating procedure throughout the country. The commission you save on a FSBO is on the listing side, not the entire commission. Hopefully your cousin also knows how to handle the appraisal on the property, or hes going to be lowering his price when/if the property doesnt appraise.
Say they agree on a price of $100,000 for round numbers. In a normal situation, the agent gets $3,000, buyer has a property/mortgage based on $100,000, and the seller has a net of $97,000 (minus other expenses). Instead, if he divides the agreed price by 0.97, that makes it $103,093. Now if the agent gets the 3%, the seller is still left with $100,000 (no difference to him), and the buyers are ultimately paying the agent's cost (since they chose to use one), but it is tied into the price of the house instead of paying the agent out of their pocket.
You are correct on him not planning on paying a buyer's agent. What he was planning on was that a buyer wouldn't use an agent either.
I'm confused by what you mean on handling the appraisal. Because if it doesn't appraise, then the bank won't lend and he can't close, so his only option if he wanted to close would be to lower his price. Is there something else you are meaning by that?
But most appraisers are lazy and appraise it for the agreed upon price anyway.
Say they agree on a price of $100,000 for round numbers. In a normal situation, the agent gets $3,000, buyer has a property/mortgage based on $100,000, and the seller has a net of $97,000 (minus other expenses). Instead, if he divides the agreed price by 0.97, that makes it $103,093. Now if the agent gets the 3%, the seller is still left with $100,000 (no difference to him), and the buyers are ultimately paying the agent's cost (since they chose to use one), but it is tied into the price of the house instead of paying the agent out of their pocket.
You lost me again. If the buyer and seller both agreed to $100k how exactly is the seller going to convince the buyer to now pay $103,093? They agreed upon $100k not $103,093.
The seller should not try and reinvent the wheel here. If the seller just goes with the flow they will end up with the home sold and be able to move onto new things. This tomfoolery sounds like a lot more headache than it is worth. It's 3 Grand. Pretty nominal sum. The seller should just accept that they likely need to pay it to get their home sold as 87% of transactions involve at least one agent.
Say they agree on a price of $100,000 for round numbers. In a normal situation, the agent gets $3,000, buyer has a property/mortgage based on $100,000, and the seller has a net of $97,000 (minus other expenses). Instead, if he divides the agreed price by 0.97, that makes it $103,093. Now if the agent gets the 3%, the seller is still left with $100,000 (no difference to him), and the buyers are ultimately paying the agent's cost (since they chose to use one), but it is tied into the price of the house instead of paying the agent out of their pocket.
You lost me again. If the buyer and seller both agreed to $100k how exactly is the seller going to convince the buyer to now pay $103,093? They agreed upon $100k not $103,093.
The seller should not try and reinvent the wheel here. If the seller just goes with the flow they will end up with the home sold and be able to move onto new things. This tomfoolery sounds like a lot more headache than it is worth. It's 3 Grand. Pretty nominal sum. The seller should just accept that they likely need to pay it to get their home sold as 87% of transactions involve at least one agent.
Because when he counters, he's going to have it all spelled out ahead of time. Or he just says that he would have countered x, so to accommodate the agent's commission his price is x/0.97.
The point isn't close vs not close. That's what the agent wants. He wants the extra 3 grand in his pocket, so if that can be arranged by a few words in an agreement, then great. To a lot of people, that would be like getting a month's pay for much less than a month's work.
Investor · New Waterford, OH · Member since 2015 · 81 posts · 14 votes
10y
On a side note, I did think a little more about the appraisal while I was getting my coffee...He does run the risk of it not appraising for the new amount whereas it would have appraised for the original amount. (and this may have been what @Russell Brazil was getting at). So he would either have to come back and say that he'll lower his price OR that the buyer pays the commission.
I have done FSBO and been approached by agents. I make it very clear that if they want to get paid they need to figure out how to do it so that I still get my price or they can take there business else where. FSBO is simply that and getting paid is their problem not mine. I have a bottom line on price and I get that number.
It can work out three different ways. The agent can refused their clients request, this has never happened, the buyer can agree to pay their agent or the price is increased to include the agents fee and I pay the agent. The third has been the most common method selected by the agent and seller as this puts the agents fee in the mortgage for the buyer and they are not out of pocket.
Commercial Real Estate Broker · Huntsville, AL · Member since 2016 · 22 posts · 7 votes
10y
Paying real estate brokers is a normal seller cost of doing business and is normally built-in to the asking price (not a list price in a FSBO, since there is no "listing"). FSBO sellers frequently make this mistake and then react badly to buyers who have brokers. That frustration is part of the DIY opportunity cost FSBO sellers accept, even if unknowingly. Just because the seller does not want the protection of brokerage services does not mean that the buyer should sacrifice that protection as well. Anyone selling a FSBO should be glad that a real estate licensee agrees to bring a ready, willing, and able buyer to the table and pay the broker for that service. Most don't want the hassle. Trying to "educate" buyers that they have to pay the broker doesn't work too well.
Posting an asking price that does not include the potential for brokerage costs makes about as much sense as posting an asking price that does not cover the loan pay-off. Include the potential costs and then negotiate a sale once a buyer appears on the scene, with or without a broker.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
@Reese Thompson The fact that you are having a tough time explaining the .97 thing to real estate professionals makes me think that the first time homebuyer and likely their realtor will have trouble understanding as well.
Full disclosure, I am a licensed and active real estate agent here in Connecticut, but the fact that your relative didn't even educate himself enough to know that the majority (probably everyone) that is going to come look at the house will have a buyers agent tells me he does not know the business very well. That's ok. He's probably not supposed to know it like someone who does RE for a job, which is why he should probably hire an agent.
This is of course if he's actually trying to sell the house. If he's fishing for offers and trying to find a sucker then that's a different story. Just tell him to make sure it will appraise if he does actually sell it.
If I need to get my car fixed I go to a mechanic because I know it's a cost associated with owning a car, etc..
Another thing to think about as well is that that individuals buying agent is going to be mostly responsible for keeping the transaction moving. The seller isn't going to have any idea of what steps need to be taken in the selling process (title insurance, mortgage release docs, getting well/septic inspection(if applicable) etc..). Theses a big reason agents don't look for FSBO, because they will essentially be responsible for the entire transaction to help their buyer get the outcome they want.
Real Estate Broker · Granby, CT · Member since 2015 · 694 posts · 317 votes
10y
@Reese Thompson, most of the other agents/brokers shared their feedback, I will share mine. We (brokers and agents) get paid to represent buyers and sellers. We have a moral and ethical responsibility to show our buyers ANY property that is listed for sale (regardless of whether it is on the MLS or not) When we start to work with buyers, we typically have them sign what is called a Buyer Broker Agreement, which contracts us to work in their interests (instead of ALL of the sellers out there). The reason for buyer agency representation was to protect the buyer. Long long ago, it was the seller only that the realtors cared about, hence the birth of the buyer representation (by all means, someone chime in on the exact date or time period this happened).
In your scenario, you are suggesting inflating the price of a home so that the buyer would end up paying the commission. This is completely against how we (as realtors) do business, in fact, it is borderline unethical. The most fair way to do it is to alert the buyer of the scenario so they understand that the seller isn't willing to pay for representation. When we do this, it would become very apparent that the seller is trying to avoid paying a commission. So what else are they trying to avoid? Are they looking to hide latent defects? Are they hiding anything? I am not saying that all FSBO's don't act with integrity. I am stating that there could be the perception that the buyer ends up even more nervous (especially a first time homebuyer)
By using some type of representation (your cousin), he get's to get his home on the market and in the face of thousands of realtors, who have ten's of thousands of buyers, which is significantly more than your cousin would have gotten from listing (and selling for that matter) on his own. Someone else mentioned the standard 3%. I wouldn't even do it for 3% if I was representing both sides. No way. Because the seller (trying to avoid a commission) is also not going to understand all the processes in selling their home, and the buyers agent will end up doing both sides work anyway. I would handle both for 4%, and have done that in the past. One last thing, if a buyers is ready, willing and able, and a lousy $3k is the payment, so be it. That buyer could walk, and your "cousin" might not get another offer for a year, OR EVER... How many thousands did he lose then? I bet a lot more than $3k. My $.02
Investor · New Waterford, OH · Member since 2015 · 81 posts · 14 votes
10y
@Thomas S. Just because it's the majority of the way things are done doesn't mean it has to be done that way. If the seller doesn't want to pay for having agent representation, he shouldn't have to pay for it. If the buyers are wanting it, then they should pay for it, not the sellers.
Investor · New Waterford, OH · Member since 2015 · 81 posts · 14 votes
10y
@Michael Noto Sounds pretty ignorant. But that's okay because if someone wants an agent, they should pay for it. If they don't want it, they shouldn't have to. It's more like trying to sell a car instead of fixing one...if you trade it in, you get less for it, but if you sell it yourself, you are able to get more even if it takes a little extra work.
@Tim Puffer Buying/selling a property is not rocket science, and involving agents increases expenses to buyers and sellers. That's why many of the investors who've done well have gotten their agent's license so that they can reduce that expense on something that anyone can do.
@Rick Santasiere So if as other people have noted before that the price of an agent-listed home already includes the commission, that's not artificially inflating it? Also, there's not even 10,000 people within an hour of this place. Listing it with an agent is not going to increase his exposure here, or at least not enough to matter. And if a buyer is really that ready, willing, and able, they'll be willing to make concessions to buy the property. It could be the case that they pay their agent out of pocket or they agree to a modified price that includes it in their mortgage.
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
10y
This is one of those things that blows my mind. People can be so cheap when dealing with money. Your cousin actually could have potentially made more money, sold it faster, or not have stressed out as much. By putting a property on the MLS you are opening it up to the MAJORITY of buyers. Bidding wars happen all the time, as does sellers not knowing how to properly value their property.
Now if he could sell it 2 months faster vs on his own... Is that worth 3k? How about if he ended up with multiple offers and was able to pick based off of likelihood of closing who to go with. Is that worth 3k?
I learned a long time ago that there are just certain things you call in a professional for. When my wife and I were dating I was working on a 1985 Yamaha Vmax in the garage. She was sitting on a chair out in the driveway. I was installing new clutch plates. When I got it put back together I fired it up. I didn't bleed the clutch enough. So all of the sudden my 600lb 150hp motorcycle was flying at my soon to be wife. Why? Because I tried to save a few $$$ on a few things that were outside of my set of skills.
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
10y
Does anybody have the statistics on how often a FSBO falls out of contract compared to when agents are involved? I suspect that those types of deals tend to fall apart at a much higher rate. I have bought directly from distressed sellers but I can't imagine trying to buy a retail home from a FSBO.
I had my eye on one recently and the guy ended up selling it for at least 15% ($50k) under market but he "didn't pay commission".
Does your cousin have any experience in real estate? I assume not, so he should have someone help him until he does get experience. Are you going to help him through the transaction at all?
Real Estate Broker · Granby, CT · Member since 2015 · 694 posts · 317 votes
10y
@Reese Thompson best of luck to you and your cousin. When you lack the experience all the people out here clearly have (and you clearly don't), you WILL lose money. You called someone ignorant, which was insulting. Totally uncalled for. Your post started off being unprofessional, and your comments to the people (THAT YOU ASKED ADVICE OF) is extremely sad. I am very glad that when I encounter someone like you, I run. As for how well you will do in this business; just not sure. I do know that people who try to sneak their way around rules, customs, and the normal and ethical way of doing business, eventually it comes back to getchya! Some call it Karma, some just say "what goes around, comes around.." I do wish you luck, but you owe at LEAST one person out on this thread an apology for insulting them after you have clearly asked for advice.. Next time, just don't ask, or be a little nicer, especially seeing as this is supposed to be a site to encourage business and working with one another, and learning and teaching one another. I just hope you did learn something.
1. "Just because it's the majority of the way things are done doesn't mean it has to be done that way." True. But people's expectations are normally founded on what happens most of the time. Most of the time, when a buyer makes an offer on a house, the seller does not counter with a price over the advertised price because brokerage services are involved. Most people expect sellers to have set a price that covers normal costs of the transaction. Your cousin is attempting to do something that is encountered a minority of times. He should not be surprised when it doesn't happen the way he expects it to.
2. "If the seller doesn't want to pay for having agent representation, he shouldn't have to pay for it." True, again. No one here is saying that your cousin, as the seller, _has to_ have or pay for sell-side brokerage. The majority of the comments have been that a seller who opts out of sell-side brokerage is implicitly or explicitly accepting frustration in lieu of cash payment. Most of the posters have given the opinion that this is a bad trade-off. My point was that the seller should not begrudge the buyers having representation. There are two sides to the transaction, each of which has potential pitfalls that real estate licensees are paid to help avoid. Each side is distinct. At issue in this thread is buyer representation.
3. "If the buyers are wanting it, then they should pay for it, not the sellers." The buyers are the ones bringing the funds to the table, so they, in fact, would be the ones "paying for it." As an example, the buyer brings the funds that are used to pay off the seller's loan. Very rarely do sellers bring funds to the table; all of the money changing hands originates with the buyers. The point here is that your cousin did not anticipate this cost and price it into the deal. (If he had a seller's broker, that broker would have told him this. By not paying a sell-side commission, he chose to pay with time and frustration instead.) If a buy-side commission were priced into the deal, the buyers would have paid it as part of the agreed price, probably without batting an eye. Yes, the money would pass through the seller's hands, metaphorically speaking, but the funds would not originate with the seller.
In your reply to @tim puffer, you assert that "buying/selling a property is not rocket science." Also true. It is a complex legal transaction that normally involves significant emotional and financial risk and is heavily regulated by state and federal governments. Complex things normally attract specialists. Real estate is no different.
You said "involving agents increases expenses to buyers and sellers." Not true. Involving real estate professionals allows the buyer and the seller to obtain brokerage services that are denominated in cash versus time, effort, and frustration. Transactions without real estate professionals are not inherently better transactions that do not impose transaction costs on the participants. They are not like LED light bulbs that generate light without heat. They simply do not have dollar amounts associated with those costs.
You said "That's why many of the investors who've done well have gotten their agent's license so that they can reduce that expense on something that anyone can do." Investors who become real estate licensees incur costs. They incur the cost of licensure and MLS membership, at a minimum (which cost considerably more than you probably think that they do). Again, obtaining a license to eliminate case-by-case, sell-side commission costs is simply a transfer of the cost from per-transaction, cash payments to ongoing payments of time, effort, and, yes, cash. It would be interesting to see the balance sheet over time. They probably do come out ahead, eventually. But the cost is still there. Investors who obtain real estate licenses should probably not attempt to handle both sides of transactions in which they have a financial interest as the seller. Most states require disclosure of licensure status when a licensee is a party to a transaction. Done correctly, these investor/licensees price buyer representation into their asking prices.
BTW: Anyone can do rocket science as well. With a real estate professional, at least you are assured of some level of instruction in the subject matter and a license (which exists to protect consumers).
And if you can find a lazy appraiser in the era of TRID, take a picture, as that is an endangered species nearing extinction.
Investor · New Waterford, OH · Member since 2015 · 81 posts · 14 votes
10y
I'm going to wrap this up because this is starting to sway too much. The house is under contract, so my advice to him must not have been too bad for getting him the deal. His contract price is right where it should be judging on others around. As long as it appraises, he is getting a good deal.
I appreciate the insight provided, though it got kind of side tracked; my question was about techniques when selling yourself and being approached by a buyer's agent. There were some great responses and insights, and I thank you for that. The answer was not to go get a selling agent or that he automatically messed up because he didn't use an agent. Would he have been better off, maybe, maybe not. Either way it didn't matter because I was trying to find a way to help him in his situation.
Real Estate Broker · Granby, CT · Member since 2015 · 694 posts · 317 votes
10y
@Michael Dake well said. Much more precise way to explain to someone who isn't licensed. Sadly, there are people that are always looking to use and abuse agents for their expertise, then state that what we provided isn't rocket science. It rubs us hard working brokers and sales people the wrong way. I certainly could have done a better job in explaining my point, as did you, so thank you. @Reese Thompson. Glad you got what you were looking for. BP is such a great way to get information for free, and it's a great network for all of us.
Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
10y
@Michael Noto and @Rick Santasiere great explanation! Many people don't realize what it entails when having an agent represent you during a real estate transaction. So I am absolutely glad you guys explained it well.
