For Sale by Owner (FSBO) vs. using a Realtor®

I had an interesting experience with a For Sale By Owner (FSBO) property which I was showing to my buyer, and I thought today would be a good opportunity to write about my experience.

My client had given me a list of properties that she decided she would like to see and asked me to make appointments to see them.  I did so fairly easily through out system for every listing except one.  When I tried to schedule it, it said that there was no user in the system for that property.  I then went back to the listing and read it was a listing from the owners of the property that paid a fee to list with a real estate agency that has no real Realtor® but gives the seller templates and information on how to sell the property themselves.  It looked like a nice enough of house from the pictures, but somewhat dated on the interior and the price seemed significantly overpriced for the area.  My client wanted to see it, so I called the seller.

The lady answered the phone, and I asked to show the property. “Oh, we can’t do that, we are in Mesa, Arizona” she says to me. “But let me contact our neighbours who are helping us to show the property while we are away.  Let me call them and I will call you back to confirm.” OK.  Here is the first thing in my mind. If you had a Realtor® representing you, it would not matter if you were in Arizona or Timbucktoo, your house could be shown to potential buyers easily without issue.  You would not need to put the burden on your neighbours to come over to your house while you are away for the winter because you are too thrifty to pay a professional for their expertise and tools to ensure your property gets marketed and sold.

Then there is the whole issue of agency in BC. Although their property is “listed” on the MLS through a brokerage, dealing directly with the owner, I am having concerns about dealing with them directly if my buyer likes their property.  When I communicate with another agent, we both know the rules and that agent’s job is to protect his client with his knowledge of the rules and only share what is allowed by their client or information that is beneficial to their clients clause, similar to how a lawyer operates.  Further, there are rules that make it difficult to communicate and ask questions of the seller, that if something went sideways on the deal that I could be seen to be taking advantage of an unrepresented party.  Despite these concerns, I figured I would cross that bridge when I got to it, meaning if my client was actually interested in the property, that I would figure out an appropriate way to deal with them.

She called me back a few minutes later and confirmed that the neighbours would be at the house at 11:30.

The next day, we see a few properties, and we get there 10 minutes early.  There was no car at the front door, and no indication that there was anyone home.  I called the owner in Arizona to tell her that we were there and ask her if it was possible to get in early.  She said she would call the neighbours and ask them to come over sooner.  We stood in the driveway of the house and waited.  She called me back and said that she could not reach them.  We waited, and stood outside for 15 minutes waiting and still no word back.  My client and I were losing patience, we had a schedule to keep and the people who were supposed to open the house for us were not responding to the owner.  So we left and I called the owner and communicated a terse message that they would not be having these issues if they retained a Realtor® and that we were leaving.

A few minutes later, I get a call.  I am on our way to the next property and I do not answer.  I then get another call, and another, and I am not answering the phone.  Finally they call again and I answer, and it was the neighbours who were supposed to be at the house to open up for us.  She says that they had been inside since 11 am and wanted us to go back and see the property, and was adamant that we return to the point of anger.  I said I would speak with my client and get back to her.  We saw the next showing and my client did not want to return, so I then had to convince her to go back and see it since it was on the way to the next showing and we were not bad for timing.

We then went back to the home and an 80 year old woman answered the door.  She was nice enough, thanked us for coming back and said that she was inside the whole time and saw us on the driveway but did not want to interrupt us. Fair enough, but at the same time, her being unable to communicate with the sellers in Arizona was the source of the whole issue.  Really, not having a professional represent them was the issue.  At worst, the sellers would have had a lockbox that I would have opened, shown the house to my clients in 5 minutes and then locked up and been on our way.

So then we view the house.  It’s a bit of an older house, decently kept but needed renovations.  The basement is partly unfinished, but the owner is finishing it himself, which is another red flag to me.  Overall, the home is VERY overpriced and not particularly impressive considering it was the second highest priced listing price of all the 11 homes that we were due to see that day.  My buyer felt the same way, and we thanked the couple for opening up for us and left.

FSBO is difficult

I was frustrated at the process of dealing with the sellers of this property directly.  They are clearly seniors and retired and spend their winters down in Arizona.  They clearly must believe that Realtors® get paid too much money, and thus want to save themselves money by listing with a low fee brokerage to try and get the benefits of the real estate system but without the cost.  Now I do not always agree with this saying, but in many cases “you get what you pay for.”

I understand that $22,000+ is a lot of money in dollar terms, there is no doubt.  However, I would note that when you, as a seller, are trying to sell a home for $700,000+, it is a relatively small cost in the overall scheme of things.  Further, that $22,000 is paying two people, not just one.  Further, those two people are doing this for their living, and they only get paid if the deal gets done, and many times it will not, or there is a great deal of work and searching before a deal gets done.

Then, it is not like it all goes into our pockets.  There are overhead costs to being a Realtor®, and those costs are significant.  Then after all of that, there are tax considerations.  Some Realtors® make really strong incomes, but many are just earning a living.

Oh yes, and there is also the fact that THEY STILL NEED TO PAY A REALTOR®!  The buyers agent!  How?  In a normal listing Realtor® scenario, they charge the seller a commission, in this example, let’s say it was $22,000.  Of that $22,000, they are paying the buyers agent somewhere around $10,000.  The sellers agent gets a bit more because they have to pay fees for listing the home with the real estate board, signage, photographer, floor plan measurer, etc.

I bring a buyer to see the home.  The buyer has agreed with me to pay $10,000 MINUS what the listing agent will pay.  In this case, since there is no listing agent, my buyer is going to submit an agreement with an offer that I am to be paid the fee from the seller.  If the seller pays the commission to me, then great.

If they refuse to do so, then my buyer then has to pay me.  If that were to happen, what do you think will happen to the value of the offer?  It will get reduced by the amount that the buyer has to pay me!  The only way the seller truly pays no commission is if an unrepresented buyer overpays for the home with them.  Why do I say “overpays”?  Because if they don’t have a Realtor®, the buyer should then deduct the cost of the commission that their Realtor® would receive from their offer, if they were savvy enough to know to do so.

In summary, by refusing to be represented, they are not saving $22,000, they are only saving $12,000.  But wait, there’s more!

What does the FSBO seller lose by not being represented by a professional Realtor®?

What do they get for their $12,000 that they didn’t want to pay for a Realtor®?  Here is a list of things off the top of my head:

• Professional advice.  If they had a professional working with them, that professional would have told them that their listing price was $60k-90k over the market for comparable properties, and would have given them informed consent that if they list at the price they list at, that they can expect to be listing for a LONG time. They will answer questions that they have about the property, find out information that is beneficial to the sale, or if it is not beneficial, ensure that it is disclosed in order to protect the seller from potential future litigation.  They might have recommended that they hire professionals to finish the basement properly with appropriate permits and it would not be half-complete while they are in Arizona for five months.
• Optimal value.  The Realtor® would be trained to negotiate a deal on behalf of the seller, and to help the seller know when a good offer is on the table, and when it isn’t.  They would help to advise the seller in order to try and negotiate the best deal possible, and possibly one where the terms and conditions of the offer make it better to the sellers than what is just reflected in the dollar figure.  For example, an offer where the completion date is 30 days away is possibly more valuable to a slightly higher offer with a 90 day completion date.  The possibility that FSBO listings undervalued their property could also exist, and that without good advice, may also lose on the value to try and save some money.
• A sale.  A home cannot be sold if it cannot be shown.  The listing Realtor® will ensure that the house is as easy to show as possible and will handle all arrangements with the other agent to schedule the showings. Asking the 80 year old neighbours to do it for you, even as good willed as they are, makes for a frustrating experience for buyers agents.  While it does not do credit to our profession, I should also note that there are some buyers agents who will skip over a listing where the listing shows a buyers agent commission of $2 because they are afraid to negotiate an offer to include their commission, even if the house is a good candidate for their client.
• Insurance.  Hopefully the sale of their home goes well and smoothly, and in most cases it does.  However, on the rare occasion there is an issue.  If it does, then the possibility exists that the Realtor® might have made a mistake or, per the human condition, you had a bad apple agent.  One of the many fees that we as Realtors® have to pay to our brokerages is errors and omissions insurance, and if you need to sue, or are being sued, if one of the Realtors® was in any way responsible for the issue, then there would be liability on the part of the brokerage.  Again, the reason you would have a Realtor® represent you was to minimize the chances of something like this happening, but there is potential for recompense if you were unlucky.

I am sure if I were to brainstorm, I would come up with more reasons, but the point is that the fee that you pay for someone to represent you, in my humble opinion, is very well spent.

A good analogy in my mind is to ask “would you go into a courtroom and represent yourself in a legal proceeding, or would you hire a lawyer to represent you?”  Lawyers are also very expensive, in many cases far more so than Realtors®, but almost everyone would hire one if they needed to.  When you are selling what is possibly your most valuable asset, in the courtroom of real estate, I believe you better have someone who knows what they are doing to help you.