Should you use a real estate agent or go it alone?

Should you use a real estate agent or go it alone?
By JEFF BAILEY New York Times

It sounds like the setup for a dull economist's joke. Who gets the better deal: the cautious economist who sells his house through a real estate agent, or his risk-taking colleague who finds a buyer on his own?

Two Northwestern University economists used Madison's real estate market to find the answer.

The question and the research it helped prompt are serious. And the answer will be of interest to anyone who has paused to consider whether paying a real estate agent's commission, typically 5 to 6 percent of the sale price, is worth it.

The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent's commission is factored in, the for-sale-by-owner people came out ahead financially.

Madison is home to one of the biggest for-sale-by-owner Web sites in the country, FSBO Madison,

ww.fsbomadison.com

The economists pitted that site against the local multiple listing service operated by real estate agents.

There are asterisks. The authors cautioned that they did not know whether the results from Madison applied to the country as a whole; certainly, selling a house without a real estate agent would be harder in a city without a heavily trafficked for-sale-by-owner Web site. The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.

Some aspects tilted in agents' favor. The researchers found that homes on the multiple listing service sold somewhat faster than houses on the for-sale-by-owner site. The study also did not place a value on other services provided by agents in selling a home.

The authors have presented their paper at forums at many leading universities, but it has not yet been submitted to a journal for peer review.

For all its caveats, though, the study is highly unusual in comprehensively measuring the impact on the sale price of a home of hiring, or not hiring, a real estate agent.

The findings fly in the face of studies by the National Association of Realtors. The group has said that houses sold via its members' local multiple listing services get a 16 percent premium over homes sold by their owners.

The economists' study is likely to be seen as ammunition for critics and lower-cost competitors who question the need for 5 or 6 percent commissions -- which deliver about $60 billion a year to agents and their employers.

Homes sold on FSBO Madison fetched an average price of $175,068 during the years examined. Those sold on the multiple listing service brought an average price of $173,205, roughly equal when taking into account the study's margin of error.

The FSBO (pronounced FIZZ-bo) sales results were adjusted for 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.

"Greater patience, greater bargaining leverage," said Francois Ortalo-Magne, an associate professor of real estate and urban land economics at UW-Madison and one of the three authors of the study.

His co-authors both joined Northwestern as professors of economics about three years ago and sold homes elsewhere before moving to the Evanston, Ill., campus.

Aviv Nevo came from the University of California, Berkeley, and used a real estate agent to sell his house, pocketing a profit from five years of ownership, he said, that may have exceeded his salary for that period as an assistant professor.

Igal Hendel, three years ahead of Nevo as a graduate student at Harvard and a collaborator on previous research, moved from UW-Madison and sold his home by advertising it on FSBO Madison.

"It started by us arguing about who did the right thing," Nevo said. "Igal said, I saved a commission.' I said, yeah, but who knows how much you lost on the price?"

The National Association of Realtors has been defending its fees. In a 2005 survey of home buyers, it reported that FSBO houses sold for a median price of $198,200 and those sold through an agent went for a median price of $230,000, or 16 percent more.

Two-fifths of those FSBO sellers were selling to a friend, relative or neighbor, and that might have led to lower prices, but agent-assisted sellers still enjoyed a huge premium, the association said.

(Nationally, about 13 percent of home sales were for-sale-by-owner in 2005, the group said. For the seven-year Madison study, the market share of homes sold on the FSBO Web site was 14 percent.)

And in a March 2003 issue of Realtor Magazine Online, the association, in advising its members how to persuade a seller to switch from a FSBO ad to listing with an agent, said to tell them that a 2002 survey found "on average, people who sell their homes through a real estate professional receive a price 27 percent higher than people who sell their home themselves."

"So even with my commission, you'll probably come out ahead."

Walter Molony, a spokesman for the trade group, said in an interview, "It's certainly ... a lot more than the 5 to 6 percent you're going to pay in a commission."

Those studies had their own asterisks. The 2005 survey was based on buyers' written responses, rather than actual records of transactions, and included data only from people who chose to reply -- 7,813 responses out of 145,000 questionnaires mailed out.

The association also did not disclose data on house size, lot size and some other factors that could affect price differences between the sales techniques. The association does not consider that a weakness of the study, though.

"When you're looking at this large of a survey, the aggregate numbers smooth those things out," Molony said. "We feel it's representative."

Molony and colleagues at the national association have not seen the Madison research. He said, however, that local markets vary so widely that "it wouldn't be surprising to see a market where there is no difference between an agent-assisted and FSBO price."

The economists studying the Madison market received listing data from both the FSBO site and the Realtors Association of South Central Wisconsin, which operates the local multiple listing service. Those were checked against records at the assessor's office for actual sale prices. The study looked at 15,616 listings from 1998 to 2004.

Not every real estate agent agrees with the national association's strategy of claiming a higher sales price. After all, it may sound great -- to a seller -- that a real estate agent could help get a higher price. But agents typically also represent buyers in such transactions and, obviously, buyers do not want to pay 16 percent more.

"We're trying to tell the public that they pay 16 percent more if they use us?" said an exasperated David K. Stark, owner of the Stark Co., one of Madison's largest real estate firms, when asked about the national association's claims. If that were true, he said, "all buyers should shop FSBO."

Stark is not worried that every seller will stampede to FSBO Madison. "Most people list with a Realtor because they don't want to hassle with it," he said. "It's complex. There's a lot of drama."

Plenty of people agree. Katie Mohr, who manages a stock trading desk for a bank and is moving to Milwaukee, hired one of Madison's busiest agents to sell her five-bedroom house on the city's West Side. The agent, Sherry Lessing, handled everything, and within five weeks the Mohrs got the price they wanted, $560,000.

"I couldn't take the personal interaction of people walking in my house and making nasty comments," Mohr said. "I don't want to hear that people didn't like my wallpaper. Six percent was well worth paying for."

Lessing said that price parity between FSBO sales and agent sales is not surprising because buyers can now comparison-shop on the Internet. "Even the inexperienced buyer can walk into a home and tell if it's overpriced -- based on competition," she said.

John Deininger, executive vice president of the Realtors Association of South Central Wisconsin, said the results of the study are not surprising and that his organization has never contended that using a Realtor will get more money for the seller.

"I see value in professional services," Deininger said. "I pay a CPA to do my taxes and it costs me a significant amount of money but I want it done right."

Deininger and Kevin King, general counsel for the more than 18,000-member Wisconsin Realtors Association, both say the data in the study is old and focuses on a time when the market favored the seller.

"It has nothing to do with today's marketplace," King said.

Some buyers think a 6 percent commission -- $33,600 in Mrs. Mohr's case -- is too much. Dr. Harry Sharata, a Madison dermatologist, listed his four-bedroom West Side house on FSBOMadison.com. "We try to avoid the Realtors as much as possible, thinking we can have more room to negotiate if that fee isn't built into the price," he said.

Dr. Sharata listed the house two weeks ago at $649,000 and received an offer on Wednesday. He would not disclose the amount of the offer. Like many FSBO sellers, Dr. Sharata said he would gladly pay an agent representing the buyer a 3 percent fee, or $19,470 at his asking price, but felt little need for an agent's help in selling.

"For the most part, these transactions are straightforward," he said.

The study found, however, that homes listed with agents sold more quickly -- with a 25 percent probability of selling within 60 days versus a 16 percent probability for FSBO-advertised homes.

On average, it took FSBO homes 125 days to sell and agent-sold homes 105 days. A faster sale, of course, can save money on mortgage payments, taxes and insurance, the economists noted.

FSBOMadison.com 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," Nevo, one of the authors, said. "FSBOMadison is unique."

The results, from another perspective, show that with agents failing to bring a higher price, their commission pays only for the actual work they do. "That was surprising," Nevo said.

He suspects that sellers will begin to examine more closely the cost of all the small tasks handled by agents. To justify a $12,000 fee on a $200,000 house, he said, "you'd have to have a very high hourly rate" for an agent's work.

Nevo, who employed an agent to sell his Berkeley house, said that, so far, his FSBO-using colleague Hendel is winning their argument. "I probably owe him lunch," Nevo said.

FSBO vs Realtor

FSBO vs. Realtor
By Mark Camphaug


Should you, as a homeowner, looking to sell your home, consider selling the property yourself or take the conventional route and engage a Realtor? That is the preverbal $64,000 question – or if you use the national average sale price of existing homes of $268,000 – the $16,000 question. Based on pure value, this is a question that really should at least merit consideration.

Obviously For Sale by Owner (FSBO) is not for everyone. I really don’t know why that statement has to be made – NOTHING (with the exception of air and water) is for everyone. Now back to the point at hand.

Why should you consider FSBO:

First and foremost – you save money – simple statement to make. How do you save money? You don’t pay the typical 6% real estate commission associated with a real estate brokered listing and sale. This isn’t just any money - it is your tax free (usually) home equity. Money that you have ultimately earned either through appreciation, home improvement, sweat equity or savvy real estate investment. Anyway you slice it, it’s YOUR money. It is often said buying a home is the single most important and largest purchase of an individual’s life. Does it not stand to reason that selling a home represents the single most important “Sale” of an individual’s life? The National Association of Realtors will tell you that FSBO homes sell for 16% less then Realtor sales. The problem with their calculations is they use a flawed formula to support their argument - they use a MEDIAN price as opposed to an AVERAGE price. The median is a “middle number” in a series of numbers - the average is a sum of all numbers divided by the total number – which is what as a homeowner cares about.

Another consideration is that an FSBO can take all or part of the real estate commission savings and deduct it from the price of their home to expedite a sale. This works great in a “soft” market or if you simply have to sell your home in a limited amount of time. Consider this example (I have used this unlikely scenario purely to make my point). You own a 1300 Sq ft - 2 bedroom/2 bathroom condo. Your adjacent neighbor has the exact same unit with the same level of finish and has listed it with a Realtor for $485,000. Calculate the 6% real estate commission in to the equation and best case your neighbor walks away with $455,900 – that leaves you with $29,100 to negotiate. If I’m a buyer and I see the exact same condo next door for $30K less I can tell you which one I am buying!!! To be honest, I’m going to buy it if I can save ANYTHING! This works very well if you bought in a strong real estate market and the market has now softened to the point that you actually paid more then you can sell it for. Selling FSBO may allow you to at least keep your head above water – remember we are talking 6% of the value of your property.

Another reason individuals consider FSBO is a bad experience with Realtors. Realtors are just like every other field – there are “good” Realtors and “bad” Realtors. Like many industries they have a self governed “Board” that they can be brought before and face punishment. That said Realtors also carry E&O and litigation insurance to protect both themselves and their clients.

Do you need a Realtor in a hot real estate market? I would say – no! If the homes on your street or neighborhood are selling within 2 -4 weeks of listing do you really think there is some hot shot realtor responsible for it – the market is responsible. It could be related to all sorts of things, including local economy, zoning, school system, new amenities, or a number of other factors but rarely, if ever, is it due to a Realtor. List your home FSBO – it will sell just as quickly and in the same price range

FSBO also offers a significant level of control, you control when and if showings or Open Houses occur. Personally I’m not sold on the value of Open Houses for FSBO’s – I know the value for Realtors and it is more often self serving then for the homeowners benefit. Realtors use an Open House to “troll” for leads. Chances are slim they will buy the house where they are conducting an Open House – but they are buying a house – and chances are they don’t have an agent if they are out at Open Houses.

Another advantage of selling FSBO is the simple fact that you know your house better then a Realtor. Buyers that are interested will ask very specific questions like what type of perennials are in garden or what the neighbors like. In fairness this can go the other way too; some homeowners do more harm then good – they cannot help themselves. I personally attest to this with listings at FreeFSBO.com that just seem to go on and on. It is important not to overwhelm a potential buyer to the point that they never want to risk exposing themselves to that situation (the homeowner) again.

Why you shouldn’t consider FSBO:

There are over 2 million licensed Realtors nationwide. Most are highly trained and experienced professionals. Can a single FSBO compete with this – maybe (14% of all existing home sales are FSBO).

Realtors may have clients that are looking for a property just like yours. That said, they will normally approach you if they do – they will ask if you are willing to cooperate and likely request that it be formalized and have you sign a document agreeing to pay their commission. Beware if they ask you to sign a listing agreement that is longer then 48 hours they may just be trying to grab your listing and the “buyer” may be fictitious – do not pay over 3%.

You simply may not have the time required to undertake an FSBO – for every four people that say they are coming to look at the property one will likely show up – get used to that fact. Don’t get your feelings hurt if someone doesn’t like your taste or property – that is just reality. If a potential buyer calls and wants to see your home at a moments notice you may have to drop what you are doing and rush home to show them your home. If you’re not prepared to deal with that then maybe FSBO isn’t for you.

You do not possess any sales or marketing skills. I know it’s not easy to admit, but if you are an introvert – forget it. Most successful Realtors are extroverts and spend countless hours attending social functions, clubs, associations, golf courses (sorry had to throw that in) to generate leads and contacts. They have usually taken countless sales training courses and most importantly, they know how to close a deal.

Multiple Listing Service (MLS) – this in my opinion is the single most important advantage that Realtors have over FSBO. The MLS is made up over approximately 500 individually owned and operated MLS organizations. It is essentially a nationwide repository of existing properties available for sale. It provides both realtors and buyers alike an opportunity to locate properties using a number of search criteria including, but not limited to, geographic location, size, price, bedrooms, bathrooms etc. There are two factors to consider here – one - you can buy a Flat Rate MLS at either a national or county level and take advantage of the marketing exposure that MLS provides – it will cost you in the range of $299 - $599 and an agreement to pay 2 - 3% to a selling agent if a Realtor sells your home. You do however maintain the right to sell your property yourself without paying a commission fee. As far as “quality” of exposure goes, I truly believe that an online FSBO listing is superior (in appearance and functionality) to an MLS or realtor listing. That said, no FSBO website enjoys the level of traffic and potential buyers offered by Realtor.com.

In conclusion, obviously undertaking a successful For Sale by Owner is not for everyone – we can all agree on that statement. Is it worth a try – definitely!

Mark Camphaug is currently President of FreeFSBO.com and it’s parent Martcam LLC. FreeFSBO.com (http://www.FreeFSBO.com) is a For Sale by Owner (FSBO) website that offers a free online listing and free real estate lawn sign to prospective FSBO home sellers. In addition to spending the last 6 years as Vice President of one of the world’s largest and most successful Interactive Marketing Agencies where he specialized in all aspects of internet marketing, including SEO, PPC, Email and Affiliate marketing Camphaug spent 12 years in the competitive new home industry, duties included sales, marketing and client relationship management.

Article Source: http://EzineArticles.com/?expert=Mark_Camphaug

Definition of FSBO

Definitions of fsbo on the Web:

For sale by owner. A property for sale that is not listed with a real estate broker.
www.afifinancial.com/information.php

Homeowner acting as salesperson for his own property. No listing commission is paid but a sales commission may be paid to a buyer's agent.
www.miami-real-estate-agents.com/f3.html

A home that is offered for sale without the use of a real estate agent.
www.nuestracdc.org/Mortgage%20Terminology.html

Indication that the owner of a property is attempting to find a purchaser for her property on her own, without employing an agent.
www.krisholmes.com/gloss-f.htm

A selling method whereas the owner of the property acts as the selling agent and handles the sales process directly with the buyer or buyer's agent. This is most commonly done y owners in order to avoid having to pay a listing commission.
www.realestateglossary.com/real-estate-glossary/f.html

Real Estate that is sold without the assistance of an Agent. FSBO can refer to both the individual selling the property "They are a FSBO," or the property itself "that house is a FSBO."
www.homebuyerconnect.com/real_estate_glossary.php

For Sale By Owner. Also known as a Private Sale.
www.fsbohowto.com/real-estate-terms.html

FSBO is a generic term meaning that the home is being sold by the owner without the assistance of a Realtor.
www.finding-a-real-estate-agent.com/glossary/

For Sale By Owner, owner advertises property for sale without the help of a professional.
www.spokanehomes4u.com/glossary.html

Stands for “For Sale by Owner” (pronounced "fizzbo). A property and/or person that is marketed by the owner without the assistance of a conventional real estate broker. FSBOs account for approximately 20 percent of all real estate transactions.
www.directlinehomemarketing.com/glossary.htm

FSBO (pronounced Fizz-Bo) is shorthand for "For Sale By Owner".The term is used by real estate agents to denote property, usually homes, which is sold by the owner without help from a realtor (real estate agent).Typically, owners advertise their properties by means of classified ads, Web sites, word of mouth, and other means.
en.wikipedia.org/wiki/FSBO