For Sale By Owner (FSBO) Math

As promised, I wanted to delve a little deeper into this subject.

The first thing we need to get out of the way is the "Myth of 6%". Since the VAST majority of sellers that are going unrepresented (FSBOs) offer to pay 3% to a buyer's agent, we can cut that number down to 3% (the remainder).

Let's start with an average house, perhaps something around $250k. That 3% is $7500. The next thing we need to do is go after the listing fees that one might pay with a limited service broker or other broker through one of the popular FSBO companies. The MLS fees for metro Atlanta are generally $499.95 and then .25% ($625 for our example). So, let's knock $1125 off of the "profit" for a savings of $6375. Add a virtual tour, and a little advertising (if you want it to sell, you need advertise), and you will probably need to spend between $1300 and $1500. That drops our savings to $5000 (I like round numbers). You should be able to fit a home stager in there for that, too.

Are you familiar with Fair Housing Laws, and the trouble you can get into with the wrong words in any of your ads? If not, you might need to consult with someone. And, then there are all of those pesky papers, like Seller's Disclosures and the like. You'd better budget a couple hundred dollars for consultations on rules, regs and laws about getting everything listed properly. And don't forget to get appraised. You might still have $4500 left from the budget. You might have a little less.

Now comes the fun part. You have to show the house, have open houses, and follow up with prospective buyers, or their agents. For the NE Atlanta market we are currently seeing about 100 days on market for homes that are priced close to the right range. Don't plan on any vacations for the next three to six months. If you leave town, you won't be available to show your home. And, you will need to be able to make yourself available any time a prospect is able to view your home.

So, you made it through all of that...

If you are lucky, here comes an offer. You need to decide what to do. It isn't a seller's market any more, so you will likely not see a full price offer unless you priced way too low. So, you need to prepare the counter and begin the negotiations. Many companies offer this service for around $3000 (those savings are looking pretty slim). Those companies generally offer the support from offer through closing, so we won't cover the hounding to make sure the buyer's mortgage is coming along, and that everything else is lining up for a proper close.

Almost finally, remember that sellers know that FSBOs are unrepresented. They "know" that you are saving 3%, so they price offers accordingly. Never mind that you have chewed up all but a few hundred dollars of the savings trying to get to this point. Buyers that target FSBO homes are looking for a bargain. So, the commission is something that both parties are trying to factor to their side.

And remember that much of the money that you put out in order to save a few hundred (or maybe a few thousand if you have a more expensive home) is spent regardless of whether your house sells. But, if your agent is working off of commission, if your house doesn't sell, you haven't spent that money. You might be out a little for paint or other suggested improvements, but you aren't out thousands of dollars for advertising and listing fees and consultations.

OK, last thing. What is your time worth? As an avid "Do-It-Yourselfer", I can identify with those that want to save money by doing things themselves. But, as I get busier, and my time becomes more valuable, I have started giving up some of those tasks, and spending "Me Time" on things that I enjoy. I still work on the Jeep, but the mini-van goes to the shop. I cut the grass, but tree pruning is hired out. I have an accountant to deal with the taxes of running a business. That let's me spend time with my family, and out in the garage playing with a welder... you know, the important stuff.

For Sale By Owner (FSBO) Study in Wisconsin

As I watched TV recently, I noticed a commercial for a very popular "By Owner" company. There were a string of people giving testimonials about how much money they saved using this company's services.

Then, earlier today I saw that there was an article in the NY Times about how unrepresented sellers (FSBOs) in one city, Madison, WI, when studied between 1998 and 2004, sold their homes for about the same price as represented sellers.

Interesting. I already am familiar with data from the National Association of REALTORS that shows that the median price of MLS listed homes is 16% higher than non-listed, FSBO homes. I also know there are a couple of holes in the NAR data that are big enough to drive a truck through. The glaring issue that I have with the NAR findings is that there is no comparison of homes to see what similar homes might do. It would be a VERY difficult study, since real estate values can be quite finicky. Pegging whether something is selling above, at, or below market value is purely subjective. Finding two similar homes in the same area that sell at the same time is pretty elusive.


BTW, here is the link to the story.


It does require a free membership to view. Of the first things I noticed were that the agent represented homes sold more quickly. There was a 25% chance of selling in 60 days, vs. a 16% chance for FSBO homes. On the average, the FSBO homes took 125 days to sell, and the agent represented homes took 105 days. The next thing I picked up on was that they were always touting the 6% difference, but then mention that the vast majority of people selling themselves offered 3% to agents that bring a buyer. Finally, the FBSO reported prices were just that, prices reported by FSBOs, and there is no mention of concessions. The agent represented home's prices were based on data in the MLS. (We are required to report the final price of the house, as well as any concessions paid by the seller).

One other thing I did notice is that they adjusted prices based on: "timing, for house and lot size and characteristics, and for neighborhoods to make them comparable with sales by agents. They were also adjusted for what the researchers came to believe is an extra bit of shrewdness that FSBO sellers possess."

I noticed that this study has not been submitted to any peer reviewed journal.

I'll cover a little more in a future blog entry.

House Stalking... and Garage stalking, too!

Not too long ago, I had a friend and client tell me that he and his wife were "stalking" a house.

Around the corner, in the same subdivision they were in was a house that they loved. In their case, they were friends with the owners, and joked that when their friends moved, they wanted the house. It got me thinking... always a dangerous act.

My wife and I have been stalking a house, too. We don't know the owners. We just admire it as we drive by. Every day. Several times. OK, the route to my son's daycare goes right by the house, so each time we go to take him or pick him up we drive right by. There is a beautiful front yard. We are talking about a golf course quality yard. I'd have to hire someone to keep me from killing it. There is also a full basement. My wife likes that. But, the draw is the "extra" garage. If I had to take a guess, I would say it is in the 3,000 square feet range. Of course there is a three car attached garage, but that would be for my wife's minivan, and some lawn stuff. The 3,000 sf garage would by my "man pit." I could spread my automotive projects all over the place. I would be in heaven.

But, it's too much. Well, it isn't for sale yet, either. But, if it was it would be too much. Maybe by the time the current owner tires of it, we'll be ready to get it... or we will have built a home to fit our needs. I'm not that patient.

So, who else has stalked a home? Did you get it?

Post script>> I have to admit that I posted this on another blog I wrote for a real estate specific site. Shortly after posting it up, I was contacted by a writer with the New York Times. He was writing a story on this very thing... I'll keep you posted of any cool news.