For Sale by Owner: Pros and Pitfalls

by Nick Gromicko, CMI®  

When deciding how to go about the process of selling their homes, homeowners should carefully consider the pros and cons of hiring a real estate agent. While most sellers opt to You can save a lot of money by selling your home yourselfhire an agent to assist them with the sale, a minority of them choose to sell it themselves. In 2006, these "for sale by owner" (or FSBO) sellers totaled 12% in 2006, according to the National Association of Realtors. FSBO sellers stand to save an enormous amount of money, but to do this well, they must be knowledgeable and shrewd in a territory which they may find unfamiliar.
In the U.S., real estate agents typically take 4 - 6% of the price of the home, which many homeowners view as unjustifiably large, considering the agent puts none of their own money into the home and comparatively little of their time. Yet, sellers must consider that this fee is usually split between the the buyer’s agent and seller’s agent, and the brokerage must be paid too. After taxes, the average real estate agent makes a humble living. Although, understandably, the seller doesn't care about how the commission is split up, as they'd much prefer to pocket the whole amount.

There are also psychological reasons why homeowners choose to sell their homes themselves. Some people enjoy the feeling of being in control of the transaction and unencumbered by the potential mistakes or ulterior motives of professionals. The agent might want to accept a low offer because they’re in a hurry to sell the home, get their commission and move on, even if the seller is in no rush and wants to proceed at their own pace. Moreover, the amount of the commission will be affected little by a change in the final sale price, leaving the agent with little incentive to dicker over a few thousand dollars.

Of course, many sellers will gladly pay a real estate agent a hefty commission, especially in buyers' markets, when the seller can’t garner sufficient attention to sell the house on their own. Also, the idea of a property transaction – perhaps the most important financial move of someone’s life – without a professional may be unsettling to both the buyer and the seller. Agents know what agreements need to be signed and which laws must be observed (such as disclosure requirements), saving a lot of hassle for the buyer and seller, and keeping them both out of court. A real estate agent will also act as a buffer between the buyer and seller, who might feel uncomfortable dealing with one another directly. 
Perhaps the best reason to hire a real estate agent is that they know how to price a home, and, without their assistance, the seller may waste months trying unsuccessfully to sell an overpriced home, or, worse, sell the house for too little. When selling a home without an agent, owners will be responsible not only for paying the fees charged by various professionals, but they will also be responsible for finding these professionals in the first place. A competent real estate agent will know to not skimp on the home inspection, for instance, by exclusively hiring InterNACHI inspectors. 

Sellers can save thousands of dollars by avoiding the services of a real estate agent, but to do this well, they are going to have to earn that money. The following tips are a good start for FSBO home sellers:

  • Don't skimp on house preparation. Your house will be in competition with houses listed by agents who coach their clients on how to prepare their house for showings.
  • Learn about legal requirements for disclosures in your area. If you do not disclose certain information to the buyer, they might be able attack you later in court.
  • Familiarize yourself with the paperwork and contracts required by a real estate transaction. It often pays to hire a lawyer to review the contract.
  • Research advertising and marketing tools available to you on the Internet. There are some sites that will even help you develop a video tour of your home.
  • Hone your negotiating skills and be prepared to turn down some offers. Real estate agents are expert negotiators, and the buyer’s agent might try to take advantage of your inexperience. 
  • Hire an InterNACHI inspector to perform a Move In Certified inspection.

In summary, it might make sense to hire a real estate agent to assist with the sale of a home, but savvy, responsible homeowners can save a great deal of money by selling their homes themselves.

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