You FSBO your house for a list price of $206,000, which is 3% above its assessed value, and you await FSBO buyers.
FSBO buyers, however, tend to calculate their own "selling price" for your home and this price is usually lower than your price. When they make an offer, it is more likely to be based on their "list price" rather than yours. This is not at all uncommon and explains why FSBO sellers often only see what seems like low-ball offers.
Heres how a FSBO buyer might calculate his price. He is certain that you have a commission built into your price, but like you, he has no interest in paying it. So he discounts your price by 6% or more to factor out the commission.
I want to be as conservative with this analysis as possible, so lets say in this scenario, your FSBO buyer has a buyer's agent. His agent has advised him to keep the buyer's agent commission in the price. So he only discounts your price by what he estimates is the listing commission, let's say 3%. At this point, your FSBO buyer has now calculated what he believes your list price "should really be" ($199,820) and that's the list price he's going to work with.
FSBO buyers, like all buyers, don't want to pay the list price for your home. If the average sale price is 96% of list price for listed homes, the FSBO buyer will, because theres no listing agent, likely expect a better deal--say 95% or 93% . To be conservative though, lets settle on 95%. This gives your FSBO buyer a ceiling price of $189,829. So he writes an offer of $179,838 with the expectation of negotiating with you, but not going above $189,829.
Now you have an offer on the table of $179,838 before closing costs, and you are completely on your own, to negotiate with his professional negotiator.
But, to your credit, let's say you are really good at negotiating and you get him up to his ceiling price of $189,829, which you accept. At closing, you subtract his buyer's agent commission of $5,695 and closing costs of $1,534. leaving you with a net before taxes and mortgage pay-off of $182,600.
Unfortunately, as a FSBO seller, besides taxes and mortgage pay-off, you still have some Major Expenses to Subtract.
Now you have to subtract the value of all the time you and others spent marketing and selling your home on your own. What is your time worth per hour? Multiply that times the number of hours you spent on the FSBO project and then add to it all the hard costs for ad preparation and space costs, literature production costs, materials and supplies for open houses, gas to go get stuff, your attorney fees and any other costs you incurred to prepare your home for sale. Even without fully compensating for your time, these costs could be several hundred dollars, if not $800 dollars or more. And the total of these costs come right off your bottom line.
Now let's take a look at the same home sale, but this time the seller chose to list the home with a qualified real estate agent... |
You List your home with a real estate agent. I would like you to list with me, but for the sake of comparison, any good agent with residential experience will do. Again, I have made a significant effort to make both of these scenarios as conservative as possible, by using MLS and market averages wherever I could. Anyone can make the comparison favorable to one side by manipulating the numbers to meet their needs. I do not want it said that I construed a horrible FSBO scenario and compared it to a fabulous Listed scenario, or vise versa. My purpose here is to just compare what I believe to be two very average, if not typical transactions.
You and your agent walk through your home and you point out its features and then you agree to list your house at $206,000. This is 3% above assessed value which is the median value for our area. Now you wait for showings while your agent begins an advertising program in a variety of mediums including print, web, and direct marketing, and prepares sales literature and brochures for the yard sign and up-coming open houses. In my case, I also provide a credit at closing for professional staging services, general cleaning, carpet cleaning and where we both believe it is necessary, a pre-inspection by a licensed Wisconsin home inspector.
The marketing is working and a represented buyer writes an offer on your home for 93% of your list price. Your agent is an experienced negotiator but its a buyers market and despite his best effort he can only get your buyers offer back up to 95% of your list price with reasonable terms. Because 96% is the average sales price to list price ratio for our area, you decide that 95% is close enough to accept the offer. That amounts to $195,700.
You and your agent agreed upon a 6% commission when you listed, so at closing you subtract the commission of $11,742 and closing costs of $1,561, leaving you with a net before taxes and mortgage pay-off of $182,397. Just $203 less than the FSBO scenario. But here's the real difference:
Fortunately, as a Listed seller, besides taxes and mortgage pay-off, you have No More Major Expenses to Subtract.
You didnt have to spend your time waiting for calls, showing the house, filling out forms, seeking regulatory advice, ensuring the proper disclosures were being made and negotiating the price. Your agent did all this for you.
You don't have to subtract the value of your time and effort to generate all your marketing materials, or the hard costs of ad space, direct marketing, signs, brochures and open house expenses. Why? Because your agent did this work and has already paid the hard costs for you .
And, if you had worked with me, you don't have to subtract the full cost of carpet and house cleaning, staging services and possibly a home pre-inspection. Because as your agent, I provided you a credit at closing for these services as part of my Power Package.
Which seller had the easier time selling their home? Who spent the least amount of their personal time and resources to complete the transaction? And who, at the end of the day, put more money in their pocket? The numbers tell the tale. |