Whether you live in a sellers' market or not, you may be tempted to sell your home without the help of a listing agent in order to avoid paying their commission. However, many real estate experts warn sellers that selling on your own could lead to financial mistakes that could cost you more than you're trying to save.
If you choose not to work with a Realtor, you can market your home entirely on your own or choose a flat-fee service to at least get your property listed on a For-Sale-by-Owner (FSBO) website.
According to the National Association of Realtors' 2012 Profile of Home Buyers and Sellers, just 9 percent of all home sales last year were FSBO. One-third of FSBO sales were by sellers who already knew their homebuyers before the transaction.
"If you're very well educated about the real estate business and experienced, a FSBO sale might be OK, but for the vast majority of homeowners, you lose a lot by not having a professional represent you," says Steve Israel, president of the Buyer's Edge in Bethesda, Md.
According to the NAR, the primary reason homeowners choose the FSBO method is to save on the commission payment. While commissions are negotiable, typically sellers pay 6 percent of the sales price, split equally between the buyers' agent and the listing agent. FSBO sellers must still pay a commission to the buyer's agent, typically 3 percent or, for example, $6,000 on a $200,000 sale.
Pros of FSBO
Saving money. The biggest benefit of a FSBO sale is the ability to keep as much money as possible from the sale, says Debbie Kent, owner of GoToFSBO.com in Vienna, Va., which offers a range of services to FSBO sellers.
Some homeowners try to sell on their own with just a yard sign and some flyers, but they'll usually sell faster if they pay a small fee to be listed on the Multiple Listing Service (MLS), says Kent. Her company charges $275 to be listed on the MLS, Realtor.com, multiple FSBO websites, Zillow.com and Trulia.com. She says few sellers opt for her $175 package, which lists the property only on FSBO sites.
Communication. Kent says another benefit of FSBO is being able to negotiate directly with buyers when they, for example, request home repairs or a specific move-in date rather than passing messages back and forth between a listing agent.
In the Virginia housing markets where she does business, Kent says FSBO sales prices and the time it takes to go under contract are similar to sales with a Realtor.
Cons of FSBO
Lower sales price. Despite Kent's experience, the NAR says the average FSBO sales price in 2012 was $174,900, while the average price for a home represented by an agent was $215,000.
"One reason for the price discrepancy is that many buyers' agents shy away from FSBOs," says Israel. "Buyers' agents end up with more liability in the transaction since there isn't another agent involved."
Legal and financial troubles. Israel says sellers can end up in legal trouble if they "wing it" and opt out of using an agent who understands the local market, the legal and the negotiation process. He says the real estate sales contract in Montgomery County, Md., for example, is 52 pages long, which leaves a lot of room for mistakes.
"If you don't understand the contract you're signing you could end up with tax issues and extra seller charges," says Glenn Bill, a Realtor with Century 21 Scheetz in Indianapolis. "The countless things that could go wrong without professional assistance can cause undue stress on your family as well as financial hardship. For instance, the deal could fall through and you could end up owning two houses."
Time and effort. Bill says that another drawback to FSBOs is the time factor.
"For most people, it's difficult to set up showings and to handle all the phone calls, much less find out if the buyer is really qualified," he says. "You also need to think about the security issue of letting strangers into your home without the assistance of a Realtor."
While saving 3 percent of your sales price is appealing, make sure you recognize all the risk that you might encounter without professional help.
Michele Lerner, author of "HOMEBUYING: Tough Times, First Time, Any Time", has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including The Washington Post, The Motley Fool, Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT's REIT magazine and numerous Realtor associations.