For Sale By Owner - Pros & Cons

I've had a couple people ask me about advertisements they’ve seen for services that will assist homeowners in selling their home on their own. These are pros and cons of selling on your own (with or without an assistance service) compared to listing with an agent. I'm a numbers guy, so this is based on what the numbers are saying, along with some of my observations.

PRO'S

No Agent Fees

Depending on current rates and the service product they choose, this can be anywhere from $500 to 6% of the sale price. If you are using an assistance service, savings are reduced by the cost of the service, but this can still be a significant amount of money based on the commission rate and the home price.

Flexibility and Control

When you sell on your own, you are free to advertise how, where, and what you want. Some agents lock you in to lengthy contracts which limit your ability to advertise or change agents. Those who sell on their own are in complete control of the home selling process.

CON'S

Limited Exposure

The best way I can think of to describe this is that selling through a for-sale-by-owner website is like trying to connect with your friends through Myspace (If you don’t know what Myspace is – that’s the point). Most committed buyers don’t use those websites. For example, 1,736 buyers in Utah County are currently in the process of buying a home through MLS (the Realtor® marketing system). Looking at the most popular for-sale-by-owner website (which advertises on the major websites, including KSL, Zillow, and Trulia), only 89 buyers are using that platform. So as of today, 95% of these buyers are using agents and the Realtor-exclusive MLS. One important note – buyers prefer homes listed with an agent. It allows them to use an agent for free (since the seller pays for it), which gives them peace of mind and lightens their work load. Based on these numbers, selling on your own means bypassing up to 95% of the demand for your home.

Lower Sales Price

Studies have consistently shown that those who sell their home on their own sell it for less than they would with an agent. There are several factors that contribute to this, the previous paragraph being one of them. Another reason is that agents are good at what they do. They know what furniture arrangement and color of paint will sell your home. They know the current trends buyers are looking for. They know what features to highlight in their advertisements. They do this all day every day. They can sell a home for more than the owners can. Perhaps it’s presumptuous to say that all agents are this way, but the good ones are.

There are a few other reasons I can think of, but despite the reasons the numbers prove it. Collateral Analytics recently completed a study last month comparing homes sold with and without an agent. (Here is a Link to the Study) They found that regardless of a surge in for-sale-by-owner websites and the advent of online marketing, those who sell without an agent end up with a sales price an average of 5.5% lower than those who sell with an agent. And this is "on average" - with average agents. Above-average agents will pay for themselves and more. Selling on your own most often leads to a significantly lower sales price.

Increased Liability

Selling a home has a lot of legal complexities, beginning with the contract. A simple but subtle misunderstanding can costs tens of thousands (and those mistakes happen more than any of us would like.) Selling on your own puts ALL the responsibility and liability on your shoulders. Listing with an agent lowers your liability in two ways. (1) You have a trained and licensed advocate to guide you through the process and protect your best interest, and (2) Agents carry a portion of the liability through what's called "Errors and Omissions" insurance. It’s basically a guarantee that the agent will be held accountable for their work, not the seller. (Not even websites with on-staff lawyers offer this 2nd protection.) A lot of times things work out, but selling on your own increases your liability if they don’t, and it increases the chance there will be an issue.

Increased Work Load

Both sellers and agents have work they need to do in selling a home, and it takes a lot of effort. For those who sell on their own, all the work is on their shoulders. Conversely, a good agent will handle ALL the advertising. A good agent knows how to sell the home quickly, meaning the seller doesn't have to tip toe around showings longer than they have to. A good agent will review, organize, and clearly explain each offer. A good agent will take the brunt of coordinating with buyers, title companies, home inspectors, and appraisers to make it easier on the sellers. Without an agent to take care of these things, all that work falls back on the seller.

Final Thoughts

I've just shared all the pros and cons I can think of when it comes to for-sale-by-owners. To be honest, it's a little more con-heavy than I would like. I'm obviously in favor of using an agent (or else I wouldn't be in the industry), but I want to emphasize that for some people it makes sense to sell on their own. The seller is best suited to make that decision. Perhaps they have a workable knowledge of contracts and are selling to family. Perhaps they already have a buyer they trust. Bottom line, some people will come out ahead selling on their own.

My intent is simply this - know there is a lot at stake when buying or selling a home. It is often the largest tangible investment (both financial and personal) that a person will ever make in their life time. Make sure you research and know everything involved before you literally put your home on the line. If you have done this and feel good about selling on your own, then go for it! If you feel you would like a hand, the numbers show you will most often come out ahead using an agent.