June 8, 2007

"I couldn’t take the personal interaction of people walking in my house and making nasty comments."

That's how one Madison home seller justified paying a realtor's commission, but traditionally people have accepted the argument that the realtor will get you a higher price, and you'll actually come out ahead. But there's a front-page NYT article reporting on a new study, based on house sales in Madison, showing that the for-sale-by-owner -- FSBO, pronounced FIZZ-bo -- approach puts the seller ahead.

Now, Madison is kind of special:
FSBOMadison.com, the subject of a January 2006 article in The New York Times, charges $150 for an ad on the site and a yard sign. Taking advantage of antiestablishment sentiment in Madison, which has a highly educated and liberal population, it quickly grabbed a market share of roughly 20 percent. That made it among the most successful challengers in the country to real estate agent domination of home sales.

That scale, along with the cooperation of the site’s owners and of the local Realtor group, made the economists’ study possible. “We don’t have national data,” Mr. Nevo, one of the authors, said. “FSBOMadison is unique.”
So Madison is special -- don't we know? -- because of FSBOMadison.com and because of our "highly educates and liberal" "antiestablishment" culture. Does that make us resist professional help and think we can do better? Personally, I just can't picture myself interacting with all manner of strangers and ushering them around my house.

24 comments:

George said...

I fizzboed.

I discovered that for many people touring homes on sale is a form of entertainment, not unlike going to the movies. It's a great way to get landscaping and interior decorating ideas, as well as to scope out prices in one's part of town.

People aren't going to befoul your castle or say hurtful things. They're just going to waste your time, that is, unless you're in a hot sellers' market.

Richard Fagin said...

Prof., you'd have to decide whether your time spent not ushering the prospective buyers around would be worth more than the commiision you'd save by not using a real estate professional.

Depending on who you might hire, it's frequently worth the money just to have a disinterested person view the property and let you know what needs to be done to enhance the perceived value. You also need to consider the time value of money. Selling at zero commission after 9 months can have a different value that selling after a only week at 6 percent commission.

AS upsetting as the "nasty comments" can be, if you're able to evaluate them objectively, they may lead you to what is needed to increase the perceived value.

Hoosier Daddy said...

Whatever floats your boat I suppose. From my standpoint, I don't have the time, inclination or expertise in title work to go through that kind of hassle. Seven percent to me is a small price to pay to have someone else do that work and scrounge up prospects.

I'm not quite certain how FSBO takes advantage of an 'antiestablishment sentiment'. How does not using a realator make one a rebel? Do these individuals also eschew doctors as well?

peter hoh said...

Try to take the same antiestablishment approach when it comes to educating children, and suddenly, one is off the liberal reservation, so to speak.

MadisonMan said...

We used fsbomadison when we sold our house back in 1999 -- just as Madison's market was accelerating -- and it was very very easy. We did hire a lawyer for the closing, but that one-time fee sure beats the 3-6% fee that Real Estate agents charge. And back then, when houses in our old neighborhood sold as soon as someone whispered that the house was for sale -- what would a RE agent really be doing except taking money that they hadn't really earned?

If you are the kind of person who likes to talk about your house, and who likes to talk to people in general, fsboing is great, because all these people come talk to you.

But I wonder what kind of self-selection fsbomadison has that would affect the results of the study. Would we have sold our house by ourselves in a slow market in a less desirable part of town?

AJ Lynch said...

"I couldn’t take the personal interaction of people walking in my house and making nasty comments."

That sounds like something a blogger might say as his reason for giving up blogging.

Jennifer said...

Funny, AJ Lynch, when I read the title, that's what I thought the post was going to be about. :)

Triangle Man said...

The savings may be slimmer than it appears when you account for buyer's agents. Although FSBO might spare one paying a commission to a seller's agent, an awful lot of buyers are going to show up with their own agent, who will require a 2 - 3% commission. The choice then becomes whether to pay the buyer's agent a commission or turn away the offer and hope for an agent-free buyer.

Bruce Hayden said...

Why does anyone believe that a real estate agent will get the best price for your house?

The answer is that people believe it because that is what real estate agents tell them. But it isn't true.

The problem is that the incentive for listing agents is to turn a house over as fast as possible, and this often means at a slightly lower cost.

One of the studies done in Freakonomics was comparing how much real estate agents sold their own homes for as compared to what they sold the houses of customers for. And, not surprisingly in retrospect, there was a significant disparity - they left their own houses on the market significantly longer, but they ultimately sold for more.

Think of it this way. Say, they can sell a house for $100k to the first buyer, or $110k to the twentieth buyer. In the first case, their commission is, for example 1/2 (broker/salesman split) of 1/2 (co-op split) of 6%. That is 1.5% of $100k or $1500. So, if the house is sold to the first buyer, the agent will get $1500. But if it sells to the 20th buyer for $110k, he makes $150 more in commissions (1.5% of the $10k difference).

Compare this to when the RE salesman sells his own house. Then, the difference is not $150, but $10,000. All for showing the house 19 more times. (Ok, I am treating this like sale-by-owner, which is not quite accurate, since a RE salesman would likely have to pay 4.5% or so in commissions to his broker and the co-op with the buyer's broker - 3/4 of 6%).

Bruce Hayden said...

The savings may be slimmer than it appears when you account for buyer's agents. Although FSBO might spare one paying a commission to a seller's agent, an awful lot of buyers are going to show up with their own agent, who will require a 2 - 3% commission. The choice then becomes whether to pay the buyer's agent a commission or turn away the offer and hope for an agent-free buyer.

Ethically, this is maybe a bit on shaky ground, not that the RE community is known for their high ethical standards. The alternative is for the buyer to pay his agent directly, or to raise the sales price to cover it. Not showing away from a FSBO because they were refusing to pay the buyer's agent's commission out of the current sales price might, at least in some jurisdictions, be considered a breach of the duty of loyalty to the buyer.

BTW, the way that a buyer's agent keeps his buyer from going behind his back later with the FSBO seller is by having a written buyer's agent agreement with the buyer. They usually work that if the buyer buys from any house shown by the agent, the agent gets paid anyway.

Bruce Hayden said...

BTW, I appologize to any real estate brokers or agents here with my comments about ethics in my previous post. They come as a result of my experiences in trying to get a real estate company going some 20 years ago. In doing so, I saw much of the seamier side of the practice, esp. since I seem to have been in business with some whom I consider to have been less than honest.

I should note that I do have a Colorado real estate broker's license, and most of the shady schemes that I saw practiced twenty years ago are now somewhere between unethical and illegal, at least here in CO, and I assume throughout much of the country.

Bruce Hayden said...

This is a link to the Freakonomics book and their Blog. In addition to the study comparing how much real estate sales agents get for their own homes versus their sellers' houses, there is also a chapter (2) that covers ad terms that help or hurt the sales price of a house.

Sheldon said...

There is a real free-rider issue here. The riskiest part of selling a home is valuation. If I can use realtor.com and similar real estate professional sources to get relevant market information, valuation is much less of a concern. It works for the FSBOers, only so long as the profssional control the bulk of the market and provide a free source of reliable valuation information.

dbp said...

We sold our house in Vermont without using a broker. The buyers did have a broker and we didn't pay her a cent. I think the buyers had to pay her something, but we got full-price for our house. We spent about $200 for and ad. in "Picket Fences"--a FSBO monthy which covers that part of VT and about $200 for our lawyer to do all the legal stuff.

L. Ron Halfelven said...

That sounds like something a blogger might say as his reason for giving up blogging.

Nice kitchen... I suppose this is where you cook up phony arguments that you and the other right-wing hacks use to excuse Bush's failures...So this is what a law professor's library looks like; of course, no books about how Alito and Roberts are trashing the Constitution.

SteveR said...
This comment has been removed by the author.
SteveR said...

possible in a good market for FSBOs to go well. In our market with lots of buyere from out of the area and new home construction, its a slower path to a sale.

With all the paperwork involved, birdogging inspections and any minor work involved, not to mention advertising (internet and conventional) and arranging lock boxes and appropriate showing conditions, a good RE agent earns their commision.

Time is money and its not such a good deal when you have to do all that yourself. Are there bad agents? Yep and when you are dealing with the biggest investment most people have, some really nervous and inexperienced buyers and sellers, its a stressful environment.

Of course in comparison to doctors, lawyers, politicians, car salesmaen, civil servants, journalists and a few thousand other professions, real estate agents have a lot to live up to. {sarcasm off}

buffpilot said...

I did a FSBO also. Sold it in less than a month. No realtors at all, got my full asking price. Cost of the transaction including the title company, lawyers for closing etc., to me about $1100. The buyer paid about $500. Compare that to the $26,400 I would have paid just for the realtor commission if I had sold with a realtor. With all the market info out there, you can do your own research and get the comps easily enough. Heck, some of the realtor companies will give you it BEFORE you sign any listing agreements.
I probably spent less than 20-30 hours selling my home. I figured that was he same as paying myself $1000/hour. Well worth it.

BTW, Realtors have no legal exposure in this transaction. They are not responsible for the contract. Title searches, ANYTHING. They are pure middleman to put buyers and sellers together and take a cut. You also do NOT have to pay a buyer’s agent a cent in a FSBO. That's purely between the buyer and their realtor. I got one offer from a realtor and when I sent it back I had crossed out all the clauses about paying a realtor out of the contract (she wanted 6%). Never heard from them again.

Remember this is a contract, you can write anything into it you want. During the hot market in NoVA (a different house) I sold with a realtor but only paid 4% total commission. The buyers Realtor was pissed, but I told her that was not my problem and she could take the 2% (her half) or step away and get nothing. (At that point she would have violated her agreement with the buyer and the buyer could then enter in the contract with me without paying her - and I would have pocketed that 2%!!!).

Most people spend very little time really looking at what they are doing when making the single largest financial decision in their lifetime - buying a house. Read the contract you are going to sign it - not the realtor, mortgage broker etc.

Oligonicella said...

Triangle Man --

Why? I sold my farm last Dec. FSBO. A realtor wanted 11K, I paid 900 total. I also said point blank the buyer would pay the buyer's agent fees and that's the way it went. I pocketed 10K. Worth it.

By the way, I did have a couple of people who showed up and started snipping and carping. I simply pointed to the exit road and told them to get in their cars and drive.

Not at all hard.

An Edjamikated Redneck said...

Working in RE law & dealing with RE agents I will say I have worked with maybe half a dozen I would trust.

If I ever sell (and trust me, I intend to leave my place feet first), it would be FSBO. Then again, I am able to handle the legal end as well.

It never ceases to amaze me the number of people who go through ths legal process without an attorney. They trust their agent, or worse their mortgage broker to give them legal advice about the contract, closing and loan.

Whether you FSBO or not, buying, selling or borrowing spend a few hundred bucks and get an attorney.

AJ Lynch said...

L. Ron Halgelven used this innocuous post of Ann's to imagine what books Ann reads.

Ron- SUGGEST YOU TAKE YOUR MEDS.

Meade said...

"Personally, I just can't picture myself interacting with all manner of strangers and ushering them around my house."

First step, I think, is being able to imagine the house no longer "my."

Revenant said...

Personally, I just can't picture myself interacting with all manner of strangers and ushering them around my house.

As ridiculous as real estate agent fees are, you could probably hire someone to do that FOR you at $50 an hour and still come out well ahead.

AJD said...

Personally, I just can't picture myself interacting with all manner of strangers and ushering them around my house.

Heck no!! The savvy A-House way is to hire an agent, overprice your house, and then blog on and on about the apartment you are not going to buy because you wildly overpriced your house.