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Gene Krutyansky

Broker Owner

The Platinum Blog

"For Sale By Owner" : The Hidden Costs

11/18/2011

For Sale by Owner: The Hidden Costs

There are two kinds of home selling experiences that can lead a homeowner to try planting one of those 'For Sale by Owner' signs on their front lawn. It may seem quirky, but the two kinds of histories are polar opposites.

Take Homeowner Couple #1. The last home they sold was a quick and easy success. After listing with an experienced realty company, just one open house and a couple of showings led to a nicely-priced sale and a dream closing with no hitches. Homeowner Couple #1 has seen how effortless selling a house can be -- anyone can do it! They pop over to the hardware store and voila! $5.95 later, the For Sale by Owner sign goes up.

Homeowner #2 could not have had a more dissimilar history. Their original listing with a less-experienced real estate group was a grim comedy of errors, complete with miscommunication about the nature and timing of the showings, missed appointments, even a caravan canceled at the last minute. There was also the experience of meeting several loudly critical and unqualified buyers who made no secret of the fact that they were looking for a lower-priced offering. Plus there was not enough publicity, and as the listing lingered, it seemed to be gaining weight, sinking deeper and deeper down the company's advertising pages. When the listing expired, a re-listing with a more experienced firm proved successful, but in the end the home sold at a lower price than had been planned. Homeowner #2 is convinced that the lengthy time on the market cost him big bucks. He's bound and determined to take care of business himself this time! A trip to the hardware store, $5.95 for the sign plus $2.35 for a wooden stake and presto! the For Sale by Owner sign goes up.

 

It's easy to see how either of these extremely different real estate experiences could logically result in the For Sale by Owner decision, but only when the odds of success aren't fully known. For instance, what if either seller were aware of the research that indicates fewer than 3% of home buyers hear about their purchase directly from the seller? If you really wanted to move the property via the For Sale by Owner route, would you be eager to miss out on 97% of your potential customers? Likewise, if dissatisfied Homeowner #2 knew that only 1 in 8 For Sale By Owner sellers succeed in selling within the planned length of time (and even fewer get what they consider the right price), would Homeowner #2 choose FSBO over making a more careful choice of realty companies?

Recent statistics (these come from the published 2008 N.A.R. study) are eye-opening, and are explanation enough for why the overwhelming majority of home sales are entrusted to real estate professionals. There is also no shortage of dollars and cents reasons why For Sale by Owner signs are a relative rarity, and why For Sale by Owner transactions on average fetch lower prices (averaging less than 75% of prices gained by the pros). After all, who would want to risk 25% to save a 2-1/2% commission?  Remember, the ultimate buyer's interests are likely to be handled by a professional, who still earns her half of the commission.

And there is one more reason, and it is qualitative. It comes from the responses that For Sale by Owner sellers themselves report after the fact.

When rating the top five tasks they found most difficult, prominent among them were understanding and performing the paperwork, and having enough time to devote to all the aspects of their transaction. These are challenging, time-consuming skills that make sense for professionals, whose efforts can be spread over many sales, not just one. And their vastly greater success rates are entirely predictable when you realize that the typical realty pro makes a yearly investment of more than four figures on the technology needed to stay ahead of the market. Add in the marketing dollars they devote to keeping their clients' properties front and center, and the true cost of For Sale by Owner sign can add up fast!

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