For Sale by Owner: debunking some misconceptions

Ottawaliving.ca has some info on its website concerning FSBOs (that’s what we call For sale by owner listings, pronounced FIZZ-BOS). Some of it is great advice; some of it could use a little clarification. So here goes (my comments are indented and italicized).

In most cases, the seller attempts to sell their property on their own to avoid paying the real estate agent commission. This commission is generally six percent of the selling price of the home. Three percent goes to the agent that lists (sells) the home and three percent goes to the agent that represents the buyer.”

The typical listing commission in Ottawa is 5 per cent; 2.5% to listing brokerage and 2.5% to the brokerage that finds the buyer. It’s not the agent who receives the money, but the brokerage because listing agreements are actually with the brokerage and not the individual agents.  These amounts are worked out with the seller at the time of listing and are often negotiable, for example, when we are working with the seller on more than one transaction  eg. selling their house and helping the seller buy a new one.

  • “30% of homeowners attempt to sell without an agent, two-thirds are successful.
  • 24% of FSBOs stated that “getting the price right” was the most difficult part of selling their home
  • The typical FSBO homes sold for about 13% less than an agent-assisted home sale. NOTE: This statement is misleading due to the fact that FSBO sales are more common in markets where homes are priced slightly below the national average.”

Actually, all these statements are somewhat misleading because the statistics put forward are from the National Association of Realtors. NAR is an American association. The Canadian market is quite different from that in the US, which is recovering but still sluggish. We’ve been told that about 90% of FSBOs end up with an agent because they don’t sell.

“Other statistics of note from the NAR:

  • One third of all FSBO sales go to a prior acquaintance
  • One in four FSBOs end up going back to an agent or broker. Some statistics show that the number is more like 80% of all FSBOs that end up getting an agent… usually after 6-8 weeks. This means FSBOs can be easily discouraged. NAR stats show that the average home sale takes 3-4 months even with an agent.”

As noted, these stats are based on the US market. Right now, in Ottawa, it takes an average of 82  days on market to sell a house or condo on MLS, whether you have an agent or whether your property is listed on MLS as a “mere posting,” which is really a FSBO. But generally speaking, it takes much longer for a FSBO to sell than it does for a property listed with an agent. Some agents will not bring a client to a FSBO because the commission offered is not worth the amount of work involved.

“Ideas for a Successful Ottawa FSBO

Determine the fair market value of your Ottawa home. Spend some money if you need to getting a list of comparable sales in your area. A kind real estate agent might provide a list for free. (They do it for buyers and friends routinely.) Listing your property too high will cause you to waste valuable time and get discouraged. Listing it too low might get it sold, but you’ll leave money on the table.”

First of all, realtors do not routinely do comparative market analysis free for our friends and buyers any more than lawyers do free wills or dentists do free cleaning.  This is a service we provide as professionals to our clients. We can be sued for the advice we give; we don’t give it lightly.

Secondly, listing a house at too low a price is often a deliberate strategy we use to get multiple offers and drive the price up to market value. If you list your property at a price you think is below market and you only get one offer after a few weeks – guess what? It wasn’t priced too low after all. Again, a realtor can give you valuable insight into how to price your home.

“Make sure to tell everyone you know (your sphere of influence) that you are selling your house. One third of FSBO sales go to a prior acquaintance of the seller. Do this AFTER determining the fair market value of your home. At the very least you might try this approach for a month or so prior to listing with an Agent, especially if you are undecided.”

I don’t believe that one-third of FSBO sales go to acquaintances — and I don’t believe there is any way to track that kind of statistic. MLS does not record the relationship between buyer and seller,  nor does our Board. But the more the word is out about your home, the more likely you are to find a buyer.

“Be prepared to negotiate with a buyer’s agent. Possibly plan on offering them some commission. Make sure you know the value of your home and plan on possibly tense negotiation.”

If you don’t offer a buyer’s agent a commission, there won’t be anything to negotiate about. Why would I bring you a buyer if I “possibly” won’t get paid anything? And how will you know what the value of your home is if you aren’t working with an agent? You’ll know what houses in your neighbourhood listed for, but not what they sold for. You’ll be negotiating with someone who has information you don’t, and who doesn’t owe you any duty of care at all when it comes to negotiating price on behalf of their client.

“Make your prospective buyer get pre-qualified within a week so that you don’t lose valuable time finding out they can’t finance the deal.”

We get our prospective buyers prequalified before we bring them to the door. Even a week to have your property tied up with someone who can’t get financing is too long. But  you don’t want your buyer “pre-qualified within a week,” you want to them to get their financing approved for that specific property. Being qualified and being approved are two different things: I may have good credit but my bank may decide I’ve offered too much money for a property and decide it’s not worth the mortgage I’ve asked for. Or that it has other issues, like knob and tube, or asbestos, or aluminum wiring, or was a grow up. These days, finding out if a loan is approved or not often requires an appraisal. Those can take longer than a week. An agent can advise you on appropriate conditions and timelines.

 

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