EVERYTHING YOU NEED TO KNOW ABOUT FSBO
The 2016 Profile of Home Buyers and Sellers by the National Association of Realtors® (NAR) found that for sale by owner (FSBO) sales are at an all-time low, at only eight percent, versus the all-time high set back in 1981 at 21 percent.
Considering it’s easier and less expensive to market a home today versus the pre-web era, how is it possible that FSBO sales have been declining since the advent of the internet? This runs contrary to trends experienced in other vertical markets, such as investing, travel and tax preparation, which have all experienced significant do-it-yourself growth bolstered by web services. How is it possible the real estate market has defied such trends?
A deeper look at the data in NAR’s report reveals that while there has been a decline in true FSBO, self-directed real estate has actually increased over the past 15 years — it’s just a matter of semantics that need to be analyzed to see this trend.
If a home seller uses any realtor service, even something as minimal as just having an agent upload their listing to the MLS to advertise their home sale, NAR actually includes them in a comprehensive pool of sellers (89 percent) engaged in “agent-assisted” sales. This oversimplification of the “agent-assisted” category blurs the lines and doesn’t accurately represent the volume of sellers moving away from traditional real estate brokerages and their higher commission rates.
Another recent survey (conducted by Redfin in August 2016) tells a different story. It found that 25 percent of people who sold a home in the past year did so without the help of a full-service agent, with 15 percent of sellers using a limited service agent and about 10 percent listing without an agent’s help, slightly higher than NAR’s findings of eight percent. Those who would have formerly been inclined to conduct a FSBO transaction have traded up to the better option available today and are paying a nominal fee to advertise their properties on the MLS. So, if you sum up the percentage of FSBO and quasi-FSBO (aka “limited service”), the self-directed segment has actually increased almost 20 percent since the ’80s. This makes sense when you consider the growth of more self-directed behavior in other industries due to the efficiency and options that online services offer.
Due to important antitrust legislation surrounding NAR and the MLS, which has brought about the rise of web-based real estate service models, self-directed sellers have more options today than they did in the early ’80s.
During the mid-2000s, the Department of Justice ruled that NAR must make the MLS and all of its data accessible to any brokerage service and its customers. Subsequently, self-directed consumers inclined to FSBO-type behavior started flocking to alternative internet-based “minimal” and “limited” service brokerage models and their more attractive selling options. These sellers still self-manage their sale and consider themselves conducting a FSBO-type transaction.
Future sellers should carefully consider the experience of the growing share of sellers today using self-directed methods. There is major opportunity for today’s savvy seller to retain much of their profit through tech-enabled innovation in the real estate industry, and it’s important to understand the evolution of FSBO and what has changed.
Here are a few considerations for home sellers looking to take control of their home sale.
Analyzing savings: The bulk of savings for FSBO-oriented sellers will come from savings on seller’s agent commissions. According to the U.S. Census Bureau, the average home in 2015 was valued at over $350,000. Sellers choosing to handle most of the process on their own — and therefore paying just a buyer’s agent fee to get their home listed on the MLS — have the potential to save up to 2.5 to three percent on commissions. Based on the above value this would amount to $8,750 to $10,500, usually less a transaction fee. Some online brokerages offer a full-service package in which the seller works with a professional agent but pays a lower seller’s agent commission than the traditional model. In that case, the seller will net less overall savings, but this option might be worth it for first-time sellers or those too time-constrained to manage the process on their own.
Determining the list price: There are a lot of variables that come into play when determining the list price of a home including local inventory, interest rates, average market price for comparable homes, appraisal value and the sellers’ personal and financial objectives. Many online real estate services will offer valuation tools and allow sellers to research comps to determine the right asking price.
Considering sweat equity: Managing a home sale requires a time commitment. Depending on what parts of the process sellers want to take on, they should expect to spend time on the front end determining the list price, preparing the home for showing and hosting open houses and on the back end negotiating the sale and seeing the financial transaction through to completion. Many online real estate services offer solutions to assist with some or all of these steps.