We received an email from a reader named Jeff about the benefits and saving as a result of buying or selling your home without a realtor:
“I’d like hear a podcast on buying/selling your home without a realtor or w/realtor at a reduced rate. There’s certainly an hour’s worth of content here to be discussed…and significant money to be saved.
This is an excellent set of questions, and we’ll answer each part individually.
Table of Contents:
Buying a Home Without a Realtor
Let’s tackle this part of Jeff’s question first.
Generally speaking, there’s not much advantage to buying a home without a real estate agent. Excluding an agent from the deal may not save you money, as the seller pays the real estate commission. And, in fact, there are definitely some advantages in using a realtor when buying a home.
Here are a couple of specific questions to answer when you consider buying a home without a realtor:
Will you really save money?
Buying a home without a realtor won’t technically save you money. The seller is the one who pays the realtor’s commission fees, to both the selling and the buying agent. Many times, the seller will leave the commission percentages the same but will just give the leftover commission to the selling agent.
However, you may be able to negotiate with the seller to cut down the home price by the typical cost of the buying agent’s commission. This doesn’t always work. But it can be worth trying at times.
What are the disadvantages of buying without a realtor?
Before you try to buy without a realtor for the small percentage it could potentially save you, be sure you understand the potential downsides of not using one. Here are some of the risks to consider:
- You may not know how to negotiate. You can obviously learn how to negotiate in a real estate deal. You may even have some experience in this area. However, a realtor can help you get the best possible price or figure out other ways to negotiate, such as getting more repairs for the same amount of money.
- You’ll have to figure out contracts on your own. You’ll still need a lawyer to draw up your contracts, even if you don’t have a realtor. But you’ll have to know what to look for in the contracts yourself. This can be overwhelming.
- You may have trouble digging up details. Realtors have all sorts of interesting tools to help them find out more about the history of your property, nearby selling rates, and potential hidden expenses. You may have trouble digging up these details on your own.
- It may take more time. Buying a home takes a lot of time, anyway. But with a realtor, your time investment can be much less.
Read More: The Real Cost of Using a Real Estate Agent
In short, you may or may not actually save money when you buy a home without a realtor. But you will definitely spend more time and effort. So it’s generally best to work with a good realtor when it’s time to buy a home.
Selling Your Home Without a Realtor
There’s no doubt that selling your home on your own can take a long time. And it can be a ton of work. But there are a couple of reasons to consider going this route, including:
You Could Save A Lot of Money
Selling a home without a realtor can save you quite a chunk of change. A realtor’s commission is negotiable. On average, however, it is about six percent of the home’s sale price. So if you’re selling your home for $250,000, you’ll pay about $15,000 in realtor commission fees. This gets split between the selling realtor and the buying realtor. And it comes out of the money you receive on the sale of the home.
And here’s the deal about that fee: it can significantly reduce the total amount of equity you take from your home. And this can impact your ability to use that equity for a down payment on your next home.
So let’s say you have $115,000 in equity in that home that you’re selling for $250,000. That $15,000 realtor’s fee is actually 13% of your total home equity. That’s the real reason many people decide to go For Sale By Owner (FSBO).
The primary reason to work on your own as a seller is to save this money. But there are actually several good reasons to opt to work with a realtor, even if you’ll pay a chunk of change to do so.
You’ll Have More Control
When you work with a realtor, you’ll have to take their advice on how you price your home, how you market it, and how you negotiate with buyers. You can decide how to market your home, and you can decide when to have open houses. You can also decide what a fair price is and exactly how you want to negotiate with the potential buyers.
Disadvantages of Working Without a Realtor
The money you can save when you sell FSBO may be enough to convince you to try it. But there are some definite disadvantages to this approach, as well. They include:
It Takes a Lot of Time
You have to be available at any time of the day when potential buyers call to look at your home. You’ll be responsible for coordinating all the showings and for working out all the negotiations. This may be prohibitive if you have a day job or just generally a busy life.
You Lose Out on Expertise
It can be difficult to price your home correctly if you don’t have the expertise you need to price it. If you price too high, you may not get interested buyers, which can make it take a long time to sell. You’ll also lose your realtor’s expertise on the best way to market and sell your home.
Other Agents May Not Show Your Home
Unless you make it obvious to buyers’ agents that you’ll work with them, they may not bring potential buyers by your home. And if you do decide to cooperate with selling agents, you’ll need to give them part of that average commission fee.
Basically, not cooperating with agents makes it more likely that your home will take extra time to sell–or that it might not sell at all. But if you do cooperate with the agents, you could cut into the savings you’ve earned by going FSBO.
You’ll Have to Do The Paperwork
Selling a home takes a ton of paperwork, and you’ll want an experienced eye to make sure you’re getting a good deal. Your buyer’s agent may work requirements into the contract that you miss. You’ll want an attorney either way. But having an experienced realtor helping to sell your home can also make it much easier.
When to Try to Go FSBO
Working to sell your home without a realtor makes more sense for some than others. If you live near a busy road or near other homes that are listed by realtors, for instance, it can work. Basically, you need to have a lot of traffic going by your home to generate buyer interest without a lot of work on your part.
Another time to work without a realtor is if you already have a buyer in mind. Sometimes a neighbor or friend wants to purchase your home before you even have it listed. In this case, opting out of a realtor can definitely be to your financial advantage. You could even give the buyer a discounted price if they also opt out of using a realtor, making it a win-win situation.
If you live in a hot real estate market, you might consider listing your home FSBO for a while to see if it sells that way. If so, you get extra money. If not, you can always switch to listing the home with a realtor later.
How to Do a For Sale By Owner
There’s one major reason why most property sellers ultimately decide to hire a real estate agent. It’s because the FSBO route is a much larger undertaking than many assume.
Whether you agree with paying the real estate commission or not, real estate agents are assets. They bring not just experience to the transaction, but also established marketing strategies. If you aren’t prepared to somehow duplicate those strategies, the FSBO route will be hard to pull off.
In order to successfully sell your own home, there are a few things you must do first.
Establish a fair market value for your home. This must be the first step. Overprice your home, and it won’t sell. Underprice it, and you will lose money. For that reason, you have to get the valuation right.
In order to do this, you will have to gain access to closed sale prices. Asking prices for current listings don’t count, as they only represent what sellers hope to get for their homes. Closed sale prices are “hard prices,” in that they represent the true market value.
Learn About It: How to Run Home Comps and Why They Matter
You can get closed sale prices at the county courthouse in your area. Sites like Realtor.com and Zillow often have this information, too. Be sure they represent recent sale prices, such as those sold within the past six months. As an alternative, you may be able to get the same information from a real estate agent friend, who can get it from the local multiple listing service (MLS).
Once you have that information, you need to make sure the comparable sales are located within about a mile of your home, and then adjust for variances in property type. For example, if a property sale is for a larger home, you’ll have to lower the value of your property. If it is a smaller home, you can increase it. This is a very complicated process, and extremely difficult for non-professionals to do properly.
If you really want to have a solid idea as to what your property is worth, your best bet is to order an appraisal. This will cost between $300 and $500, but it will be money well-spent. It will give you the closest approximation of what your house will actually sell for.
Stage your home
Not every property needs to be formally staged to sell. But it can help to present your home in the most attractive possible light. This includes, at a minimum, clearing up any clutter. You may even want to rearrange photos on the walls, give rooms a fresh coat of paint, or rearrange furniture in a more attractive position.
Staging is something you’d need to do even if selling with a realtor. But realtors do often have good advice on what will be most attractive for buyers.
Market the property
This will involve purchasing an attractive “for sale” sign for the front lawn, designing compelling marketing flyers, and writing convincing ads for the local newspaper, Craigslist, and other available online marketing sites. You have to be consistent with this effort, maintaining your marketing strategy in full force until you sell the property.
You’ll also need to get attractive photos of your home for these listings. If you have good lightning and decent camera phone, you may be able to take the photos yourself. But you may also want to pay a professional for the photos, instead.
Host an open house
This is an attempt to open your property to multiple prospective buyers. They’re most often held on the weekend, and you can host as many as you feel is necessary. You may find your eventual buyer as a result of an open house. So this is a step you must take as part of the marketing process.
There are some situations of which to be aware. The first is that it’s entirely possible that most of the visitors you get will be real estate agents trying to get the listing on your home. The second is that you will get more than your fair share of unqualified lookers. That is, even if they’re interested in the property, there’s a likelihood they can’t afford it. This just happens in any real estate market.
If you don’t use a real estate agent, you’ll have to handle showings on your own. You must make yourself available to show your house at the potential buyers’ convenience. You will also have to put your sales hat on! That means being prepared to sell the benefits of the property without being pushy.
You will need to not only tour the property with them but also field their questions. Be prepared to confidently answer any question a prospect asks. Otherwise, you risk losing a potential sale.
If you do get an offer on your home, you will have to handle negotiations yourself. You will need to be firm without being obstinate. Always remember that negotiations involve give-and-take. That means that you will need to make some concessions. Those concessions will be an integral part of your ability to complete the sale on your property.
Once you agree on a price, you will need to prepare a contract. That document will spell out all of the other terms of the sale, including the closing date, specific contents to be included in the sale, closing costs, and contact information. You can use a standard real estate contract form common to your geographic location. It will be slightly different in each state, based on state law. You can find examples on sites like Rocket Lawyer.
You’ll need to work out all of the closing terms between yourself and the buyer or buyer’s realtor. That will include selecting a mutually agreeable closing attorney or title company to handle the closing details. You’ll also have to determine if a property inspection will be necessary or any other inspections the buyer may request.
What About Taxes? How to Pay Zero Capital Gains Tax When You Sell Your Home
Critical step: Somewhere in the contract negotiations phase, you must get a copy of the buyer’s mortgage pre-approval. You must have this in order to know if the person you’re negotiating with even has the wherewithal to complete the sale. If you are reluctant to ask for this information verbally, you can make it a condition of the contract. Just make sure the buyer provides it early in the negotiations process, such as within three business days.
Holding an escrow deposit
Any real estate transaction should be accompanied by an escrow deposit. This is usually a flat amount, or a percentage of the sale price, that the buyer puts up as a good-faith deposit on the property. It provides an incentive for the seller to remove the property from the market.
In most cases, this deposit should be held by a third-party, just in case a dispute should arise. The real estate agent would normally be that third-party. Since you’re going FSBO, though, it will likely be either the attorney or the title closing company.
The work required to complete these steps is a major reason why people decide to list their properties with real estate agents.
Using a Realtor at a Reduced Commission
If you decide that FSBO is too big of a task but you don’t want to pay a 6% real estate commission, you always have the option of listing the property at a lower fee.
There are two ways to do this. The first is to get a real estate agent who agrees to work for less than 6%. The second is to work with a discount real estate agency that routinely lists properties for less than the going rate.
I’ve actually used this method myself. And while I was generally satisfied, there are a few things of which to be aware.
I listed my house with a discount agency who accepted a commission of 4%. The amount of that fee was not arbitrary. A full 3% would go to the selling agent, while the rest would be paid to the listing agent, who was the discount broker.
The reason 3% would go to the selling agent is purely incentive. This is the amount selling agents would get on any other normal real estate listing. If they are paid below that, they will be less likely to even show your property to prospective buyers.
For example, if the commission included only 2% to the selling agent, realtors across the market would avoid showing the property. Instead, they would show buyers properties on which the they would pocket 3% for the same amount of work.
The 1% paid to the listing agent was the real discount, but it came with limitations.
Since the fee was so low, the selling agent basically did little more than list the property on the multiple listing service. That’s a huge factor when you are selling your home. But it costs the listing agent relatively nothing to do.
But that’s about all the discount listing agent did. We had to do the marketing of the property, including advertising and creating flyers (though the agent did provide a yard sign). Also, we had to handle the open house events and work at showings with selling agents.
We saved several thousand dollars using a discount listing agent. But here’s the thing: you can’t expect full service performance when you’re using a discount realtor. My wife and I had some experience in marketing and selling a house, so we weren’t exactly novices. But if you have never sold a home, the discount route may not be entirely satisfactory or successful.
In slower markets, you may need to spend even more time pushing out the property and trying to get it sold. And if you need to sell quickly, you might be out of luck when you work with a discount broker.
If you are buying a home, by all means use a real estate agent. It’s unlikely that you will save any money if you don’t. In fact, you may end up doing a lot more of the work in finding and negotiating on a property.
When selling your house, try the FSBO route at least for a while, but make sure you do your homework in advance. If that doesn’t work, try the discount listing agent approach. If neither works? It will be time to call in a full-service real estate agent. Good luck!
Have you bought or sold your home without a realtor, or with a discounted realtor, before? Would you do it again?