A number of different news sources, including the Wall Street Journal, recently reported that the founder of ForSaleByOwner.com, one of the larger "sell it yourself" real estate web sites was unable to sell his 2,000-square-foot Chelsea apartment.' The web site was created to help homeowners sell their own property and avoid paying a commission to Realtors. After six months trying to sell his home himself through online listings and classified ads, ForSaleByOwner.com creator Colby Sambrotto relented and hired a real estate agent. In the end, the New York apartment sold for $2.15 million, a whopping $150,000 above Sambrotto's initial asking price.
The real estate agent recommended increasing the list price as a sales strategy, relying on his up-to-the-minute knowledge of the Manhattan's rapidly changing real estate market. The agent's market knowledge and selling expertise paid off for Sambrotto where his own system failed.
Selling a home is more difficult than it looks, which is why savvy home owners use the services of a real estate professional. They understand that their bottom line is not about what expenses are necessary to get the job done, but how much they net at the end of transaction after those expenses are covered. In the case of Sambrotto's scenario, the fact that he didn't sell his home through his "do it yourself" approach actually worked out well for him. He eventually came away with more money in his pocket, even after paying the realtor's commission - not to mention that he actually got the property sold. You haven't saved a thing if you get no results.
(As an interesting side note, a study by the National Association of Realtors in the U.S. a few years back said that homes sold with the help of a real estate professional sold on average for 32% more than FSBO sales. While our Canadian numbers may vary a little the trend is the same and that pricing differential is pretty dramatic.)
According to California realtor and HGTV personality Herman Chan, over 80 per cent of For Sale By Owner (FSBO; pronounced "Fisbo" in the industry) sellers in the U.S. eventually hire a real estate agent to sell their home - after already wasting their time and money trying to do it themselves.
Here in Canada, the Competition Bureau has been targeting the Canadian real estate industry throughout the past year. One of their challenges was directed to the Canadian Real Estate Association (CREA) and their procedures for selling homes through the Multiple Listing Service (MLS®). The Competition Bureau claimed that CREA's practices were limiting competitors such as FSBO website companies.
Essentially, the Competition Bureau favours a system where real estate brokerages could offer an a la carte menu for their services, including simply posting a listing on MLS®. Such a system would operate with set fees for specific duties such as holding an open house or listing a home for sale as opposed to retaining a commission for an agent's overall role in selling a home. (And remember, under a commission system, you pay only for RESULTS. A commission is paid upon the successful completion of a sale. Flat fees for services such as 'order taking' a listing or holding an Open House would all be payable whether or not your property sells.)
In October 2010, CREA and the Competition Bureau came to an agreement, the details of which included that only licensed agents could post listings on the Multiple Listing Service and For Sale By Owner listings would have to show how much they would intend to pay the buyer's agent. These changes would require CREA to permit real estate companies and brokers to simply list homes for sale on the Multiple Listing Service for a fee (like a FISBO website).
The down side to this situation is it can minimize the value of the real estate professional as a trusted advisor and counselor throughout the selling process. Without this kind of support, a homeowner can easily end up making an uninformed decision, one that could ultimately be a costly one. A realtor's role in selling a home is much more than standing by and making sure everything goes smoothly. Yes, you may have paid a relatively small fee to post your listing on MLS, but how do you know if you've priced your home correctly for the current market? How do you help your home stand out from its competition? And how do you market your home to achieve the goals you're trying to achieve? Is the simple MLS fee really a bargain if you've undervalued your home?
Realtors really do earn their commission. Here's how:
As Colby Sambrotto's situation shows, real estate agents are well-versed in market trends and take the time to keep up to date on local real estate markets and comparable home prices in the area. This information is used in an overall strategy designed to get home sellers as much money as possible.
Real estate agents are bringing all their knowledge and experience to the table, not just their ability to perform services such as hosting an open house or helping you stage your home to better appeal to buyers. This knowledge and experience is applied to every aspect of selling your home, from competitive analysis and timing, to pre-screening and qualifying buyers, right on down to preparation and negotiations.
Real estate agents have the ability to generate interest in your house and draw attention to the home�s highlights and features, while making recommendations to you on how you can better emphasize those features from home staging to minor renovations and remodeling.
Granted, there are various resources out there to help 'fisbos' hold an open house or suggest ways to clean up your clutter and appeal to buyers. But how do you decide what repairs and improvements are worth doing and how they might impact your property's potential resale value? How do you screen and pre-qualify the buyers who show any interest? How do you identify buyers concerns that they may not feel comfortable discussing with the homeowner? How do you counter objections and offer creative solutions? Without this applied knowledge and experience there is definitely something missing. When you hire a real estate agent you are paying them for their value - in experience, knowledge and all that they do, including all of their training, continuing education and strict demands for ethical behaviour set out by the Canadian Real Estate Association and various local real estate associations across the country.
Drawing a parallel with another industry, if you were called into a big court case with a big investment riding on the outcome, would you shop for a lawyer with the lowest fee, or do you want the one who will win the case?
A For Sale By Owner company earns their money when you list your home for sale. Whether you've undervalued your home, or whether or not you sell it at all doesn't much affect their profit. They've made their money taking your listing. It's the commissioned agent who gets paid on results.
So at the end of the day, do you want a For Sale By Owner company that lists your home, or a real estate professional to sell your home.