Can You Afford To Pay A Realtor?

You've probably heard this a lot in today's HOT Sellers' Market ……. "I can sell my house myself!".  We all have.  And homes do sell without the help of a Realtor when market conditions are as favourable for a seller as they are right now.  The National Association of Realtors reports that in 2013,  9% of total home sales were FSBOs.  

For Sale By Owner (FSBO) Statistic

Pretty good statistic to flaunt if you're one of the For Sale By Owner companies competing for business against Real Estate Professionals right?  Of course it is.  With all these companies looking to charge flat fees of $1200-$2500 for signage and marketing packages, isn't this the most cost effective way to sell your home?  Can you afford a Realtor anyway?

Knowing this, I was not that surprised when the week before my new listing was to launch, the home right next door decided to list privately.  With 12 homes on the street, it was quite predictable that one would try to sell privately.  That would of course be approximately 9% of the street.  ;) A home had tried to sell in the past six months and was priced at just under $400,000.  Made sense for the For Sale By Owner to try the $400,000 mark.  Even if he accepted a lower offer, he was saving 5% in commission dollars.  This would be a no-brainer.  And so it seemed as two days in, an offer was received and accepted for $385,000.  The offer was brought in by a Realtor representing his client, and a commission was negotiated for the selling brokerage for 2.5%.  Still a great deal as the seller saved 2.5% in listing brokerage commission.  Well, actually once you take away the up-front, non-refundable, flat fee that was paid to the FSBO Listing Service for their signage and paraphernalia that assisted with the sale, there was still a savings of approximately 2%.  That translates into a savings of almost $8,000 of hard earned equity.  

Now, here's where the problem started.  I had conducted comparative market analysis, competitive market research, evaluated current market conditions and had valued the property I was about to list at just under $500,000.  Seeing that the property next door had just sold for over $100,000 less, my clients were obviously disheartened and requested their listing to be cancelled.  After assuring them that my price point was right on and that I was confident that it would be fine to list at that price, my clients agreed to proceed.

The pressure was on.  The bar had been set by the neighbour and this For Sale By Owner had devalued the entire street with his "expert" analysis of pricing in the area.  I had to redo my numbers the night before the listing hit, just to see if I had missed anything.  The frustration of an uneducated decision on pricing made by someone not working in the industry was setting in.  I had to trust in our price point, my marketing system, and my negotiating ability.  It was game time, no going back.

Six days into the listing, we had generated 18 viewings and THREE offers on the property.  That day we sold the property for over asking.  By putting our marketing system into place and conducting the proper price analysis, our client had just received over $100,000 more for his property than his neighbour.  Now I know what you're thinking.  Yes, you're right! My client did pay 5% in total commission, and the neighbour did "win" by saving approximately 2% after all the expenses.  Oh, wait!  Let's do the math…

The FSBO saved $8,000 on his $385,000 sale.  My clients paid $5,000 extra in commission due to the $100,000 extra we ended up getting them.    $8,000 plus $5,000 does add up.  My client ended up paying $13,000 more in commission than his FSBO neighbour.  Now, that $100,000 extra that my client received on the sale?  Oh, yes!  How could we forget that part. :) $100,000 less $13,000 is $87,000.  Therefore, our client is taking away $87,000 more than his neighbour who was extremely happy with saving $8,000 in commission.   You are probably asking yourself how typical is it for a property listed and sold by a Realtor to receive that much more over a For Sale By Owner property right?  Let's look at the stats for 2013.  The sold price of a typical home sold privately was $184,000.  This compared to $230,000 for homes sold by Realtors.  The NAR average was 20% more for a home sold by a Realtor, and the property we sold this week was exactly the same.

For Sale By Owner (FSBO) Statistic

A 20% difference in price to save 5-6% in commission.  No matter which app you use to do your math, the bottom line is quite clear.  Many will argue that with the information now available on the internet, is there value to using a Realtor?  The answer to that is, yes, there is a lot of raw data available out there.  What is not available on the internet is the expertise required to compute that data into an Informed Decision.  A Real Estate Professional uses their training, market knowledge, and experience to bridge the gap that exists between Raw Data and an Informed Decision.  The question should not be "Can you afford a Realtor?".  The real question you need to ask yourself is "Can you afford to sell your home privately and walk away from that much equity?"

Choose wisely!  It's YOUR money after all.  

For ways that our proven Marketing and Sales Systems can help you maximize the return from your property, call a Realtor and let's talk.  It will be worth it. :)

Asif


Upvote Upvoted 10
22 responses
Well said Asif!
— jason
Truth be told!
— Timorhy Polanik
Numbers dont lie!
— kelly killingbeck
BS. PLEASE post street name. Overpaid realtors blowing their own horns.
— andy
Happens all the time, Andy.
— Tim Ayres
Andy, may I ask how you believe the term "overpaid Realtors" has any merit? If we invest in our businesses and ourselves, take on all the risk and liability, as well as provide services in good faith with no deposit or down payment (or even a guaranteed payment at the end of the day (since our whole model allows us to only be paid on the satisfaction of our clients). Also, if the client is not happy with a sale or purchase price, they hold the final say. With this in mind, how are Realtors overpaid? I'm sure you've done your research and have a base for your comment. I am just clarifying. :)
— A posthaven user
Ummm.. Just stating that that "The typical FSBO home sold for $184,000 compared to $230,000 for agent-assisted home sales" doesnt make your argument true. There could be numerous confounding variables that cause the one average to be greater than the other. For example, owners of expensive homes are likely more willing to pay the commission for a variety of reasons. 1. They could have demanding careers and don't have the time to dedicate to selling a home. 2. They want their sale to go smoothly since it is such a large investment, thus they are willing to hire a professional. 3. These owners likely have a larger disposable income and arent concerned about these savings that may cause significant headaches. You might be right that FSBO is not the right way to go. But by no means does you argument here support that point.
— Jake
Jake, you raise a valid point, and those numbers are straight from NAR and there could be many variables that cause such a discrepancy. The example of the neighbour's home and the one I sold are actually apple to apple and within the same time period. The blog was primarily based on that example. The NAR numbers fell within the same range and were included just for illustration purposes. Well thought out comment. Thank you for reading and taking the time to post.
— A posthaven user
If you were interested in the truth you would've mentioned the points Jake brought up in his comment. It's obvious the purpose of this article was to promote your business. And there's nothing wrong with doing so. But don't respond to comments trying to portray some type of nuetrality on the subject.
— Smith
Sorry you felt that way with the response Smith. Jakes points were valid in why people choose to deal with a professional when it comes to their largest asset. His point about the higher value homes sold by a Realtor according to NAR's stats and their stat RE: lower value of homes sold privately and possible reasons for this are speculative which I acknowledged as reasonable arguments. The point is that in my example there is no speculation. It is like products being exchanged for the value someone has established and backed up. How is that "not interested in the truth" when it is the truth?
— A posthaven user
A posthaven user upvoted this post.
This article is wrought with misguided arguments and half-truths. For starters, the rather dubious statistic quoted by NAR on the comparable between FSBO vs Realtor sold homes is laughable. Do we have any indication that the homes are even in the same category? FSBOs could just as well be lower income earner individuals who want to save more of their hard earned equity and therefore have lower valued homes as a consequence of the fact that they earn less on average and can only afford homes in the lower price category. The data would simply reflect this difference of the sample means of each population if that is true. Of course, that is never mentioned - folks, dishonest statistics will not save your industry. Nor will these silly articles. Here's the one glaring fact that stands true: NOBODY knows what your house is worth, and no "analysis" will ever give 100% certainty on the perceived value of your home. You know why? Because the basic laws of economics dictate that the value of your home ultimately is driven by one principle: WHAT SOME PERSON IS WILLING TO PAY FOR IT. You can never know that entirely unless you are psychic. Now, of course you can always draw comparisons to other listings in the same street and say "similar home, similar market conditions" similar price. But again this is dubious thinking. There are a myriad of factors that go into buyer's perception of value, and it ultimately is always going to be a tug of war between what one person thinks it is worth (based on whatever arguments you like) and what another person is prepared to pay for it. And if you are a good negotiator then that certainly helps a lot. But still there are no guarantees. Let's not forget that. And also, let's not forget that realtors all have their #1 agenda - getting your home sold fast, because small differences in asking price don't affect their commission that much. But home sellers have a #1 agenda of price. And so a gap exists. By all means - if you want to go FSBO go ahead. Or hire a realtor if you want. But stop using silly arguments like this to defend your "profession". It just makes you all look silly.
— Steven
Steven, thank you for reading and for your feedback. Since we don't know what the NAR stats actually measured, the assumptions that they may or may not be making are just assumptions in themselves. The concrete example of a like property, being offered in the same market at the same period of time, is what we can use as a comparable. The reason for the inclusion of the NAR stats was that the base example of the article did indeed reflect the same numbers as NAR's statistical reports. If one is assuming that the stats are off base, that is their interpretation of the stats. However when a real time, real life example is thrown in, it's hard to argue. To add, the seller of the FOR SALE BY OWNER home was adamant that the price point we were going out at was too high. The same person is now trying to back out of the private deal he signed.
— A posthaven user
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