Why FSBO Sellers Need To Consider Avoiding Real Estate Agents

A new study dated February 2008 by two Stanford University professors shows that FSBO listings make good economic sense for homeowners who are trying to sell their properties. The case study, How Much Value Do Real Estate Brokers Add examines the cost of home sales in the neighborhoods around Stanford University in the past 26 years. You may want to consider what a study like this in your area may find to be reality.

The professors, Douglas Bernheim and Jonathan Meer, used NAR data to determine the benefits that homeowners say they receive from using a real estate agent, and then attached a fixed dollar value to the bottom three benefits: MLS access, pricing information and help with paperwork. They arrived at the fixed dollar value by taking the standard 6% commission and applying it to the first $23,000 of a home's worth. The professors valued these services at $1,400.

Using average selling price data and average commission data, the professors calculated that the average real estate commission is $12,500. If the bottom three benefits were worth $1, 400, sellers were paying the real estate agent an average of $11,100 for the top three benefits: promotional services, negotiating assistance, and buyer screening.

Then the professors examined the NAR claim that a realtor could get as much as 27% more for a listed home than a FSBO seller could. If true, the claim would presumably justify using realtor services. . Instead, the professors found that FSBO real estate does not list or sell for less money than broker-listed real estate does. The study also showed that homes listed through agents sold faster, but stopped short of calling that an advantage.

The professors noted that real estate agents tend to encourage their clients to accept the first offer they receive. The professors' conclusion was that real estate agents, who collect commissions on sales, may be motivated by actions that support their own financial interests instead of those that support the best interests of the homeowners. In this relationship, the professors concluded, it is impossible to say that a quicker sale is a better sale in terms of the homeowners' interests.

This is not the first study to debunk the claim that real estate agents can get a higher selling price than homeowners can. The conclusions of the Stanford study suggest that homeowners would do very well to examine FSBO selling carefully. Since the initial asking price and the ultimate selling price for a home will be similar regardless of how the home is sold, the real estate agent's commission will come out of the homeowner's equity, instead of an inflated asking price. In today's shrinking-equity market, real estate agents may become a luxury that many homeowners can no longer afford.

How to Handle a FSBO Real Estate Contract

When selling a home For Sale By Owner there is a major topic that should be considered carefully. The topic centers around the sales contract or what the real estate industry calls the Offer To Purchase. Many homeowners who choose to sell a home on their own as a For Sale By Owner seller are often concerned how to handle the sales contract.

Well there is no need to get overly concerned regardless of what any real estate professional may want a FSBO seller to believe. FSBO sellers will often find real estate professionals trying to win their potential business with what I call "Fear Tactics". The fact is all you really need as a seller in regards to a sales contract is a qualified real estate attorney. A Fsbo real estate contract can be obtained from almost any local real estate attorney. The truth is that any seller regardless of whether they sell by owner or with a real estate professional, will need someone to prepare the property deed for transfer. The deed preparation comes with a fee of around $100 - $200 depending on the company or person preparing the document.

Here is what I would suggest for a Fsbo seller in regards to a Fsbo real estate contract:

Step One: Find a local real estate attorney in your area that provides deed preparation for sellers

Step Two: Ask the attorney what their fee is for seller deed preparation.

Step Three: Ask whether or not they can provide you with an offer to purchase sales contract for your state that is approved by the state Bar Association.

Step Four: Also ask the attorney if they can provide contract review / consultation for a completed offer to purchase before you as a seller sign the offer. Please note that step 3 & 4 may have fees involved.

Now that you have asked the attorney these questions and provided you get the answers you need. You are basically set and ready to handle the contract details of any Fsbo real estate contract offer to purchase. One very important thing to remember is a licensed real estate broker or professional is not qualified to answer questions pertaining to legal documents. The last time I checked a real estate offer to purchase is considered a legal document and questions about such documents need to be answered by qualified legal professionals. So it is my opinion that all sellers regardless of how they choose to sell their home need some form of legal advice.

Do not let the fear of contracts force you in to paying 10k, 20k, or more for real estate commissions. When you can get qualified legal advice for much less and more easily more qualfied. It is entirely possible to get the advice mentioned above for $200, $300, or maybe $400 and that is well worth the savings.