For Sale By Owner Vs. Discounted Realtor

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The main intent behind For Sale By Owner is to save the last 5-6% real estate agent commission that a seller saves by “doing it yourself”. The intent is fine, as high levels of commissions indeed represents a substantial portion of seller profits, however the vast majority of homes that are “For Sale By Owner” (“FSBO”), which data has proved, often sell at much lower than just 5-6% of what they could have got had they gone through the listing agent/buyer agent regular listing route.  So “doing it yourself” and saving on commissions might not help –instead, it might actually hurt the seller.

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The reason is that the so-called “market value” that a seller expects in his mind that his property is worth, is obtained by arriving at the highest and best possible offer which can be achieved only by advertising to a very large number of buyers and buyer’s agents (“cooperating” “selling/buyer’s” agents). Remember given the choice, any buyer would always want to underbid or acquire a property at the cheapest. The “cooperating” buyer’s agent is the one who interprets the maximum market value to the buyer and finds that 1 buyer, among many who would like to bid much lower for that home, who is ready to pay where demand actually meets supply. Without the help of a large number of cooperating buyer’s agents who finally produce that 1 buyer, often even the listing agent alone cannot realize the maximum sales price either and that is the reason they offer such high commission to incentivize the buyer’s agent to bring the maximum possible offer price.

FSBO or even other online engines like Zillow/Trulia self-advertised to buyers might not have the reach that an MLS system offers to all “real buyers” who often choose agent’s expertise in valuing the homes to them. To find that 1 buyer who will offer the maximum price – a seller needs maximum advertising on all portals and MLS is among the most powerful one. Now if a seller enlists the use of MLS –which agents have built by their cooperative efforts through association—but the seller does so without the help of a listing agent to save 2.5-3%, that seller effort might even be considered at odds against an industry of agents who are the ones who built the entire system of MLS to find such a buyer where demand meets supply. That often might not motivate or encourage buyer agents to bring their buyers who offer the maximum to such a seller even if such a seller were to offer the same commission to just a cooperating buyer’s agent. The point is that seller might not be able to save even just the listing agent commission of 2.5-3%, even if the seller decides to offer cooperating buyer’s agents a commission by advertising on MLS in addition to other online engines.

The Intent behind FSBO or desire of seller to save on commissions that eat significantly into the seller margin is not wrong, however, the mechanism of choosing the option of “doing it yourself” is not the correct one.

That is what sellers do not realize and this article attempts to explain. A seller is much better of, in not trying to eliminate the job of a realtor but instead respecting that job and if dissatisfied with the commission, make efforts towards finding a discounted real estate agent.  That is where comes in – facilitating finding a discounted realtor for sellers (as well as for buyers) who will perform the job per your specification. If seller/buyer(s) want traditional service, an agent provides them full service that a traditional realtor does and competes in his/her commissions with other agents for seller’s/buyer’s business. However, if a savvy and participating seller wants limited services and deeper discounted commissions, then interested real estate agents might be motivated to offer commission levels even lower commensurate to a reduced service level you want.

Summarizing, in doing it yourself, without a listing agent, a seller might save 2.5-3% or 5-6% — which seller could have saved a significant portion of any way, had seller gone “discounted real estate agent” route – however in doing so seller might end up substantially under-selling his/her most valuable asset. We at believe that real estate agents are absolutely needed to help both sellers and buyers, though high commissions may need to be addressed. Let the marketplace for selecting discounted commission agents —achieved by bidding between agents — determine that lower commission number, if you as a principal believe that the commissions are high.

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