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R.E. Calculators
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For Sale By Owner (FSBO) vs. Discount Realtor.
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Past Practices.
Ten years ago real estate commission rates were ‘fixed’ at 6% on the first hundred thousand plus 3% on the balance. On a $500,000 home this works out to be $18,000. This commission is split equally between the sellers Realtor and the buyers Realtor. FSBO’s believe that this is an excessively high amount of money to sell a house. With the emergence of discount Realtors the real estate selling process has changed significantly. Commission plans now range from flat up front fees to a percentage of the sale price with commission splits that are no longer fixed. The caveat is this: not all discounts are created equal, some come with unintended consequences. You need to balance your desire to save commission against the potential of a lower selling price. It is impossible for a FSBO to get the best price possible. Having owned a FSBO company for 15 years I know this to be fact. Commissions are no longer excessive, because you can choose a service that fits your needs.
"Can the FSBO process produce better financial results than the MLS?"
The Essence of a Private Deal - Savings vs Risk.
1.It's about the savings.
The common thread between private buyer and seller is the perceived saving of commission.
The big question to ask is this, "Who actually saves the money?" Is it the buyer or the seller? Without critical analysis it is impossible to tell. If a buyer pays market value, the seller scores all of the savings and the buyer carries all of the risk.
Why the Buyer wants half of the commission.
The Buyer has signed a Buyers Agency Agreement, so thier Realtor gets paid anyway!
The Buyer wants their Realtor in on the deal.
The Buyer has no Realtor and wants their half of the commission because that is what the process is about.
The type of Buyer attracted to the FSBO process:
The Buyer who will not deal with Realtors. Wants a share of the commission.
The Less Qualified Buyer. Wants all of the commission
The Budding Millionaire. Wants a steal of a deal.
2.What about the risk?
The down side is that the process is informal and has no checks and balances.The quality of information and data provided by a private seller is unverified. Private sellers bear no responsibility for providing accurate data. A seller may vanish when the deal closes making the "buyer beware caveat" even more critical.
And Sellers do not go risk free. The MLS has critical mass and therefore the vast majority of buyers will rely on Realtors. This results in limited 'private sale' demand. Demand is the key component of any market place. Sellers inevitably have only one chance and are often forced to deal with a single 'like minded' buyer in a vacuum. Limited demand results in lower prices which are may not be offset by the perceived savings. The optics are good but in reality the results are poor.
Summary.
A private seller can potentially only save the listing Realtor’s share of the commission and these savings will turn entirely on getting top dollar. If your selling price is just 1% lower than what an MLS sale can produce for you, your theoretical share of the savings will begin to look like a loss.
Getting Top Dollar.
Can a private seller get top dollar? There are many factors that come into play. Here are some points to consider and the caveat is: none of these issues come with warning labels.
The Selling Price.
Your selling price will depend on marketing. Marketing is the collective impact of a strategy based on advertising, networking, systems, incentives and know how.
Limited Exposure.
Whatever the reasons: limited exposure = poor demand = a lower selling price. It’s a fact of life.
Symptom: No demand. The demand problem masks itself as a pricing issue. Pointless price reductions occur that give money to the buyer for the wrong reasons. The FSBO process rewards buyers more than it does sellers because it reduces competition.
Buyers Feel No Urgency.
Symptom: Multiple visits by buyers who are under little or no competition to make an offer. Buyer understand that the seller is dealing with a limited market.
Extended Selling Times.
Symptom: Extended periods of little or no action, eventually resulting in no action. It is a generally accepted fact that FSBO sellers take longer to sell. Time is money.
The Asking Price.
The asking price can affect the entire process. An overpriced home ends up competing with houses of better quality and value. An under priced house isn't worth a discussion.
The Buyers are informed.
Buyers probably have a better idea of the market than sellers do because they are actively searching and know what's out there.
Market Conditions.
You have to be right on top of what is going on in the market place. In a slow market an overpriced house will sit on the market as prices slide down.
Subject Removal.
Have you prepared for the day when ‘subject to’s’ are removed? Have you inspected the title? Will you surrender thousands of dollars in the 10 minutes preceding subject removal?
Overlapping Issues.
All of these issues arrive in one document, and they come without warning labels. Will you end up accepting a deal that you are unsure about? Will you be forced to accept in order to facilitate other forward commitments?
Summary.
The FSBO process does not guarantee any saving at all, the perception of saving is based on one simple premise: ‘cut out the Realtor’. That’s a simplistic and naive premise because by eliminating the MLS you are effectively eliminating 90% of the market.
Which strategy is the right one?
You may be well informed about the process but the tools you are using are restrictive and limited. You become locked into an inefficient process so you end up dealing with what you get, rather than what you deserve from the market place.
Conclusion.
When you connect all of the dots you can't help but ask yourself if the FSBO route is really worth anything. The buyers desire to share the commission, extended selling times, limited market exposure and the real potential to sell for less are issues that can't be ignored.
Last But Not Least.
When your FSBO effort fails to produce results you will be faced with listing it with a Realtor or pulling it off the market.
Consider the effects of both of these alternatives. If you list with a Realtor you will have to pay a commission that essentially jacks the price up and leaves you with less. If you pull it off the market you watch the price slide even lower, which is the present scenario Oct 19, 2008.Details Here
How to Structure a FAIR discount that Will Work for You.
The two part commission:
- The buyers Realtors share of the commission (3% + 1.5%).
Issue: You have to decide whether you are going to pay this half of the commission to the buyer as a straight discount or if you are going to make this money work for you to maximize the selling price through the MLS process. Either way you will pay this money out.
Solution: When you list with me the buyer will be forced into paying "what they would otherwise have wanted out of a FSBO deal". Instead of paying "the buyers Realtors share of the commission" to the private buyer as a straight discount, you can appoint me as your Realtor to pay this to the buyers Realtor. This becomes the incentive for all of the local Realtors to bring their buyers to your home. It works!
- The sellers Realtors share of the commission (I charge 1%)
Issue: This is the money that you where hoping to save.
Solution: You pay me a discounted listing Realtor fee of 1% of the selling price with a minimum of $3500. You are already saving money and with a slightly higher selling price you could save even more.
The total that you pay is 4% + 2.5% AND to satisfy your initial objective: if I should sell your property myself you only pay me the buyers Realtor share of the commission (3%+1.5%) + $1500 (GST applies to both). That way you get to save most of the sellers Realtors share of the commission, which was your original objective!
My discount MLS package (4% + 2.5%) eliminates all of the FSBO concerns and uncertainties. You simply hand the whole process over to me and I do the worrying for you.
My last question is, "Can the FSBO process guarantee you anything close to what I am offering you?"
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- Please Contact Rick Allenberg:
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