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The FSBO Fallacy: Why Selling Your Own Home Won’t Save On Commissions
Dated: February 10 2019
Although some people are very successful at selling their own home, the process can be a literal minefield. Not only can it be very time-consuming, there are many mistakes unrepresented sellers (FSBO’s) can make, some of which can cost more than the commission FSBO’s may think they’re saving by not listing with a Realtor.
A recent study by Collateral Analytics (CA) shows that unrepresented sellers not only do not save money on commissions, in some cases they may actually net substantially less than what they would have had they listed with a full service, licensed real estate agent. In the study, CA analyzed home sales statistics in a variety of U.S. real estate markets in both 2016 and in the first half of 2017. The data revealed several key findings:
Why would a FSBO net money than if they used a Realtor?
The CA study suggests that there are several possible explanations:
: FSBO listings might be attracting more strategic buyers or “bargain hunters” than MLS listings do. The idea is that prospective buyers may be rationalizing their lower-priced bids on FSBOs on the basis that FSBO sellers are “saving” roughly 6% on real estate commissions. If bargain hunters are routinely searching for and targeting unrepresented sellers, this could explain why FSBOs systematically garner lower bids on their homes, thus causing FSBOs to net lower sales prices.
: Unlike FSBO sellers, experienced agents understand what it takes to make a listing shine online and in person. A full service Realtor knows that, often, this look can only achieved with the assistance of a professional stager. A seller who lists their home with a Realtor may net more money for their home as a result of the extensive preparation and professional staging their home may undergo prior to listing.
: When a FSBO is listed for sale, the ability of the seller to comprehensively market that property both on and offline may be seriously limited for a variety of reasons: a FSBO may lack time, marketing expertise, access to distribution channels and more. Most FSBOs do not even know to ask for showing feedback so they're not in a good position to adjust to market input. On the other hand, properties listed with a Realtor who is a member of the local Multiple Listing Service (MLS) are often better prepared to meet buyers' expectations and are simultaneously syndicated online to all MLS participating members’ websites, thus marketing the home to the largest possible buyer population. And those MLS member listings generally offer compensation to agents who represent buyers, incentivizing agents to show and sell the property, thus potentially enlarging the buyer pool. If more traffic can be generated for a given home, there is a greater likelihood that the property will garner multiple bids, increasing the chance of driving up the final sales price.
Three Key Conclusions were three key conclusions generated from the CA study:
- FSBOs achieve significantly lower sales prices than similar properties sold by licensed Realtors utilizing the MLS.
- 2. FSBOs tend to net sales prices that are, on average, 5.5% less compared to similar properties marketed on the MLS.
- 2017 sales suggested the average sales price of a FSBO was close to 6% lower than the sales price of similar MLS-listed properties.
If you’re thinking of selling your home on your own to save on commissions, it may end up costing you more money than you would have saved had you listed with a real estate agent.
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