Introduction

Over 90-95 % of all residential real estate sold in the United States is sold with a Real Estate Agent involved on at least one side of the sale. This means that the remaining 5-10% of homes not sold by agents are sold by their owners without an agent involved. It is for that 5-10% of the market that this book is written, but the other owners who are using an agent may also benefit from the suggestions included herein.

This book is written specifically for the owner of residential property in the state of Texas. While Texas laws are possibly a little different from other parts of the United States, most of the information contained herein is applicable to selling real estate anywhere in the U.S.

Why people sell “For Sale by Owner - FSBO”

Here is a short list of motivations that cover the majority of FSBOs.
1) Save The Commission
2) List for Higher Price
3) Take Control of the Process

Industry studies have shown that approximately 80% of all FSBOs eventually give up on trying to sell their home themselves and list through an agent. Before we analyze why this is the case let us look closer at the motivations, then we will evaluate why these owners are unsuccessful at selling directly and eventually list with an agent.

Type 1: Save the Commission
This category are the most common reason that people try to sell their home without an agent. They believe that by listing and selling their home without a real estate agent they can save the commission that the agent would earn. These owners believe that the commission that they save will be money in their pocket and they are unwilling to acknowledge the value and benefits of dealing with agents.

Agents will counter that the buyer will usually be dealing with an agent and that, being guided by the agent, they will discount the home for the saved commission and negotiate away any savings that might have been realized. There is both truth and falsity to that counterargument.

The truth is that since the commission is reduced or eliminated the buyer will attempt to get that savings, or a portion of it, for themselves by reducing their offer. The falsity of that argument is that each house has a Fair Market Value (“FMV”). The FMV is supposed to be the price that a willing, informed buyer and motivated, informed seller agree to for a specific house without any undue pressure or sense or urgency on either party.

FMV is not supposed to take into consideration the commission that the agent charges. In other words, the house’s value is not dependent on the agent’s selling skills or level of effort. Each property has a unique value that is a function of its improvements, condition, and situs. The agent does not have anything to do with the value. If so, then appraisals would have to take into consideration that the agent is. Ask any certified residential appraiser if the agent is part of their calculation and they will let you know the truth.

Therefore, the argument that you should reduce your asking price to allow the buyer to benefit from the savings you will receive by not paying any commission is an invalid argument, however, you will most likely still have to deal with this negotiation tactic. Importantly, agents that try to justify their full Listing Commission will often use this argument to get you to list your home with them.

Price your home in conformity with the fair market value as evidenced by recent sales in your immediate community and you will be justified in holding to your price in the face of this argument. It is important, however, to be fully armed with either an independent appraisal of value, or, to a lesser degreed, a CMA. You will need to provide justification for your valuation during the negotiation process. A little money spend on an appraisal in advance of receiving a contract on your house can help to justify your price and save a lot of money when you get down to the gritty details of negotiation.

Type 2: List for Higher Price
Many agents, especially those that are seasoned, will make a concerted effort to get the owner to list their home in conformity with the prevailing market valuations based on a comparative market analysis (“CMA”). Often the homeowner perceives greater value in their home than the CMA would indicate and the owner is unwilling to list for a lower value simply because of a CMA. In short, the owner thinks their home is more valuable than the agent does, and since the agent will be investing time trying to sell the home they will attempt to adjust the owners price point so that their time is not wasted on marketing a home that is priced above its market value.

Lets look at the conflicting motivations here. The homeowner wants the highest price possible. The agent wants a high price for the home owner, but, the agent is compensated based on a sale and since they only get a portion of the commission the difference between selling quickly now or taking three or four months to get an extra $20,000 means very little to the agent, but it means a great deal to the owner. Therefore, the agent is motivated to price low and sell quickly, while the owner wants to price high and sell quickly.

Seasoned agents know that pricing high is a sure formula for a slow sale and they will attempt to persuade the owner to list for a ‘reasonable’ valuation. The most professional agents will discuss these factors with the owner and help the owner to evaluate all of the factors when pricing, however, if the owner wants to set a price that is unreasonably high the agent will either balk and not take the listing (improbable) or they will go ahead and take the listing knowing that after 30-60 days without any activity the owner will become more receptive to a reasonable valuation.

The problem with the second approach is that the property has the most salability during the first 20 days on the market. It is during this time that the seasoned buyers and their agents are watching for new properties that will fit their needs. If your property does fit their needs, but it is overpriced for the market, they will not make offers, or the offers that they make will be rejected, therefore wasting everyone’s time. The buyers’ agents will know what reasonable values are and may even fail to show the property until it is priced in line with market valuation.

Therefore, the agent that lists a property at a value substantially greater than the fair market value for the property is biding their time waiting for the owner to become realistic and adjust the price down to market. In the meantime, the most valuable opportunity for a sale is slipping away and the property is much more likely to sit on the market for several months in this situation.

By pricing the property in conformity with true market value the seller is much more likely to get a quick sale saving themselves significant time and headache.

The biggest problem with FSBO properties is that they are often priced above market value since the owner simply does not accept the guidance of an agent during their pricing considerations. They set the property price too high, sit on the property too long, and then become frustrated when it does not sell.

By investing in an appraisal before putting a price on the property the seller is much more likely to se the price properly, and, they will have some objective third party proof of the valuation when an interested buyer does come along.

Type 3: Take Control of the Process
Back in the 1950s through the 1970s it was very common to sell your home directly. The MLS services had not established the dominance of the market as they now have and people relied more on newspaper ads and yard signs than they do now. Many people who sell their own homes come from families that have a history of selling homes directly, without the aid of an agent. Their parents did it, they have done it, and they are not intimidated by the process. They know, from direct personal experience, that it is possible and they will at least try to sell directly before listing with an agent.

It used to be that selling a home involved a real estate attorney who would draw up a contract directly for the buyer and present to the seller who would often have their own attorney review the contract and respond with changes. This process was relatively expensive, was time consuming, and was confusing. Then along came Realtors© and state governing bodies and promulgated contracts and federal disclosure requirements.

The Realtors© and the state governing bodies, with the advice of Realtors©, developed a wide variety of standardized forms for the sale of real estate. These promulgated forms and contracts are now very mature and have plenty of blanks where you simply fill in the required information, making the need for attorneys in the average transaction much less common. The trade off is that the fees that once went to attorneys now goes to Realtors© and other agents in the form of commissions.

Contracts and forms are still confusing, though less so than in the days when each one was uniquely generated by an attorney. Most people who have been through the sale process once or twice in the past are familiar enough with the paperwork to feel comfortable dealing directly with the contracts and other forms without the need for an attorney to be involved, however, we encourage you to get competent advice unless you are an attorney yourself.

It is because of the standardization of the modern real estate sales contract and the other required forms that it is so easy for FSBOs to handle the sale themselves. It is also for this reason that a number of Flat Fee MLS Listing services are becoming more popular. We will discuss those services in more detail later.

FSBO sellers and buyers can easily obtain standardized, promulgated forms and can obtain the advice of attorneys, real estate agents, or other professionals to assist and forego the necessity of having an agent involved in the full process, thereby saving the commission.

Other ‘Process Control’ related motivations would be controlling access to the home, directly managing the showing process, managing the advertising, and other similar duties.

Why 80% of FSBOs ultimately list with a Real Estate Agent.

The short answer is because they become frustrated. The real question is to try to determine why they become frustrated. The answer to that question is also, fundamentally, simple… they either price their property to high, or, they do not get enough exposure to buyers. In either situation, the time that it takes to find a willing buyer is much longer, typically, than anticipated and therefore the seller becomes frustrated with the process.

To counter the first issue, pricing the property to high, the solution is to get a certified appraisal from a local appraiser. Appraisers do appraisals for a variety of target audiences. When you get an appraisal you want to establish the current fair market value for sale. Having this document, and pricing your property accordingly, is a major step towards selling your home.

When you have an interested prospective buyer you will be able to claim to have priced in accordance with an independent appraisal. When you are involved in price negotiations with a buyer you will be able to use the appraisal as justification for sticking to your price.

An alternative to an appraisal is a CMA from a reputable local agent. While the CMA from an agent and the appraisal will generally result in the same valuation, with a small degree of difference, the CMA is no where near as useful when negotiating with a buyer as an appraisal is simply because the appraiser is perceived as an independent, unbiased expert and the agent is not accorded the same veracity of opinion. However, if you simply refuse to get an appraisal the CMA is better than your own personal best guess.

How to Increase Exposure of the FSBO Property

There are several ways to increase exposure of a FSBO property. The options include:
1) Advertising in the classified ads section of the local newspaper.
2) Placing yard signs in strategic locations around the area.
3) Advertising with Internet FSBO services.
4) Flat Fee listings with the MLS.

Lets discuss each option in turn.

Classified Advertising in Local Newspapers

Generally, experienced agents will tell you that the classified advertising section of the local newspaper is very ineffective and overpriced. It is true that weekend housing special supplements are always printed and that there is a lot of advertising devoted and targeted to homebuyers and builders. This is largely a holdover practice from pre-Internet times. Essentially, the real estate industry and the newspaper industry are moving on momentum from the pre-Internet era.

If you do decide to place advertising in the classifieds place it only in the Sunday paper. While it is true that a serious buyer who is devoted to finding a home will look in the weekday and Saturday papers on occasion, those same people will ALWAYS look in the Sunday supplement section. Therefore, you are better off to spend your limited budget on Sunday advertisements. If you want to splurge and get noticed purchase a larger ad on Sunday rather than placing ads in the paper on other days of the week.

When you place an ad in the newspaper always include the following basic information:
1) Price
2) Square Footage
3) # Of Beds & Baths
4) Phone Number
5) Area of Town (not street address)

Additional Information that could be included:
1) School District (if noted for excellence)
2) Amenities (pool, deck, etc.)
3) Special Features (golf course frontage, lake view, etc.)
4) Special Financing (assumable loan, owner financing, etc.)

Some newspapers now offer the option to include the advertisement on their website and to add photographs for small additional costs. This is a good idea if you decide to take advantage of a longer term (weekly) advertising special package price.

Generally speaking, however, using the newspaper is one of the lease cost effective means of getting exposure for your property.

Yard Signs

Probably the single most cost effective way of getting exposure for your property is the yard sign. Yard signs range from simple to elaborate, but, the essential thing is that the sign should communicate, clearly and quickly the following:
1) FOR SALE
2) BY OWNER
3) PH #: XXX-XXX-XXXX

Additional information that could be conveyed is:
1) Internet Website Location
2) Amenities (pool, hot tub, fenced yard, etc.)
3) Beds, Baths, Square Footage

Be careful to not try to get too much information on the yard sign. Be sure to check local ordinances for allowable signs. Some communities have sign ordinances that regulate such aspects of signage as size, color, distance from the road, etc.

Open House Signs should be used anytime that you want to have your own open house. Place them at the entrances to your community on high traffic streets and., if necessary, at several strategic corners so as to guide traffic to your open house. The more Open House Signs that you place out the better, but let common sense rule.

House for Sale Pointer Signs should be used to notify people driving by the community on high traffic streets that there is a house for sale inside the community. These are the little arrow signs that stand about 12 inches off the ground and point toward your house.

Your investment in yard signs will be the single best investment you make in advertising your house for sale. People have a tendency to drive around the neighborhoods that they want to live in and look for houses on the market.

Brochure Boxes are a very good investment for your yard sign. You can get either the box or the tube type but make sure that there is a watertight cap that protects the flyers from rain and wind. Be sure to check the supply frequently to make sure there are flyers available. The frequency with which they disappear will give you some sense of the traffic that you are receiving. Remember, neighbors and local realtors will take the majority of the first batch that you place out so be prepared to replenish the initial supply several times. Then be prepared for realtors to approach you, for armed with basic information you have provided.

Internet FSBO Services

Technology is rapidly changing the real estate industry. The single largest change is that more and more people are becoming trained and accustomed to looking on the Internet for their housing needs. By some accounts the most frequently visited website on the Internet, other than the major search engines, is Realtor.com. If you have not already visited Realtor.com you should do so. Realtor.com receives data from all of the local MLS© services and you can look for houses in any part of the United States.

There are a large number of local and regional Listing Services, some charge fees and some offer subsidized (FREE) services. Beware the FREE services since they will often be a source of leads for other services or products. Check the Privacy Notices for more information about how each site handles such issues.

The FSBO Internet services act as an alternative to the MLS© in many areas, and, they are much less expensive than the local newspaper.

Generally, the FSBO Internet sites represent a good way of getting your property exposed to potential buyers. Fundamentally, they will engage in some sort of advertising to get traffic to visit their site. By your paying a nominal fee to use the site you get to piggyback on the advertising that they are doing and thereby expanding your marketing reach. Generally, these services charge fees ranging from $30 per month to about $90 per month. Most offer an ‘Until Sold’ fee option that allows you to list your property until it sells for a single fee that is about three times the monthly fee. This option is generally a good choice unless your believe that you will sell your property within one or two months.

Listen to the local radio and watch the local newspapers to determine which of these services seems to have the most presence. The one advertising the most will be the one with the most visitors, therefore it will be the one with the most likelihood of getting your property exposed to prospective buyers.

Often the FSBO Internet services will work in conjunction with a Flat Fee MLS© listing service or broker to offer even greater exposure by getting your property placed on both the MLS© and on Realtor.com.

Flat Fee MLS© Listing Services

In the traditional real estate world a listing involves paying a commission of approximately 6% that is evenly split between the Listing Agent and the Selling Agent (the one representing the buyer). The reality, as discussed above, is that since over 80% of all homes sold are sold directly as a result of the MLS© listing, most listing agents do not ever need to do any more than list the home in the MLS© for it to sell. Usually, the home is sold by some other agent that is representing a buyer.

Because the Listing Agent has traditionally gotten half of the commission (generally 3%) for nothing more than listing the home in the MLS© there are a growing number of brokers and agents that are willing to offer the listing service for a reduced fee. If you decide to utilize the services of one of these brokers or agents you should understand how a Flat Fee services differs from a Full Commission service. Here is a grid that you can use to compare the fees charged:

	Flat Fee Service	Full Commission Service
MLS© Listing	Up Front Fee	No Up Front Fee
Comparative Market Analysis (CMA)	May be Included, or May be Charged a Fee	No Up Front Fee
Contract Delivery Service	No Extra Charge	No Up Front Fee
Contract Negotiation and Completion Service	May be Included, or May be Charged a Fee	No Up Front Fee
Broker Open House Service	May be Included, or May be Charged a Fee	No Up Front Fee
Public Open House Service	May be Included, or May be Charged a Fee	No Up Front Fee
Marketing Services: Classified Advertising Mailing of Postcards	Generally and extra fee is charged for these services based on the specifics of the service requested or suggested.	No Up Front Fee
Key Lock Boxes	May be a charge	No Up Front Fee
Signs	Usually Included for no extra fee	No Up Front Fee
Post Contract, Pre Closing Services (managing the closing process)	May be Included, or May be Charged a Fee	No Up Front Fee
Commission On Sale	Usually no Commission, but some services may charge a commission for some added services.	Commission Charged, usually ranging from 5% to 7% of the Sales Price for a Residential property.

What are some Price ranges for the Flat Fee MLS© Listing Services?

The fees charged are generally based on how many services are included in the package. Bare minimum services should include an MLS© listing plus the delivery, in person, of a contract when one is received from a buyer through a Selling Agent. The more comprehensive services will charge a higher fee but will include such things as contract completion and negotiation services, along with the preparation of CMAs and assistance with the post-sale, pre-closing document management process.

Fees range from $300 on the low end for bare minimum services up to $1000 plus a reduced commission (usually in the 1% range) for the comprehensive services.

You should carefully question the Flat Fee MLS© Service provider to make absolutely certain that you understand exactly what services you can expect and where the line will be drawn. Remember, the providers of these services will want to carefully manager the time that they invest in your account based on the fees that they are earning. Unlike Full Commission Service providers, the Flat Fee service provider will be getting a much reduced total fee and you should expect that this will involved a lower level of service.

Who Should Use a Flat Fee MLS© Listing Service?

Pretty much anyone can benefit from a Flat Fee MLS Listing Service. If you are out of the area, invalid, incapacitated, too busy, or otherwise have some special reason wny paying a 2-3% commission in exchange for some heightened level of personal service makes sense, you would benefit from a Flat Fee service.

Comparison of Flat Fee Listing with Traditional Full Commission Listing

	FLAT FEE LISTING	FULL COMMISSION LISTING
Fair Market Value of Home based on Appraisal	$200,000	$200,000
Listing Price in MLS	$195,000	$200,000
Presumed Discount during Negotiations		2.5%
Net Selling Price	$195,000	$195,000
Selling Costs Flat Fee Listing	$500	0
Commission for Listing	0% = $0	3% = $5,850
Commission for Selling	3% = $5,850	3% = $5,850
Total Selling Costs	$6,350	$11,700
Net To Seller	$188,650	$183,300
	ALTERNATIVE CALCULATIONS	ALTERNATIVE CALCULATIONS
Selling Costs
Flat Fee Listing	$500	0
Commission for Listing	0% = $0	3% = $5,850
Commission for Selling	3.5% = $6,825	3% = $5,850
Total Selling Costs	$7,325	$11,700
Net To Seller	$187,675	$183,300
Selling Costs
Flat Fee Listing	$500	0
Commission for Listing	0% = $0	3% = $5,850
Commission for Selling	4% = $7,800	3% = $5,850
Total Selling Costs	$8,300	$11,700
Net To Seller	$186,700	$183,300

Hint: Red is better, Blue is worse.

You can see, based on the above analysis that the Flat Fee Listing service saves the Seller over $5,000 in fees. It can be assumed that the Listing Price of $195,000 will, because it is below appraisal, attract more buyer interest.

Now consider what increasing the Buyers Commission from 3% to 3.5% or 4% will do for the selling process. It can be assumed that paying the Selling Broker a greater commission will attract more buyers since more Selling Agents (Buyer’s Representatives) will want to show the home hoping to earn the larger commission.

Paying the Selling Broker a 3.5% commission will net the Seller $4,375 more than selling with a traditional broker. Paying the Selling Broker a 4% commission will net the Seller $3,400 more than selling with a traditional broker. Either of these ‘Bonus Commission Levels’ should generate increased Buyer activity from Selling Brokers.

If you have any questions about this article please feel free to contact Lee Thurburn, President of NetOffer,Inc.