The FSBO Fallacy: Why Selling Your Own Home Won’t Save On Commissions

Posted by Jolenta Averill on Wednesday, February 14th, 2018 at 1:41pm.

house and moneyAlthough some people are very successful at selling their own home, the process can be a literal minefield. Not only can it be very time-consuming, there are many mistakes unrepresented sellers (FSBO’s) can make, some of which can cost more than the commission FSBO’s may think they’re saving by not listing with a Realtor. A recent study by Collateral Analytics (CA) shows that unrepresented sellers not only do not save money on commissions, in some cases they may actually net substantially less than what they would have had they listed with a full service, licensed real estate agent.

In the study, CA analyzed home sales statistics in a variety of U.S. real estate markets in both 2016 and in the first half of 2017. The data revealed several key findings:

“FSBOs tend to sell for lower prices than comparable home sales, and in many cases below the average differential represented by the prevailing commission rate.”

Why would a FSBO net less money than if they used a Realtor?

The CA study suggests that there are several possible explanations:

Bargain Hunters: FSBO listings might be attracting more strategic buyers or “bargain hunters” than MLS listings do. The idea is that prospective buyers may be rationalizing their lower-priced bids on FSBOs on the basis that FSBO sellers are “saving” roughly 6% on real estate commissions. If bargain hunters are routinely searching for and targeting unrepresented sellers, this could explain why FSBOs systematically garner lower bids on their homes, thus causing FSBOs to net lower sales prices.

Mediocre Staging: Unlike FSBO sellers, experienced agents understand what it takes to make a listing shine online and in person. A full service Realtor knows that, often, this look can only achieved with the assistance of a professional stager. A seller who lists their home with a Realtor may net more money for their home as a result of the extensive preparation and professional staging their home may undergo prior to listing.

Inadequate Exposure: When a FSBO is listed for sale, the ability of the seller to comprehensively market that property both on- and offline may be seriously limited for a variety of reasons: a FSBO may lack time, marketing expertise, access to distribution channels, and more. Most FSBOs do not even ask for showing feedback so they're not in a good position to adjust to market input.  On the other hand, properties listed with a real estate broker who is a member of the local Multiple Listing Service (MLS) are often better prepared to meet buyers' expectations and are simultaneously syndicated online to all MLS participating members’ websites, thus marketing the home to the largest possible buyer population. And those MLS member listings generally offer compensation to agents who represent buyers, incentivizing agents to show and sell the property, thus potentially enlarging the buyer pool. If more traffic can be generated for a given home, there is a greater likelihood that the property will garner multiple bids, increasing the chance of driving up the final sales price.

Three Key Conclusions

There were three key conclusions generated from the CA study:

  1. FSBOs achieve significantly lower sales prices than similar properties sold by licensed Realtors utilzing the MLS.
  2. FSBOs tend to net sales prices that are, on average, 5.5% less compared to similar properties marketed on the MLS.
  3. 2017 sales suggested the average sales price of a FSBO was close to 6% lower than the sales price of similar MLS-listed properties.

Conclusion

If you’re thinking of selling your home on your own to save on commissions, it may end up costing you more money than you would have saved had you listed with a real estate agent. 

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Hi, and welcome to our Madison real estate blog. Whether you're a consumer, journalist or Realtor, we encourage you to share your thoughts by leaving a comment. Here you'll find relevant local and national real estate information, as well as market statistics, insight, and information about a variety of neighborhoods and real estate listings. If you'd like more information about anything in particular, please use the contact form and I'll be happy to help.

Jolenta Averill, Principal
Lake & City Homes Realty
(563) BUY-SOLD

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