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This post by Mark Henricks originally appeared on partner site Mint.
Stabilizing housing prices have some homeowners who were once reluctant to sell during the downturn now considering putting their homes on the market. One factor to consider among the pros and cons of selling is how much you’ll pay a real estate agent to sell your home.
At 5 to 7 percent of the sale price, an agent’s commission can make the difference between being able to sell and having to stay put.
Deciding to market your home as a FSBO – the acronym stands for For Sale By Owner and is pronounced FIZZ-bow – can save more than $15,000, based on a 6 percent commission and today’s average selling price of $256,000. And the more your home sells for, the more you save.
FSBO on the decline
FSBO isn’t always the best choice. Real estate agents offer valuable expertise when it comes to pricing, marketing, negotiating, and handling paperwork. And, increasingly, agent commissions aren’t take-it-or-leave-it. Home sellers today can negotiate for lower commissions in return for a lower level of service, or even just by asking.
About 10 percent of homes sold in 2011 were FSBOs, according to the National Association of Realtors, or NAR. Another 87 percent were conventional agent-assisted deals, while approximately 3 percent were sold through other means.
Over the past decade, the percentage of residential sales that were FSBOs has declined from 14 percent, with agent-assisted sales expanding to make up the difference.
Will the trend reverse?
One reason that FSBO trend could reverse is the relatively narrow margins that many sellers are working on. When they had a lot of equity in their homes, they could more easily afford to pay 6 percent or so of the sale price to an agent.
Although home prices have climbed in many markets to about the same levels seen in 2009, they are still below their peaks and are in fact about where they were in 2003. That means homeowners may be selling for just about what they owe on their homes, or even less. In some cases, the agent’s commission may make the difference between having to dip into savings at closing or getting some cash from selling your home.
At best, not having to pay an agent commission also lets a seller price a home more attractively. On the other hand, a homeowner who lists their home with an agent may sell for a higher price. The NAR figures show the typical FSBO home sold for $150,000, compared to $215,000 for agent-assisted home sales. That difference is considerably more than the seller would pay an agent in commission.
Other pros and cons to consider
- Setting the sale price: One of an agent’s most valuable contributions is in helping to set the sale price. A good price generates maximum return while meeting the sellers’ time frame requirements. However, many agents will do a free market analysis even for a FSBO, in the hope of getting the listing if the FSBO ultimately does decide to go the agent-assisted route.
- Marketing: Agents also typically mount a more sophisticated marketing effort. In fact, according to the NAR, more than one-third of FSBO sellers took no action to market their homes. Only agents can post homes on the Multiple Listing Service, a powerful online tool used by licensed agents in the industry. Agents also tend to be more energetic and systematic about using yard signs, open houses, newspaper ads, and other marketing methods.
- Paperwork: An agent can also help a lot with the paperwork. The NAR study found 11 percent of FSBOs cited handling contracts, inspections, offers, titles, and other documents as primary challenges. A FSBO seller can hire an attorney to review documents for less than an agent’s typical commission, but whatever is paid will cut into the proceeds.
- Time: Time is one of the big reasons for using an agent. FSBO sellers will need to devote time to learning the process, marketing their property, and closing the deal – jobs an agent largely handles for them. However, for sellers with attractive properties in healthy markets, who can afford to price their homes for a reasonably rapid sale, or who are in no hurry to sell and have the time to do it themselves, a FSBO might be a sensible and cost-effective way to sell a home.