A for sale by owner (or FSBO) means a home is being sold without the representation of a listing agent. Instead, the owner sells the home completely on their own, including setting the listing price, staging, photographing, and marketing the home. They also negotiate directly with buyers, or through the buyer’s agent. Selling FSBO is usually chosen to save the seller money by avoiding agent commissions. But, there are some downsides, which we’ll discuss here. Additionally, the seller may not be saving as much as they think.
FSBOs sit on the market longer
FSBO homes typically spend more time on the market before a buyer is found and the sale is closed. On average, 18 percent of FSBOs were unable to sell within their chosen time frame last year. There are several reasons for this — the most obvious being marketing.
While FSBO sellers do have access to popular listing platforms like Zillow, Trulia, or Facebook Marketplace, they’re unable to post to their local multiple listing service (MLS) unless represented by a licensed real estate agent. Exclusion from the MLS means that buyers and their agents who regularly scan these lists will miss the listing, resulting in a smaller buyer pool for the FSBO seller.
Additionally, FSBO sellers typically overvalue and overprice their home. This results in buyers skipping over the home, as they assume the seller would be unwilling to lower the price to a more reasonable number. Good real estate agents find the sweet spot to make the most profit, while also selling the home quickly.
Another reason for the delay in the sale of a FSBO home is that these probably have full-time jobs and families and may not be able to keep up with all the interested buyers or expedite paperwork and negotiations like a real estate agent would.
FSBOs sell for less
According to the National Association of Realtors, 91% of sellers are assisted by a real estate agent when selling their home. Many that start as a FSBO eventually sign on with an agent in order to sell their home. On average, agents sell homes for 33% more than if the home were listed as a FSBO.
Hidden costs of FSBO
While on the surface it may seem a seller could save lots of money by listing the home themselves, costs begin to add up. Lots of extras are included when you work with a real estate agent that are often overlooked — this may include signage, flyers, photography, MLS listing, negotiations, contracts, etc.
It is true a FSBO seller can save on the commission they would have otherwise paid a listing agent — usually around 3% of the purchase price. The costs add up in expensive areas like Chicago neighborhoods or San Diego.
However, sellers are probably still on the hook for paying the buyer’s agent, which can also be around 3%. Sellers often overlook this cost and think they won’t need to pay any agent commissions. On a $200,000, you’d only save around $6,000 and have to do all the work yourself.
One often overlooked cost is the expense of being unable to line up your closing date with the date you can move into your new home. While agents are quite skilled at this, it can be tricky to manage if you’re inexperienced and could result in you having to pay for storage for the in-between time, a bridge loan while you pay two mortgages, etc.
Agents have expertise and experience
You can’t assign a dollar amount to the expertise and experience of a long-term agent. Experienced agents can, however, save you money by streamlining the selling process, pricing your home at the best price for the market, and using their extensive marketing connections — both through their brokerage and personal network.
Agents can protect sellers
An agent’s expertise could prevent costly errors in contracts or negotiations. Having an agent that has worked in the industry for several years — if not decades — will help you feel at ease. There’s a lot at stake and potential legal issues may arise if certain paperwork is not filed correctly or other mistakes are made.
An agent will carry errors and omissions insurance, which covers any potential mistakes an agent would inadvertently make. FSBOs, on the other hand, don’t have such protections and may not have the experience or know-how to make sure things are done exactly right.