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How To Be Your Own Realtor

Shelly K. Schwartz,|Special to CNBC.com
Thursday, 6 Mar 2008 | 12:17 PM ET

If you’ve ever planted a "for sale" sign in your front yard, you’ve at least considered the possibility of selling your home without a realtor. Why should someone who offers little more than a multiple listing service, you reason, pocket 5 or 6 percent of your sales price? (On a $400,000 house, that’s $24,000.)

A sign points the way to a home for sale in Beaverton, Ore., Monday, May 22, 2006.  Figures for existing home sales will be released Thursday. (AP Photo/Don Ryan)
Don Ryan
A sign points the way to a home for sale in Beaverton, Ore., Monday, May 22, 2006. Figures for existing home sales will be released Thursday. (AP Photo/Don Ryan)

It’s a question that becomes all the more pertinent, given the slumping housing market. With the amount of equity in many homes on the decline, the potential savings make a pretty strong case for the for-sale-by-owner (FSBO) approach.

Indeed, by leaving brokers out of the equation, homeowners could effectively slash their asking price by 3 –

even - 4 percent below comparable listings in their neighborhood, helping them sell their house faster and still come out ahead.

It worked for Eric Maas, owner of a national entertainment franchise who has sold two homes that way in the last five years.

"I didn’t think we’d be able to do it again in this market, especially since our house was outside of town [near Omaha, Neb.] so no one was going to see our ‘for sale’ sign," he said. "When I would talk to agents, they were a little angry and told us bad things would happen and that it all looked fine now, but it would all fall apart at the negotiating table. It never did."

In the case of his most recent sale in November, Maas listed the house on ForSaleByOwner.com for $495,000, (in spite of a realtor’s recommendation to list it at $470,000 ) and sold it for $489,000.

"We saved a lot by listing it for more to begin with, but had an agent sold our house for the same price, we’d have had to pay them $30,000," he said.

Who's Doing It

Despite the financial incentive and growing access to online listing services, the FSBO [pronounced "fizzbo"] market has been trending down from a high of 19 percent of the market in 1997 to roughly 12 percent today, according to the National Association of Realtors.

Some 81 percent of home sellers still use full-service realtors, 9 percent rely on limited service providers including discount brokerages and the remaining sellers, roughly 9 percent, use minimal service (including FSBOs and those who pay only for the use of an MLS).

It’s worth noting, too, that some 40 percent of sales in that "minimal service" market are completed as a closed transaction, meaning the buyer already knew the homeowner as a friend or family member.

According to NAR's Walter Molony, the majority of homeowners still rely on agents because their home is often their largest asset and they want an experienced professional on hand to protect their interests. "They want someone with knowledge and expertise walking them through the disclosures and all the paperwork," he says.

Indeed, some homeowners still require the help of realtors to sell their home, says Kevin Wood, a former real estate agent who now runs ByOwner.com, an online FSBO listing service.

Those who can’t be physically on site to show their home and those who are not comfortable selling or promoting their house are not good candidates for the FSBO approach, he says.

"Selling one’s home isn’t for everyone," says Wood. "But I maintain that many more people who otherwise thought they needed a broker have the capacity, tools and opportunity to sell their own home."

What's Involved

While the real estate recession has some homeowners wary of selling solo, Greg Healy, vice president of operations for ForSaleByOwner.com, says the sell-by-owner strategy actually makes more sense today than during the boom.

"It’s actually a great time to sell by owner, especially in markets like California and Florida where prices are dropping much faster than people expected," he said. "If you bought your home two years ago and it’s down 10 percent or 15 percent, I don’t think people have much choice but to try to sell by owner."

He admits, however, the housing slump makes it all the more important to market your home effectively.

Above all, that means listing your house for a fair price.

It’s easy enough to find out what your home is worth. Sites like realtor.com, zillow.com and homegain.com can help you review comparable real estate listings available in your neighborhood.

You should also ask a realtor or two to stop by for a comparative market analysis. They don’t charge for the service, you can be honest about your intent to sell-by-owner (they’ll be waiting if it doesn’t work out) and they might even give you some good ideas on quick fixes to help you sell faster.

Once you’ve settled on a fair market price, you can either list for that amount or, better yet, considering the growing inventory of available homes, discount that price just enough to position your property as a bargain.

For example, if your home would normally list for $450,000 with a realtor, consider lowering your asking price by 3 percent to $436,500. If you’re really eager to sell, you could reduce by 4 percent, sell for $432,000 and still profit from your effort.

What You May Need

Even a well priced home, however, isn’t going to move if buyers don’t know it exists.

Ads in the local newspaper, which cost as little as $25 per month, can be surprisingly effective, considering a large percentage of buyers across the country upgrade into homes within their existing community.

But you’ll have better luck if you pony up for a listing service, which publishes the specifics of available homes to realtors and potential buyers.

For instance, ForSaleByOwner.com’s fees start at $89 per month for a listing on its own Web site. Packages priced at $299 and up also include a listing on third party Web sites with which the company is affiliated, including the real estate sections of Google,Yahoo! and Gannett's national daIy newspaper USAToday. For $899, you also get a listing on the MLS nearest you.

ByOwner.com, meanwhile, charges an average $399 for its listing service. Both companies provide yard signs, printable flyers and instructional material to help you prepare, price and negotiate the sale of your home.

According to Wood, it is essential to carefully screen potential buyers. "With this credit market, it is more important than ever to get your buyers prequalified or preapproved," he said. "I absolutely recommend the seller take control of the sales process from the beginning and after doing open houses they can require a pre-approved mortgage letter with any written offer that emerges."

It’s equally important to work with a lawyer or title company during the closing, says Healy. "This is a legal contract so it’s critical that when you’re doing a transaction like this that you have legal representation, someone who understands the components and can alleviate risks," he says. "That’s true whether you sell-by-owner or not."

The Downside

Before you set out to save a buck, of course, there are some potential disadvantages to consider.

For starters, there’s the added time commitment of showing your own home. (If you’re at work, you may miss a sale.)

Realtor Suzanne Hunter, left, shows one of the bedrooms to potential buyers Donna and Jeffery Lynch during an open house on Sunday, Oct. 7, 2007 in Santa Clara, California.  Housing sales and prices will fall further next year in California, as unsold homes keep piling up and many buyers hold out for lower prices, a trade group says. In its 2008 forecast, the California Association of Realtors says it expects statewide sales of existing homes to fall another 9 percent to 334,500 units. (AP Photo
Tony Avelar
Realtor Suzanne Hunter, left, shows one of the bedrooms to potential buyers Donna and Jeffery Lynch during an open house on Sunday, Oct. 7, 2007 in Santa Clara, California. Housing sales and prices will fall further next year in California, as unsold homes keep piling up and many buyers hold out for lower prices, a trade group says. In its 2008 forecast, the California Association of Realtors says it expects statewide sales of existing homes to fall another 9 percent to 334,500 units. (AP Photo

You may also feel uncomfortable opening your home to just anyone –

whereas a realtor is bringing only bona fide potential buyers to your door.

Realtors also, of course, handle all the paperwork, provide legally binding contracts that account for local disclosure ordinances and know which lender to direct your low credit score-buyer to when their financing goes sour.

Finally, because they are exposed to a wider audience of potential buyers, some would argue agents may be able to obtain a higher sales price for your home, which can offset some or all of their commission.

A 2007 survey by NAR found the median price for sellers who used an agent was $240,000, while homes sold directly by the owners fetched closer to $208,000.

(Molony notes, however, the significant price spread in the most recent survey was partly due to the fact that FSBO properties were more likely to be in rural areas, and more likely to be manufactured or mobile homes. That suggests the homes might be worth less to begin with, he said.)

A smaller survey by Northwestern University last year of all homes sold in Madison, Wisc. between 1998 and 2004 found those who joined a for-sale-by-owner Web site got as least as much for their homes as sellers who either used an agent or the MLS.

The study shows that FSBO sellers ended up with a "significantly enhanced net sale price because they didn’t have to pay the brokerage commission that real estate agents charge sellers, generally 6 percent of a house’s sale price," the summary report said.

It did find, however, that homes sold through the MLS were more likely to sell faster – 20 days faster on average. (And that was during the real estate boom.) It also found that over 20 percent of FSBO listings did not sell by owner, and ultimately had to list anew on the MLS.

The increased time to sell can be tough to swallow for homeowners who are carrying two mortgages at once. If your home sits too many extra months on the market, of course, it would have been cheaper to simply hire an agent and cough up the commission.

Despite the potential drawbacks, however, Maas says he and his family wouldn’t have it any other way.

"I would definitely do a FSBO again," he said. "I’d have to be in a very bad position at this point to put my home up with an agent again."