FSBO (pronounced fizz-bo) – also known as For Sale By Owner – is probably an effort most homeowners make at least once in their home owning lives. But is it better than using a real estate agent to get the job done? Probably not in most cases, but there are a few situations where it’s well worth the effort.
Let’s take a look selling your home using both FSBO and a real estate agent.
The Pros and Cons of Going FSBO to Sell Your Home
The FSBO pros. There’s really only one major advantage to FSBO, and it’s to avoid paying the real estate commission. But let’s face it – that’s one, huge pro!
The typical real estate commission is 6% of the sale price of the home. Some agencies, typically discount brokers, will list the property for less, but their services may be limited to simply putting your house on the local multiple listing services. They may not actively market your property beyond that step.
But a 6% commission is sufficient motivation for sellers to at least try the FSBO route. This is because not only does the commission reduce the net sale price of the property, but it cuts into net equity even more.
Let’s say for example that you are trying to sell your home for $300,000. You also have a mortgage of $250,000. If you sell using a real estate agent, you will pay 6% of the sale price, which is $18,000. The payment of the commission will come out of your equity. That means that the $50,000 that you hoped to pocket from the sale will be reduced to $32,000.
The reduction in equity from the sale – due to the real estate commission – could make it difficult or impossible for you to purchase another property. That’s why home sellers are often willing to go the FSBO route.
The FSBO cons.
- If you’ve never sold a home before, you may be in over your head.
- It can cost money to market your property, and that would reduce the amount of money you will save by not paying a real estate commission.
- You will have to handle the paperwork of the sale on your own. That may include writing up the contract, creating advertisements, designing marketing flyers, and everything related to the sale of the property.
- You will be showing your home to people who you don’t know, and who have not been prequalified by an agent.
- You will have to handle contract negotiations without the benefit of an intermediary.
- Buyers are often unwilling to look at a FSBO property, knowing that the purchase process will be more complicated without a real estate agent involved.
- If fewer people come to look at your house, there will be fewer offers, and you may be forced to accept a low offer for lack of anything better.
The Pros and Cons of Using a Real Estate Agent to Sell Your Home
The real estate agent pros:
- The Multiple Listing Service (MLS) – this makes your property available to be shown by every real estate agent in your area, putting many agents to work selling your home.
- The realtor markets the property at no cost to you. That includes web and print advertising.
- Your home will only be shown with a real estate agent present, and to buyers who have been pre-qualified.
- The agent will handle all of the paperwork.
- The agent knows the home sale process, and will know exactly what to do and when.
- The agent handles the contract negotiations – it’s often easier to get a better price when you have someone else negotiating on your behalf.
The real estate agent cons:
- Paying the real estate commission.
- You may get a bad agent who wastes your time, but you still have to pay the commission upon sale.
- The agent may be in a hurry to sell your home – to get the commission – but has little regard for getting you the best price for the property.
- Even if you want to change agents, the listing agreement – which usually runs for several months – will prevent you from doing so (recommendation: require that the listing agreement is limited to 30-day increments).
When FSBO is Worth Trying
The pros and cons favor using a real estate agent to sell your home. After all, selling houses is what they do for a living. And unless you’re in the business yourself, you’re better off turning the job over to the professionals.
But that doesn’t mean that you should never consider FSBO. Here are three situations where you might do just that:
1. As a first effort. You might try the FSBO route for say, 30 days. If your house is well-priced, has strong curb appeal and is adequately marketed, you may get a good offer and sell without ever needing to use an agent. If not, you can choose to list it for sale with an agent after having tried FSBO.
2. When you need every last dollar from the sale. Paying a real estate commission will reduce the equity from the sale. If you need every dollar of equity that you can get, you may want to give FSBO a very serious try. This can be even more important if you have little or no equity in the house that would be needed to pay the real estate commission.
3. When you aren’t pressed for time. If you aren’t up against a time limit – if you literally can take months to sell – you can go FSBO. Perhaps you’re only going to sell if you get a good offer, and otherwise, you’re content to keep the house. The lack of a deadline can work much better with FSBO.
The long and short of it is that if you have the time, the need and the willingness, FSBO is an opportunity to increase the cash you’ll reap from the sale of your home. But if not, the better choice is certainly to let a real estate agent handle the sale for you.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.