Real estate agents are expensive, but trying to sell your home yourself may cost you a lot more money.
I am a real estate agent so I may have a biased view on this subject, but I also have many reasons to back up why I think you should use an agent. Of course there is an easy way to have the best of both worlds and become an agent yourself like I discussed here.
The Most Important Reason to Use an Agent
The most important part of investing in real estate whether you are flipping, holding or wholesaling is knowing the value of property. When fix and flipping you need to be spot on with your ARV to make sure you are not paying too much for a property. With buy and holds you need to know if the property you are buying is a great deal or if it is mediocre for the neighborhood. You can’t always tell what values are by the homes that are currently for sale. You need to know what the sold comps are, what concessions were paid, what condition homes were in and any other circumstances. The only way I know how to get all of this information is to hire a real estate agent or become one.
I see posts on the BiggerPockets Forums all the time asking id such and such is a good deal. Real estate values are extremely localized down to the neighborhood or even street. How in the world can someone in Arizona tell you if a house you saw in MLS is a good deal in Northern Michigan? The investor in Arizona may be the best investor in the world, but they don’t know the neighborhoods, the rental market, the local economy or what similar properties are selling for. The only way to truly know if you are getting a good deal is to be a market expert or hire one.
I Can Price My Home Myself!
Many sellers think they can market their homes for sale by owner (FSBO) and come up with a price by using what else is for sale. They know of three houses on the same street for sale and that tells them what their competition is, so all they have to do is be priced similar to those homes and theirs will sell.
- How do you know all the details on those houses?
- Are they under contract?
- How long have they been on the market?
- What condition is the interior in?
- What amenities do they have or not have compared to the house you are pricing.
Once you find out all of these things, how do you put a value on them to determine a value on your house?
It is possible to find all this information out, but how difficult will it be and how confident are you going to be in your value? A real estate agent figures these things all the time and can give you a solid value. Many FSBOs are overpriced because they use houses that are for sale to price their homes. They also have a tendency to use emotion to price their home, because it is theirs. I know I love my house more than my neighbor’s homes. I can point out 20 features that make my house superior. That doesn’t mean buyers are going to think the same way as I do and think my house is superior to my neighbors. I third party agent will come into the picture without emotion and bias.
The Market Changes Quickly!
When a FSBO lists their house for sale and it is a little overpriced it probably won’t sell. In a seller’s market that is not the end of the world. If the price is lowered and buyers know about the home, then it will probably sell. In a buyer’s market it is a much bigger deal. If prices start to decline, the FSBO is not going to see the trends as quickly as a real estate agent. The real estate agent is immersed on the market and will spot softening areas or trends much quicker than the FSBO. Chasing a declining market is never fun and if prices are not lowered quickly enough to catch up with the downward trends it can lead to disaster.
Can You Sell a House Yourself?
Yes, a non licensed agent can sell their house for sale by owner very easy. If you have a $200,000 house and you list it for $130,000 I bet you can sell it in less than a week! I saw someone boasting on another forum about how they saved all this money by selling their house without a realtor. They listed their home, had four offers in one day and sold it 30 days later. Sure beats paying an overpriced real estate agent! However, if they received four offers in one day, I can almost guarantee they underpriced their home. I can almost guarantee they underpriced it my more than the commission they saved. Those sellers probably cost themselves 10’s of thousands of dollars by listing their home themselves. A real estate agent could have given them a much more accurate value and netted them more money.
Paying a Buyer’s Agent
There are no typical or standard commissions, but I will use 6 % as an example of a commission on the sale of a home listed with a Realtor. Usually 3% is paid to the buyer’s agent and 3% is paid to the listing agent. When a FSBO sells their home they are not always saving 6% of that commission. If a buyer is using a Realtor they are going to want representation to buy the home and the FSBO may only save 3% commission. Then the FSBO is in a situation where the buyer is represented by an agent and the FSBO is not. Who do you think will have the advantage in negotiations and the contract preparation?
Most Buyers Work with Real Estate Agents
The reason a FSBO is going to have to sell to a buyer with a Realtor in many cases is most buyers are represented by agents. It usually costs the buyer nothing to use a real estate agent because the seller pays the commissions in most cases. Why wouldn’t a buyer use an agent to help them sell a home, most FSBOs know this and pay the buyer’s agent to get their home sold. If you want to try to save even more money by not paying any commission a listing or selling agent, then you are limiting your buyer pool and really hurting your chances to sell the home.
Realtors are Scared to Work with FSBOs
Even if you offer to pay the buyer agents commission on a FSBO listing, many agents don’t want to work with FSBOs. The agents certainly aren’t going to be searching Craigslist or the local paper for your FSBO listing and many buyers rely on their agents to find homes for them. The reason agents don’t like working with FSBOs is because they feel there is a better chance the buyer and seller will try to leave them out of the deal and it will be more work. If the seller isn’t represented there is a good chance they are going to be asking questions and for advice from the buyer’s agent.
Experienced Investors Selling Homes Themselves
I am sure there are many experiences investors who sell homes themselves without a license. They do many deals a year and feel they know the markets well enough to avoid paying a full commission. I am sure some investors are very successful doing this, but I am sure it is costing some investors money as well. First off, how much time does it take the investor to show homes, advertise, market, and determine price? Is there time better spent marketing properties or finding more deals? Secondly making friends with agents is not a bad thing. If you have a great agent who knows you will use them to list homes, there is a good chance they will start sending you deals. What is better than deals coming to you without having to do any work to find them? Finally some states have laws about how many houses you can sell by owner without a license.
I know some investors who actually have their license and still use another Realtor to list their homes. They know they aren’t full time Realtors and their time is better spent finding deals than listing homes.
Obviously a huge disadvantage to FSBO’s is they are not listed in the MLS where agents look for homes for their buyers. There are discount brokerages all over that will enter homes in the MLS for a minimal fee. You are still going to run into the same problems I talked about earlier in the article. Those agents are not going to help with pricing, negotiating or any issues that come up. They won’t be able to help you with repair choices, color choices or staging ideas. Remember a good agent will not just list your home for you, but help you throughout the process if you enlist their help from the beginning. Listings are like gold to agents and they will work hard for them.