For Sale by Owners May Be Leaving 10% on the Table

In a report published in March 2016 by the National Association of Realtors (NAR), “For-Sale-By-Owners” (or FSBO) properties sold for 15.7% less than homes sold with the professional representation and advice of a Realtor®. Further, the NAR Profile of Home Buyers and Sellers reports that FSBO sales have steadily declined over the past decade, from 14% in 2004 to only 8% in 2015. This number is lowest since the report started.

The situation of someone selling a home himself is very much like a person who tries to sell a new food product. If he has not been able to have the product distributed in major chain supermarkets, consumers will have a very hard time finding it. The product will have to be sold through other channels, or to friends and family, and it will lack the credibility that distribution in the supermarket would provide. FSBOs face this same problem; as a homeowner is selling a home himself, it lacks exposure and buyers are thus unaware that the home is for sale.

We see this problem’s results in the NAR report. It states that most FSBO sales (56%) involved sellers who already knew each other, such as family, friends, or a neighbor. Another 12% of sales went to sellers who were contacted directly by a buyer and were not actively attempting to sell their home. The biggest problems for owners who are selling without the help of a professional were found to be: (1) Not being able to sell within the planned length of time (18%); (2) Problems with paperwork (12%)

All of these facts are quite compelling if you are thinking of selling your home. With the technology that is available today, buyers are becoming wise to the market, and it is becoming easier to make a well informed decision when it comes to available inventory and price. When a buyer considers an FSBO home, he is already aware of 4 things: (1) The selling price can be discounted at least by 6%, as this is the typical commission a Realtor® would take = lower price. (2) There are fewer buyers looking at FSBO properties, thus less demand = lower price. (3) Judging by averages, the property has most likely been on the market for longer than a Realtor® listed house, so seller motivation will be higher = lower price. (4) A Realtor® has more information than an individual seller would have, and thus would not be able to negotiate as well = lower price.

As modern buyers are aware of these facts, they may feel empowered to negotiate a lower price, which is probably the explanation for the 15.7% lower sales mentioned above. In review, the NAR report clearly shows that FSBO sellers could probably realize a 10% higher price for the sale of their home by listing their house with a Realtor®.

 

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