Are you thinking about selling your home on your own?
A recent study by the U.S. Department of Justice found that people who sell their own homes — an approach known as “for sale by owner,” or FSBO (pronounced FIZZ-bo) — can save as much as $7,500 in real estate commissions on the sale of a median-priced house.
To increase the odds of a sale, many solo sellers turn to companies that help with the FSBO process.
These organizations suggest ways to create professional “for sale” listings and offer other services, all without charging full real estate commissions.
“With a little bit of work, anybody can sell their home on their own and save thousands of dollars,” says Eric Mangan, a spokesman for ForSaleByOwner.com.
However, it’s important to understand the potential rewards and challenges of a FSBO sale before trying this approach.
Going it alone
Traditionally, most people have sold their homes by hiring real estate agents. These agents help market the house by scheduling showings and hosting open houses.
Real estate agents also have access to a multiple listing service, which is a database of homes offered for sale in a given area.
“You have to be a licensed real estate agent or broker in order to list a house in the MLS, and it is the single best tool most agents have,” says Robert Irwin, author of “The For Sale by Owner Kit.”
If the house sells, the seller pays a commission of around 6 percent of the home’s price. The money usually is split equally between the listing agent and the buyer’s agent (if there is one).
By contrast, people who go the FSBO route bear the responsibility for marketing and selling their homes. These sellers set the sale price and show the house. In some cases they also help the buyer through the purchase process.
The reward for such hard work can be a substantial savings by eliminating the commissions typically paid out to real estate agents.
Today, several companies provide help guiding sellers through the FSBO process. These companies are generally found online and offer various services.
For example, many FSBO companies allow you to list your home on their Web sites, and some do not charge for this service.
“It’s important to take advantage of that offer,” Irwin says. “Selling is a numbers game, and some sites can reach literally millions of people.”
To get your house listed, fill out a form with all the important information: square footage, number of bedrooms, number of baths, etc. You can also upload pictures of your house.
“The pictures are important because that’s what really helps sell a home,” Irwin says. “The potential buyer can start to identify with your house, even though they haven’t physically driven through your neighborhood.”
Some FSBO company Web sites include other information about the home, including the local school district, neighborhood crime rates and the type of shopping located nearby, Irwin says.
“It’s more or less a level playing field with something an agent would offer,” Irwin says.
FSBO companies also offer telephone or Web-based guidance to sellers who are marketing their homes on their own. Other FSBO products include yard signs, brochure dispensers and downloadable fliers.
Perhaps most importantly, many FSBO companies offer access to a multiple listing service without requiring the seller to pay a full listing agent’s commission. When a home is listed in the MLS, it might also show up on major Web sites, such as Realtor.com, the official site of the National Association of Realtors.
“When your home appears on Realtor.com, it is open for anyone to look at — potential buyers who are working with agents as well as those who are not,” says Irwin. “Your listing could also be picked up by the real estate pages of other sites like Yahoo and AOL.”
Special rules may apply before a listing can be uploaded to a major site. For example, you may not be able to include “FSBO” in your advertising. If you are working with a FSBO company to get an MLS listing, make sure you understand the requirements upfront.
FSBO companies are able to place homes in an MLS because they work with licensed real estate brokers who have access to the system. These brokers, along with the company, charge a discounted rate, usually a flat fee. As a result of this lower fee, the brokers don’t typically offer full face-to-face service to the seller.
The prices FSBO companies charge vary widely. Some let you put your listing on their site for free. Others charge monthly rates that are as high as $100 for a similar benefit.
These companies also offer flat-rate prices that generally range from $200 to more than $1,000, depending on the services provided.
If all you want is the MLS listing without the extras, you can probably get it done for a flat fee of around $400. Some companies may offer this basic service for free. As a comparison, a full-service listing agent’s commission on the sale of a $200,000 home would be around $6,000.
It’s important to note that although sellers can save through a FSBO approach, they may not escape all fees.
For example, if a buyer finds your house on a multiple listing service, there’s a chance that the buyer will have a buyer’s agent. To make the sale, you’ll probably have to pay the commission of the buyer’s agent. For a $200,000 home, that fee would be about $6,000.
Add that total to the flat fee you pay to list the housing in the MLS, and you end up with a good-sized chunk of change.
However, the amount is still less than the combined $12,000 in commissions you’d likely pay to traditional real estate listing and buyer’s agents.
The FSBO process involves a lot of extra work for the seller. It’s not as easy as simply scribbling “for sale” on a piece of poster board and sticking the sign in your front yard.
“If you don’t show much effort, you probably won’t attract serious buyers,” says Michael T. Malkasian, president of FSBO.com.
First off, sellers planning to use the FSBO process must make sure they aren’t under any prohibitive agreements with a real estate agent.
“If you’re already with an agent, and you want to switch to selling on your own, check your contract,” Mangan says. “Most people are under a time-frame commitment. If you want to break the contract, that’s something you have to discuss with your agent.”
Otherwise, you could pay to sell your house on your own, and end up owing the agent their full commission.
Secondly, sellers must determine a proper sale price for their home. A lot of FSBO companies offer a comparative market analysis on your home for about $25, Irwin says.
“In today’s market, prices are falling in several areas,” Irwin says. “You have to stay ahead of the curve, regardless of the method you use to sell your home. That means if prices are falling 5 percent a year in your area, you may need to price your house for 5 percent less than last year’s prices in order to sell your home faster.”
FSBO sellers also are responsible for showing the home to prospective buyers. Another responsibility for the seller is to lead the buyer through the process, if necessary.
“When a potential buyer wants to come see the house, the seller should have a list of two or three mortgage people to refer the buyer to, if necessary,” says Malkasian. “The seller should also have blank contracts for the buyer to fill out, and the names of one or two real estate attorneys (who can handle the closing).”
FSBO sellers also should be sure to have enough cash on hand to cover last-minute costs. Don’t forget that whether you choose to use a full-service real estate agent or FSBO company, you’ll still have to be responsible for the seller-paid closing costs such as home warranties, homeowner’s association dues and taxes.
Measures of success
How much can you benefit from using a FSBO company?
“We conduct exit interviews and we’ve found that over 50 percent of our people have successfully sold their home before they deactivate (their Web site ad),” says Mangan. “As for everyone else, are they deactivating because they want to rent their house or they just don’t want to sell it anymore? That’s the information that we don’t have.”
More formal analysis of these organizations is harder to come by.
“There is no statewide or national independent study that I’ve seen that details the success of ‘for sale by owner’ services,” Irwin says.
Real estate agency organizations have released studies showing that only 15 percent or fewer properties are sold by the owner, Irwin says. On the other hand, he saw one small, independent study that statistically looked at properties, comparing those listed with agents against those offered “for sale by owner.”
“The study found that the ‘for sale by owner’ homes took longer to sell, but got higher prices,” Irwin says.
Experts stress that one key to success is doing your homework before choosing a FSBO company. Because many of the costs associated with the FSBO process are prepaid, be sure to research any company you plan to use before paying them.
Check the site’s “frequently asked questions” section to see how problems will be resolved. Also, look at how much instruction they provide online.
Irwin says that the amount of information on the company’s site is a good indicator of the quality of the service.
“Fly-by-night businesses typically do not have the wherewithal to post a lot of educational material on their Web pages,” he says. “The companies that have been around for many years have instructional articles on their sites. They want to provide information because when they have an educated customer, it ends up being a win-win situation.”