Why You Don’t Need a Realtor
Author: FSBOJane • URL: http://www.fsbojane.comFebruary 22nd, 2008 •
I recently came across an article that put something so well and so clearly that I really don’t think I could improve upon it. Everyone interested in real estate investing would do well to check it out.
In “Why Do You Still Need an Agent to Sell Your Home?” author Douglas Gantenbein makes an excellent case for the thing I am most passionate about: homeowners getting the power back in their real estate transactions (i.e., selling their own homes).
Written all the way back in 2004, this article cited the then-statistic that “Americans will spend about $1.14 trillion buying 6 million homes this year-both [setting] records.” And of that $1.14 trillion, Gantenbein writes, an enormous chunk would go to realtors. Is this fair?
Here are some highlights from the article:
- Realtor work doesn’t equate with realtor commission.
“And what do Americans receive in exchange for that commission, which can total up to $24,000 on a $400,000 home? In many cases, not much. A realtor’s license can be had after as little as 50 or 60 hours of training (the person who cuts your hair probably has 1,000 hours or more).”
- Realtors seldom work in your best interest.
- The NAR is an exclusive group that doesn’t want to give up dominance.
- Therefore, FSBO has a lot to offer, in my opinion.
I was flipping through Freakonomics recently and remembered this little anecdote from one of the authors’ real experience:
“K. wanted to buy a house that was listed at $469,000. He was prepared to offer $450,000 but he first called the seller’s agent and asked her to name the lowest price that she thought the homeowner might accept. The agent promptly scolded K. ‘You ought to be ashamed of yourself,’ she said. ‘That is clearly a violation of real-estate ethics.’
K. apologized. The conversation turned to other, more mundane things. After ten minutes, as the conversation was ending, the agent told K., ‘Let me say one last thing. My client is willing to sell the house for a lot less than you think.’
Based on this conversation, K. then offered $425,000 for the house instead of the $450,000 he had planned to offer. In the end, the seller accepted $430,000. Thanks to his own agent’s intervention, the seller lost at least $20,000. The agent, meanwhile, only lost $300-a small price to pay to ensure that she would quickly and easily lock up the sale, which netted her a commission of $6,450.
So a big part of the real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting the homeowner know that a house can be bought for less than its listing price.”
“Overall, the NAR has ensured that nearly all residential real-estate transactions still are conducted between two agents in cahoots. And they’re largely responsible for keeping commissions close to that 6 percent level when any normal law of competition would suggest they’d be lower.”
Using a quality FSBO company like Buy Owner puts the power back in the hands of the investor. It’s definitely a smart decision for savvy investors.
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Richard Warren
Make sure you let them know that you may also represent yourself in court in the event your FSBO deal goes badly, and the buyers is suing you. So you also won’t need one of those overpriced real estate attorneys out there.
Then, you can use all of that money you’ve saved to pay to the buyer (since most all FSBO lawsuits go in the favor of the buyer) and you won’t have that lazy old Brokers insurance policy to fall back on.
Oh, how things have not changed. Despite the power of the internet, and some home owners trying to be more independent, FSBO’s are still not easy to sell.
Part of it, is there is just not any real way to get out in front of the public online for the FSBO. Sure they can list their home on one of the FSBO websites, but I read someplace that on one of them, I think it was FSBO.com as much as 75% of the traffic to the site was REALTORs and Mortgage brokers, looking for potential clients. Which made me wonder how much of that remaining 25% was other would be FSBO’s checking the site out, and trying to decide if they should spend their $500 to get listed on that site as well.
I don’t mind at all when people try to FSBO, I think it is great, It just tells me who my potential listings are 4 to 6 months down the road.
I agree Jim. If I left the business tomorrow, I assure you, I would still list my home with a brokerage when it came time to sell. Even if one is naïve enough to believe that agents don’t know or do anything for their money (which is foolish beyond belief), one should still bear in mind the liability they take on.
I certainly wouldn’t ever even consider buying a home directly from the owner. What happens if in two years the foundation crumbles because of a problem that wasn’t disclosed during the sell, or discovered during inspection? Perhaps the previous owner is out of State, what do you do? If you sell your own home, and two years later get served a summons and learn you’re being sued because the buyers house burned down because of that fancy ceiling fan you installed yourself, what do you do? You get a lawyer, dig a hole, and throw money in it every day until you have no more, that’s what you do.
I buy my cars at dealerships (even thought the salesman will make thousands for writing it up), because I know if I buy from an owner, and it’s a lemon, I’m screwed. I pay people to do my taxes, because if there is an error, and the IRS comes knocking, I’m covered.
In a litigious society, any opportunity one has to put a licensed professional in between themselves, and the liability, they would be a fool not to. An ounce of prevention is worth a pound of cure.
Anyone wishing to pick up “Why Do You Still Need an Agent to Sell Your Home?”, may also wish to grab a copy of REPRESENT YOURSELF IN COURT By PAUL BERGMAN - SARA J. BERMAN-BARRETT
Yes, as an active real estate investor who happens to have a license, I do see crazy stuff like that in the industry. How common it is is exaggerated by just how bad it is. We are much more likely to spread that type of story than to spread the professionalism stories that you would expect as the norm and that we typically see on a daily basis.
Just my two cents.
There are bad lawyers, bad doctors, bad hair stylist (as seen on The People Court), and of course, there are going to be bad real estate agents here and there as well. To simply take such an example as being representative of the profession as a whole is terribly prejudicial and unfair. To recommend people just go it alone because it’s just too easy to pay someone to Market and sell your home properly is reckless (and fees are not set, they are always negotiable).
I’m curious; if someone follows Jane’s advice, and ends up in litigation as a result, could she herself be liable for their loss?
Timeless advice … fortunately the market hasn’t changed at since 2004. All you need to do is put the “for sale by owner” sign in your front yard and the buyers flock to your door, offers in hand.
There’s nothing to it.
Agree with “Jonathan Dalton”.
Do you really want people you don’t know just turning up on your doorstep
LOL. Good one Jonathan. Then they can turn to a trusted lender for the loan…..
Chris makes a good point. FSBO will have to let anyone in, regardless. You don’t know who they are, if they are even qualified to buy the place, etc. There are many facets to the service received, some are easy to quantify, others not so much. Somehow I doubt fsbojane could name three.
A lot of an interesting material!!!
Agents definitely take a big chunk of the money, which is why most people go into realty to begin with. However, now, especially in California, the real estate market has taken such a dive that agents are looking to other business opportunities to make anything they can.
It is a shame that there bad REALTORS in the business who make an article like this look good. The truth is that if a seller chooses an agent wisely, the benefit can be huge.
This is an interesting debate. I have seen both sides of the real estate coin, and can see how both ways can be beneficial to the seller. Each person should weigh all the pros and cons of going without an agent and decide for themselves. It does mostly boil down to how long are they willing to wait, and how much time are they willing to invest.
[...] some side-by-side comparisons of homes that have been purchased recently and others that have been on the market for quite some [...]
I really get tired of hearing the argument that Realtors do nothing for their chunk of the sale. People fail to realize that they are paying more for a system that works than for the listing agent to earn an hourly wage that you think is fair. The listing agent may not put a lot of time in for your house directly (they do invest money though), but you are paying for all the MLS technology and for ALL those agents out there traipsing buyers around all day every day - which your listing agent is likely doing too. Its the whole that you are paying for, your listing agent is just a small part of that.
Real Estate Agents play a vital role in the real estate transaction….just make sure you hire a good one. Not to hire someone to look out for your interests is like hiring an unlicensed contractor to remodel your kitchen….you may save a few bucks if all goes well, but you will definitely pay more than a few bucks if anything goes wrong! Also, let’s not overlook the excerpt from “Freakanomics” which actually points to an area of the business that does require further discussion….dual agency! I still find it hard to believe that there are investors out there who are convinced they get a better deal using the Sellers agent to represent them. You may save 1 or 2 points on commission, but then end up paying tens of thousands more on the sales price and/or loss of concessions. “Penny wise and pound foolish” as my grandmother used to say!
Oh, boy, what a discussion we’ve got going here! I can tell I’ve ruffled some feathers, so let me start of with this: nothing personal, folks. I’ve been an agent (a successful one, if I do say so myself), and I worked hard. I’m not saying agents don’t.
I feel like there’s a lot of material to discuss, so I’ll try to make this organized:
1) Please note I was citing info from another article. I’m not pulling these ideas out of thin air. Heck, these ideas aren’t even original to me. A lot of other people are seeing the benefits of FSBOing their way through home ownership.
2) Real estate agent DOES NOT = real estate lawyer. Come on! Look at the difference in training, the difference in responsibility. I am so tired of hearing that analogy. The comparison isn’t even a comparison.
3) AS FOR PROBLEMS: If you knew anything about FSBO companies, you might know about the valuable help they provide. Places like BuyOwner.com walk you through the process and will be there for any questions you have.
4) AS FOR PEOPLE SHOWING UP AT YOUR DOOR: Again, with a FSBO company, you don’t have to list your address. No one will show up unless you want them to. You can ask them to get prequalified, you can tell them you’re not ready, you can do whatever you want. That’s the whole point: you’re in control.
5) AS FOR AGENT’s BENEFITS: A couple commenters referenced what agents do–”the benefit can be huge” and “Even if one is naïve enough to believe that agents don’t know or do anything for their money”–but they did so very generically. I’d like someone to give me some real data, some actual specifics of what an agent provides. Better yet, tell me what an agent provides that a buyer can’t do alone and that is worth 6% of the selling price.
And one more thing, just since no one ever answers it:
Seriously, think about it: why should the selling price of a home dictate the agent’s fee? Why should the price matter?
Is the nicer house getting better representation than the less expensive one? Then play around with that in your mind for a while. Which home would you be more eager to sell, as an agent?
Are you saying there is no difference in cost and effort marketing a $2,000,000 luxury home and a $70,000 fixer upper?
Actually, in some markets it might take 2 years to sell a 2ml homes, and even then your beat down on commission, at extraordiary cost. I could sell 80 $70,000 homes in two years at equal cost and make more off of them.
home, not homes
October ‘09 will mark my 40th year as a licensee.
This humorous discussion comes up cyclically and with the same long term results — nothing changes. Why?
It’s due to millions of individual decisions made by property owners who’ve looked at all their options and opted out of FSBO status.
For every FSBO in existence today there were 30 when I was a rookie, so long ago. Either the industry has matured and increased the quality of service and results, or FSBO’s (at least according to the piece quoted) have demonstrated two consecutive generations of severely decreasing IQs.
My money’s on the later.
If you’re smart enough - you don’t need to use a realtor - just do your own research.
Well, Jane, I agree with you. Not everyone needs the service of a real estate professional. Some people may be better off without using a real estate professional. They may actually save money. Six months ago I stopped at FSBO and looked at their house. They said they wanted $220,000 for the home. I agreed that it was a good asking price and if they had listed with me I would list around the same price and no higher than $229,000. I had some buyers looking in that price range and the home owner assured me they would pay me half of my commission rate if I brought them the buyer. I didn’t show the house and I didn’t bother trying to get them to list. I sold my buyer a home they liked in the MLS - actually it was in my company inventory of homes.
Anyway, the FSBO home owner sold his house around the same time to someone for $190,000 and a similar home just sold last week using an real estate company for $180,000. Jane, I’m sure you know the market has been in a decline over the last year. So, the difference in price is right in line with the amount the FSBO and the house listed by the real estate company sold the properties for - In my opinion. Of course the house I sold my buyers went for $220,000 and had an attached 1 car garage but, not in as good of condition as the FSBO home.
So, you are correct - sometimes you don’t need a real estate professional and you can do it on your own. However, that’s not the real story here. People have been selling their own stuff for years - cars, houses, clothes, you name it and people have sold it by themselves without using the services of a professional.
I sometimes wonder if all the costs to be a real estate professional is worth the end results - dollar wise. I mean I pay for annual license and membership dues, continued education, association fees, and advertising expenses that are like the cost of gasoline, out of control. The time I spend doing this job is closer to 50 and maybe 60 hours a week. I am getting tired. I do have other income and health benefits so I am ahead of most of my peers.
Now having said all that, Jane. Let’s get down to the real problem of the business. I looked at your web site and I am not sure it is even remotely helpful to the home owner who is wanting to sell a house without the use of a local real estate company. I looked at your profile and kind of feel that that is where the bitterness comes from - your own experience. I am sorry that you could not make it as an agent. It is a tough business. It is tough because, for the most part, it is too easy to get a license. So someone like yourself gets into the business and has no respect for what is required to make a living selling real estate. You beginning buying and selling properties for your own investments. I would guess you purchased listing that came your way while “working” a local company. You saw the value and because you had some knowledge and money were able to “flip” the homes for a profit. Good for you!
Did that make the owner of the local real estate company upset that you would take the good listings and buy them yourself just to re-sell them without paying the office any commission dollars? That takes a lot of nerve. The owner of a business wanting to make a profit on your investments. I don’t blame you for being upset, Jane. You go girl.
Gregory Bain:
Let me get this straight: You saw a quality property out there, listed for sale by owner, in your client’s price range and even in better condition (!!) than the other options.
But instead of giving your buyer the choice of which property to buy, you made the decision for them and didn’t allow them to see the better home, simply because it was a FSBO home.
Your direct quote states: “I didn’t show the house and I didn’t bother trying to get them to list. I sold my buyer a home they liked in the MLS - actually it was in my company inventory of homes.”
That, Mr. Bain, is completely unethical, and you should be ashamed of yourself. You weren’t even willing to work with these homeowners, simply because of your own chip on your shoulder. Disgusting.
I don’t even want to respond to your other baseless accusations now. I think it’s pretty clear who is working in the interest of the homeowner and who isn’t.
Jane
WOW… I’m with Jane. Gregory Bain’s response pretty much sums it up. He wouldn’t show his buyers the better property, and even admits it? Again, wow. That, Gregory, is what gives realtors a bad rep.
I live in one of the most booming real-estate markets in North America; Calgary Alberta Canada. The cause of this boom is a direct result of a thriving Oil & Gas market.
Property values have gone through the roof and everybody is trying to catch a ride on the gravy train.
During this boom, I purchased a home and promptly sold it in 8 months for almost $100,000 more than what I paid. I had a realtor “sell” it for me. I guess that depends on your definition of “sell”. I took all the photos, had a professional interior decorator come by and offer suggestions on how to stage my home, I had it cleaned by a professional; I even hung the signage myself. All my realtor had to do was post it on MLS. The result?…my home sold in 1 day. That’s right; less than 24 hours of being on the market.
My hypothesis is this, if you have a nice home and make it attractive to the masses (decore, furnishings, cleanliness etc.), your home will sell itself.
As for having a so-called “professional” do it for you, well I must say that of the dozens of agents I know, very few of them are educated. In fact many of them worked in the bars or sold drugs and turned to the lucrative real-estate industry to build a career.
No offense to the realtors out there, but I personally don’t feel the need to pay somebody thousands of dollars to sell my home when all you really have behind you is a couple of hours of practicum and some crappy tests that an 8 year old can pass.
Mike
@ Mike
I think the major perk of a realtor for a lot of people is the time. In some cities it is extremely hard to find a place to live, so much that it’s like a fulltime job. When my parents moved to Philadelphia they had almost no choice but to get help finding adequate real estate. While in places like Utah or Calgary it’s often easy to sell on your own, in more densely populated areas it takes a LOT of work.
I would never buy a house without a Realtor. Sellers are out there to make a buck and take advantage of a buyer. Most of them hide all the problems they know the house possesses. Using a Realtor costs a buyer nothing. At least if the home is listed for sale, the seller is obligated to sign disclosure forms and can’t sell a home without disclosing.