For Sale By Owners Lose In A Seller’s Market

For the last several years, the Rochester area has had an abundance of home buyers while the inventory of homes for sale has been very low. This has created a seller’s market where the sale prices on homes have gone substantially over the asking prices. Most sellers are having a great deal of success when they are selling in this market. In this seller’s market, some owners have chosen to sell their homes by themselves. Many For sale by owners (FSBOs) hope to achieve the same results brokerages are having while also eliminating the costs of brokerage fees. Typically, this is not the case. Most often, FSBOs net less than what they would have had they listed with a broker and paid the brokerage fees. There are many reasons why for sale by owners lose out in a seller’s market.

Fore more information on the difference between a buyer’s and seller’s market, check out What is a Buyer’s Market vs. a Seller’s Market?

Reason #1:

For Sale By Owners Do Not Appropriately Price Their Homes

There is an art to pricing a home for sale. It takes a great deal of research and data to find the market value of a home. The resources available to the general public for completing a Comparative Market analysis are lacking. The data on most property search sites lag behind in property status updates. Also, they often have incorrect and/or limited information on the homes in terms of the property’s description and updates. Agents have access to many more resources and are more experienced in appropriately pricing a home for sale.

Home owners will often price their homes too high. When a home is not appropriately priced, it is not within the search criteria for many potential buyers. Therefore, buyers who may potentially increase their purchase price simply won’t see the listing. This eliminates a great deal of possible competition, thereby reducing possible offers and selling price. The longer a property sits on the market, the harder it is to sell at full asking price. This is because buyers often believe there is something wrong with the home that prevented others from buying it. As a result, the perceived value of the property is decreased even further. For sale by owners can often lose a great number of prospective buyers.

Reason #2:

For Sale By Owners Lack Strategies to Effectively Market The Home

Setting the appropriate price is only one key to successfully selling a home. Effective marketing is just as important as the asking price. When listing a home with an agent/broker, the agent has a marketing plan that is specific to that home. The brokerage also tends to have marketing strategies to promote every home listing. This brings the largest number of possible buyers to the listing. Furthermore, an agent knows the best target population for each home.

Most often, for sale by owners lack the ability and resources needed to effectively market their home. Typically, owners use yard signs, contacting neighbors and people they know, social media, open houses, and For-sale-by-owner websites to market their property. In general, many owners do very little to market the property relying on only one or two methods, if any. This results in fewer buyers viewing the listing which decreases the selling price. This is especially true in this seller’s market where listing agents are receiving multiple offers. The FSBO often loses out on this multiple offer situation.

Reason #3:

Agents and Buyers Do Not Want to Work With For Sale By Owners

Because the home buying process is so complicated, most buyers work with a buyer’s agent to represent them. Buyer’s agents are typically paid by the seller at closing. The contract with a listing broker spells out the total brokerage fee. Part of the brokerage fee is paid to the listing broker, while the other part is paid to the broker who brings the buyer.

Many agents will not bring their buyers to a FSBO for fear they will not be paid. A deal with a FSBO takes much more work and effort to get to closing. In essence, the agent must help manage the emotions of both the buyer and the seller as well as assist the seller in understanding the entire process. Also, buyers may not want to work with a homeowner if their buyer’s agent cannot represent them or if they have to pay the buyer’s agent fee.  In the current market, there is a large number of first-time home buyers. These buyers tend to have limited funds to bring to closing. It is simply not feasible for these buyers to pay their agent’s brokerage fee. Once again, for sale by owners lose even more potential buyers for their property.

Reason #4:

For Sale By Owners Have More Difficulty Managing Their Emotions and Successfully Negotiating Throughout the Sale

Selling a home is already a complicated and emotional process for both sides. Home owners develop a pride of ownership in their homes as they raise their children and/or make improvements throughout the years. Buyers have quite a different perspective than the seller on the home. They will use a critical eye in evaluating a home which can frequently offend the seller. A listing agent knows this. That agent is able to help keep the seller’s emotions in check throughout the sale. Without the buffer of an agent, for sale by owners can have a great deal of difficulty negotiating throughout the sale. Therefore, the price point, inspection, and appraisal can pose challenges for sellers. They often lose contracts when the seller cannot keep emotions in check, is stubborn in negotiations, and has a lack of knowledge of the selling process.

Reason #5:

Appraisal Issues With For Sale By Owner Sales

In this seller’s market, most agent-listed homes sell for well over asking price. Sometimes the sale price exceeds $20-30k over asking with 10-20 or more offers. There are delayed negotiations which promotes more buyer competition. With so many offers on one particular listing, the agent has proven that the selling price is the market value of that property. There is often fewer cases of an appraisal coming back under the sale price. The listing agent may be questioned by the appraiser because of the higher purchase price. However, the large number of offers proves the offer price is what the market bears.

In contrast, the number of offers a FSBO can achieve is rarely close to the number an agent-listed property receives. For sale by owners usually price their properties on the high end. The home may not appraise with a higher sale price. This is especially true if there were no other offers on that home. The homeowner will have a difficult time contesting an appraisal issue since a lack of offers did not prove market value at that price.  This can easily result in the FSBO losing the sale.

Other Reasons:

There are other issues that for sale by owners tend to encounter that can negatively affect a sale. These include:

• Preparing/fixing up the home for sale
• Staging the home for selling
• Ensuring buyers are prequalified to purchase the home
• Understanding and performing the necessary paperwork (having all the legal disclosures)
• Keeping everything on track with all parties
• Selling within the planned length of time
• Having enough time to devote to all aspects of the sale  
• Keeping organized throughout the sale

Conclusion:

Although it is a huge seller’s market, a successful sale still requires a great deal of planning, marketing, and negotiating. Without an agent/brokerage representing the seller, the owner is losing out on the greatest number of possible buyers being brought to listing. This results in fewer possible offers and a lower sale price. The amount a FSBO is trying to save by not hiring an agent/brokerage to represent him/her, is more than made up for in the higher sales price being obtained by agent-listed properties.

Let’s take a look at an example to show this. A property listed for-sale-by-owner at $200,000 is saving $12,000 at the 6% brokerage fee. That’s if the property even sells at asking price. However, if that same property were listed by an agent at $200,000, the potential final sales price is often $20-30K or more over asking. Let’s say it sold at $220,000. The seller nets $206,800 which is still above the net amount the for-sale-by-owner will achieve at asking. Also, when it is listed by an agent, the seller reaps the benefit of the agent’s hard work from the beginning of the listing to the close of the sale. An owner selling his/her own home has no such benefit and must do all the work. This is just another way for sale by owners lose out in this seller’s market.

Interested in selling your home? Contact me for more information.