If you want to save money by selling your home yourself, that’s OK. Just don’t expect to make any money doing it. A study by two leading economists finds that owners secure deals at prices below those on similar properties sold by Realtors using the Multiple Listing Service.
Conventional wisdom says that if a seller can eliminate the middleman, a Realtor, the person can save the commission, which is often 6 percent. Even if a home sells for 3 percent below what a sales agent might get, the owner of a $300,000 home will pocket the other 3 percent, or $9,000.
And in the era of online home shopping such as Zillow, Trulia and HomeFinder, do you even need an agent to attract buyers? The numbers say that you don’t, but according to the recent study you’ll be better off financially if you stick a Realtor’s sign in your front yard.
Collateral Analytics, a leading real estate research firm based in Honolulu, crunched data from 13 markets covering 770 ZIP codes. Stretching from Los Angeles to Dallas to Fairfax, Virginia. The report’s authors, Michael Sklarz, who has 30 years of professional experience in real estate research, and Norm Miller, a professor at the Burnham-Moores Center for real estate at the University of San Diego, stayed away from cities where the residential market was too hot or too cold so the numbers wouldn’t be skewed.
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After looking at 1.35 million sales during 2016, Sklarz and Miller concluded that closing sale prices on properties for sale by owner, or FSBO, were 5.5 percent lower than those listed with a Realtor through the MLS.
“It appears that many sellers are avoiding commissions while netting home prices less than they would with an agent-represented MLS sale,” Sklarz and Miller wrote in their report. “They are avoiding commissions at any price, even one that exceeds the commission rate.”
That’s right, owners saved on average one-half of 1 percent on the commission. For all the trouble and expense of listing their homes and showing it on Sundays, they saved $1,500 on a $300,000 home.
Why such measly savings? A couple of reasons come to my mind based on several decades in the residential real estate business. First, an MLS listing reaches more buyers because of the depth of information given to Realtors and the popularity of sites such as Realtor.com and MLS.com among people hunting online for a home.
This takes away nothing from Trulia, Zillow and Yahoo! Homes, the top three websites for finding homes, according to ebizMBA, a website-ranking firm. Many people search there before — or while — working with a sales agent. In fact, Zillow has a section devoted to Realtor and real estate agent rankings, which shows just how closely professionals are tied to these popular search sites.
Second, sales agents share information through networking events and professional meetings; word of a new listing spreads to the best prospects faster through their channels than it does through searches by buyers who don’t know each other.
Third, Realtors have professional training and experience in staging a home for an open house. A clean, less-cluttered residence can sell for more. Finally, a sales agent representing a buyer receives an offer of compensation, something a seller-owner may not want to give.
What works against a seller-owner? First, potential buyers are inclined to make lower bids because they know a commission is not part the price. Second, the seller must do all the marketing work, which means listing the property with services that often charge a listing fee, spending time showing the home, and negotiating with bidders.
The game isn’t stacked against a person willing to take on those duties. Seller-owners can stick to their price for as long as they want. A Realtor is likely to recommend lowering the listing price if a property is attracting few or no inquiries.
If you’re a DIY type of person, listing and selling a home yourself can be a rewarding experience. And you might come away with the sense of satisfaction of securing a contract on your own. But when you look at your wallet after closing, know that you’ll have only a few dollars to show for your trouble.
Mike Pappas is president and CEO of The Keyes Company, an independently owned and operated real estate firm since 1926.
This piece, written for Business Monday’s ‘Broker’s View’ space, reflects the opinion of the writer and not necessarily that of the newspaper. Got a Broker’s View? Realtors may submit columns for Broker’s View of 700 words to rclarke@MiamiHerald.com. This feature is intended primarily for residential brokers, who will be given preference, but pieces about commercial real estate will also be accepted as space allows.