By Ross Wilson
At first blush, one might think that buying and selling privately, commonly referred to as “for sale by owner” or by its acronym FSBO, is advantageous to both parties. But it rarely is. Why?
By their inherent nature, private sales are rife with challenges and are usually wholly dependent on luck and happenstance. If a seller prospect is wondering about advantages of going private, or your buyer is contemplating the private path under the dubious belief they can save money, they may have a surprise in store. Think about this – if trading privately is so easy, how could a dynamic real estate industry exist? The numerous disadvantages far outweigh the single possible advantage.
At least to those in the business, and unquestionably to all who’ve made the attempt, it’s common knowledge that the vast majority of FSBOs end in defeat. Studies have concluded that a large portion of the relatively few homes sold privately are actually sold to acquaintances. Therefore, general statistics may be skewed. Homeowners obviously like the idea of getting a high price with a low cost, but the old adage about getting what you pay for usually applies.
Nowadays, though, thanks to the introduction of mere postings by private sale companies on the MLS system we built, combined with our currently strong sellers market in many regions, private sales have realized some favourable results. However, most sales are still orchestrated by organized real estate. I’ll opine here that as the market evolves into more balanced or buyer-favoured conditions, FSBOs may once again fall further into fringe territory.
Why do most fail? Think about the term “private sale”; it’s private. Nobody is shouting from the roof tops. With the possible exception of a small lawn sign and maybe an expensive classified ad in the local newspaper, nobody is spreading the word. Sure, private sale companies offer minimal service for a minimal fee, including website insertion, but their visitor traffic doesn’t hold a candle to that of our MLS system. Nevertheless, websites are just advertising and advertising doesn’t typically make the sale. Once the phone rings, sales skills and industry knowledge – which are obviously as scarce as hen’s teeth in the private sector – enter the picture.
A homeowner could dupe themselves into believing that no one is better equipped to show and sell their own house than the person who knows it best – themselves. They make up a lawn sign (amateur) with their personal phone number (loss of privacy), submit an ad (amateur) in the local paper (expensive) and wait for the countless calls (naive) from eager prospects (rare) ready to pay whatever the homeowner wants (I’ll have what they’re smoking). Well, good luck with that. It’s like representing yourself in court. And you know what they say about that; you have a fool for a lawyer.
An alternative is a reputable “sell your own home” company that charges a non-refundable flat fee (whether or not the home sells) to advertise on their website and post basic descriptive details and photos on our MLS system. They usually supply a lawn sign and maybe a brochure guide, possibly even telephone or online support. Optional services might be available, such as market value analysis and open house guidance, but they levy additional fees. That’s fine, provided homeowners are informed regarding the entire sale process, including the risks and responsibilities, understand when it’s wise to seek professional advice, ask the appropriate questions at the right time, and critically, possess the skill to close the prospect.
Discount brokerages are another option. These companies usually charge a flat fee in advance or a low percentage commission to upload the property onto the MLS system. The homeowner may think they’re smart until they realize that many serious buyers prefer their own representation, which means a seller may still have to pay a buyer brokerage commission on top of the listing brokerage’s fee. And they may have to deal directly with the buyer’s agent at the negotiation table without the guidance or protection of their own representative.
Here’s another challenge for a private seller. The discount listing agent may promise that if they bring their own buyer and double-end a sale, the entire commission will be only one low rate. Fantastic! But think about it; with ethics aside, why would that listing agent sell a buyer into their own listing for an extremely small commission when they could sell another brokerage’s listing for a higher commission, plus still earn the advertised low fee when another agent sells that discount agent’s listing? Come on – get real. But hey, the private seller is saving a little bit of money; just not as much as they believed.
Now, having said all this, the well-intentioned services provided by these alternative brokerages and private sale companies are indeed appreciated by a certain segment of the market and I commend them for their initiative. They do succeed in filling a gap. But prior to embarking on the private path, an industrious homeowner is well-advised to make an informed decision.
“If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.” – Red Adair