From time to time, you will notice signs in front of houses that read For Sale by Owner (FSBO). This means that the homeowner has decided to sell the property without hiring a real estate agent to list and show the house.
If you’re wondering why do people choose to sell their homes themselves, the answer is that they want to avoid paying real estate agent commissions on the sale.
Sellers typically pay the commission on the house sale to the real estate agent and the broker. Although a seller might convince a buyer to split the cost, the norm remains that sellers pay the realtor commission.
This is a big bill, and going the FSBO route lets the seller pocket the money instead of paying it out.
How Much Is a Real Estate Agent’s Commission?
Real estate brokers and by extension their agents ask for 6% of the sale price. This adds up to quite a bit. It equals $6,000 for every $100,000 of sales price.
For example, the Federal Reserve Bank of St. Louis reported that in the second quarter of 2023, the median sales price for homes across the United States was $416,100.
Six percent of $416,000 equals $24,966.
That’s a huge chunk of money to pay to sell your home.
Sometimes sellers succeed in finding a broker and agent willing to list the home for a lower commission of 5% or perhaps 4%, but most want that 6%. In my work as a mobile real estate closer, most settlement statements that I see show a 6% commission.
The real estate agent who represents the seller does not actually get all of that money. A large percentage, up to 40%, goes to the broker. The seller’s agent also often has to split the commission with the buyer’s agent further reducing what agents actually pocket.
Do Sellers Need to Pay a Real Estate Agent?
No. You can choose to replace the services of a real estate agent with your own labor. This means, as the seller, you would need to advertise the home in some way and be available to show the home to prospective buyers.
An FSBO seller also must manage negotiations and produce the paperwork for necessary disclosures and the purchase agreement. Even if an FSBO seller hires an attorney to prepare the paperwork, it will still be much less than paying 6% on the sale.
In some cases, the seller already possesses the expertise to prepare the paperwork. Perhaps the person has a real estate or legal career and knows the ins and outs of the process and sees no reason to pay a Realtor.
More Reasons You Might Choose FSBO to Sell Your House
Avoiding the big real estate agent commission is the primary reason that home sellers choose FSBO.
Beyond this, you might FSBO because Realtors are disinterested in listing your property. An agent might view trying to sell your property as a waste of time or close to impossible due to:
House needs repairs to get a good price or financing
Realtors routinely recommend repairs and updates so that they can list the price as high as possible within market parameters. Issues involving serious repairs can impede a buyer’s ability to get a loan for the house. The owner might choose FSBO at a price that reflects the need for repairs or difficulty with financing.
Seller insists on asking an unreasonably high price for the house
Some homeowners attach their minds to what the local market considers crazy numbers. Although real estate agents want to sell your home for as much as possible, they don’t want their listings to linger on the market without selling because no one wants to pay an inflated price. If the homeowner wants to proceed with selling, FSBO may be the default option if agents aren’t interested in the listing at the price that the seller desires.
Home value is very low
In this world of crazy housing prices, you may find it hard to imagine that a house has a price so low, lenders won’t be interested in it. Mortgage lenders rarely consider loans under $50,000, and most won’t bother with anything under $100,000.
I often see old, small houses in low-income neighborhoods for sale under $100,000 on my local craigslist and other real estate sites. For example, as of this writing, a house with an asking price of $90,000 is on Craigslist in Marshall, Michigan.
A real estate agent representing a house like this hopes to find a cash buyer who can make the purchase without involving a lender. Alternatively, an agent might have a relationship with lenders who specialize in small home loans.
The issues mentioned above don’t necessarily make it impossible to find an agent. Real estate agents can be a hungry breed. If you find an agent desperate enough to give your house a try, then you might not need to be an FSBO seller.
Can I Use an Agent to Buy an FSBO House?
Yes, it is possible to buy a house listed FSBO with representation from a buyers’ agent. The issue that needs to be settled before you proceed is who will pay the agent’s fee.
An FSBO seller has the option to refuse to pay a commission to the agent. This leaves you, as a buyer, with a choice of paying the agent yourself or giving up on buying the FSBO house.
Unless you have signed a contract to work exclusively with a buyers’ agent, you are free to enter a purchase agreement with the FSBO seller without either side involving an agent. You may still want to get legal advice before completing the transaction, which would be a cost that comes out of your pocket.
On the other hand, an FSBO seller might agree to pay your agent a 2% to 3% commission. You won’t know until you ask.
Will an FSBO House Cost Less?
Probably not. Sellers who choose FSBO want to maximize their profits. They will likely research the market and seek as much money as reasonably possible considering the condition, size, and location of the house.
For this reason, you should not expect that taking the real estate agent commission out of the picture means that the seller will automatically offer a discount.
However, real estate agents argue that their services will increase the sales price of the house, mostly because they can inform more buyers about the presence of the house. Will they raise the final sales price by more than 6% is hard to know.
Factors that can get a seller to come down on price are related to current market forces, condition of the property, and the seller’s need to liquidate the property. A house that has been on the market for months is a good target for a price reduction.