There’s an interesting item at the Business 2.0 blog about a website in Madison, Wisconsin for people selling their own homes, or in the real estate vernacular it’s a site of "for sale by owner" (FSBO) properties. Here are the critical numbers they cite:
- The site has captured about 20% of the county’s listings.
- If agents had sold all the properties listed on the site and had a standard 6% commission the amount paid to the realtors would have been $17.3 million.
- The site collected $300,000 for those listings.
If you want to check out the site you can find it at FSBOMadison.com.
Well here’s what I think. Traditionally, the biggest advantage of hiring a realtor as a seller was access to the MLS (multiple listing service). By using the realtor’s service you were broadcasting the availability of your property to the world at large much more quickly than you could do it yourself. Now, though, with FSBO services and other online tools like CraigsList you can get the word out there very quickly all by yourself. The realtors probably instinctively know this, but don’t want to admit it. They better wake up though, because their biggest asset on the sales side is disappearing. Agents will tell you that they also give their clients advice on prepping their property for sale (empty those closets, unclutter your kitchen, etc.) but you can get the same info from a "Selling Home for Dummies" book.
As a buyer, especially if you’re moving into a new area, the biggest advantage of using a realtor is their knowledge of neighborhoods. Celeste and I found this out when we moved from DC to Winston-Salem two years ago. We did a lot of online research before we started working with our realtor but it became pretty apparent that we needed the services of someone who could match our needs to a neighborhood. In other words we needed a highly specialized service and we definitely benefited from our agent’s service. (BTW, if you need a good agent I highly recommend MaryLee Hester of Prudential Carolinas Realty). I don’t see that advantage disappearing any time soon.
My prediction is that the real estate business is going to change. Smart agents will not worry as much about being the listing agent and will instead focus on providing services to buyers. They will embrace the evolving FSBO market by being flexible. The really smart ones will help get one of the dirty little secrets out about real estate: selling is easy. Most people don’t know that it is up to the buyer to get a contract written up and submitted to the seller for consideration AND that you can get a contract written up by a real estate attorney for a few hundred dollars. And the new FSBO sites and online listing services will take care of the marketing.
(Disclaimer: As always there is the possibility that your house is a pig, and even if you put lipstick on it you’ll still have a pig.)
Smart agents will focus on helping their clients find the perfect home and then provide them with a list of real estate attorneys just like they do with plumbers, general contractors, etc. They will mine the FSBO sites and CraigsList for leads, just like they’ve traditionally used the MLS. They will also concentrate on educating the FSBO market to the advantages (larger market, contract sales force) of accepting visits from realtor-represented buyers even if they have to give up 1-3% commission.
To give you an idea of what I mean, when Celeste and I sold our first house a few years ago I was hammering the FSBO sign in my front yard when our phone rang. An agent happened to be driving by and asked if we would let her bring a client by to see the house. "Sure," we said, "but we’re only paying a 2% commission." She jumped right on it, because in reality she would have gotten only 3% anyway if we had a listing agent.
Celeste and I sold all three of our properties without an agent,
and I can tell you that we worked harder trying to buy our house in Winston-Salem than we did to sell all three houses combined. Admittedly we sold in a hot market, but I still think that in the end selling is easier than buying, and smart realtors will ackowledge that and focus on servicing home buyers.
My final point would be that they should not abandon listings totally. They should just recognize that they’ve lost the monopoly, and in fact they should consider listing their properties on things like CraigsList themselves. In other words they should really do the marketing that they’ve only been paying lip-service to up until now. Still as a seller I don’t know that I’d be willing to give up 3% for that kind of service so they’d definitely have to consider giving up a point or two there.
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Befuddled 
Ahh, I don’t know. People think just because something is on the Internet it’s all of a sudden a new idea.
What about that old thing … what did they call it? Umm… classifieds. Yeah, they ran in …PAPER newspapers, if you can believe that.
Now granted, with a website it’s a lot faster, you can do searching and whatnot (depending on the quality of the website), pictures, etc.
Point is that someone trying to bypass the 0-3% fee and do it themselves could do it before the Internet came along. It was just a little harder.
VHS didn’t kill the movie business. Neither will the Internet kill the Realty business. However, “Video killed the Radio Star”
Hey Bourbon (Brannen),
The first place Celeste and I bought I found through the classifieds in the Washington Post, so your first point hits home with me. And I agree that the internet won’t put realtors out of business, but it definitely has changed and will continue to change the playing field.
Really what the internet has allowed FSBO providers to do is compete with the MLS, which they couldn’t really do before. Add to that the fact that real estate has been so hot for so long and you have a lot of people who are realizing they don’t really need realtors to sell. As a seller you’re thinking “So what if I don’t get absolute top dollar? On a $500k house I’m giving up $15k (3%)to a listing agent anyway and if I give buyers’ agents just 1-2% then I’m saving another $5-10K. That’s a pretty margin for error.”
I read a book called “Freakonomics” that looked at the difference between what realtors get for clients vs. when they sell their own homes. The reality is that realtors aren’t that motivated to get clients an extra $20-30K because the addition to their commission isn’t that much, especially after they factor in what they give up to the agency. So their main motivation is to sell as fast as possible without giving up too much in price. On the other hand when they sell their own properties they tend to hold out longer for better offers. Why? Because they get every penny of the extra $10K or $20K vs. the extra $300-$600 they would get for holding out on behalf of a client.
I definitely think sellers should try it on their own, at least initially. If they can’t move the house then they can always call a realtor later.
Thanks for the comment!
What about all the paper work? And time spent on finding the proper variant? On top of that there is a risk of being cheated by seller or buyer.
Well if you hire a real estate attorney, which is very easy to do, most of the paperword is taken care of. When we sold our first house we were able to use an attorney for $750 and it was very easy. The dirty little secret about real estate is that much of what the realtors do for you can be done by other professionals for a lot less. Plain and simple realtors are basically marketers/salespeople.
As for being taken advantage of, that happens even with realtors. The house I’m in now has lots of problems that neither our realtor or the inspector knew about, and my wife and I are still paying to fix them. The seller’s realtor may or may not have known about them, but either way we feel a little bit screwed. On the other hand we bought our previous house directly from the owner and they were very up-front about any problems and we had no surprises.
With or without realtors you can be taken to the cleaners so the lesson is “buyer beware” and save money wherever you can. You know it’s a wacko system when you can save money by hiring a lawyer:)
The realty is For Sale by Owner is starting to impact the real estate industry where it feels it the most – right in the pocketbook. It should the crap out of realtors – maybe not the individuals but certainly their associations. The Canadian Real Estate Association (CREA) has been running an FSBO smear campaign all summer – “FOR SALE BY OWNER is not for this owner” – give me a break. The typical crap – “We are trained professionals, we screen our clients (total 100% BS – my mothers home was robbed after a showing to two men in a van), we professionally market your home – blah blah-blah”. If I was a Realtor the internet would scare the crap out of me – I know most have failed miserably in their attempt to leverage it. The fact is thousands of homeowners have successfully sold their homes and saved literally thousands of dollars in real estate fees. Realtors will tell you that FSBO isn’t for everyone – but the realty is that the homeowners that are successful the savings are significant. Did you know that there was 91 BILLION dollars paid last year in real estate commissions in teh US alone! So you truly appreciate the magnitude of that number, that is 91 BILLION dollars in lost homeowner’s equity. One FSBO site in Wisconsin facilitated $300 million in FSBO sales and generated just over $300,000 in related FSBO fees associated with those sales – the real estate commissions on those sales would have been $18,000,000! I have done some research (internet based) into the FSBO phenomena (Google returns 38 million sites based on a search for “FSBO”). While the general concept remains intact (homeowners selling their own homes to save real estate commissions) the approach, presentation, fees, options, etc literally run the gambit. The most noticeable consistency I noticed was the overall unprofessionalism and downright ugliness of most sites (not that Realtor sites are any better). Some were so ugly it was shocking – they looked like sites developed by Grade 3 students. From my experience in sales and marketing you only get one chance to make a good first impression – most FSBO sites miss the mark significantly on this point. I did however come across a few sites that have embraced the concept – one in particular was actually FREE! While many FSBO sites claim to offer “FREE FSBO” there is only one that I came across actually delivers on that claim. The site is http://www.freefsbo.com – they offer a Free FSBO Kit that includes a professional lawn sign that actually looks good (and modern), a free online listing complete with unlimited pictures, full feature sheet and some FSBO tips that were somewhat helpful. The bizarre thing is the FSBO Kit, as advertised, is actually free. There is no bait and switch, nothing underhanded whatsoever – there is no “upcharge” to put in your contact information, no fee to expedite the listing, no fees to upload pictures, or any fees to get a “better” webpage. The way they do this is simple – they sell your name to companies that want to solicit business from home owners – big deal. I have certainly gotten less for more. No idea who buys this information, I suspect moving companies, legal forms, mortgage brokers – I’m sure realtors are likely lined up to buy this information (I would be if I were a Realtor). I personally don’t have a problem with it. Please note they are very upfront about what they do. Anyways – just an opportunity to get something for nothing – pretty rare these days :). PS, I signed up, my webpage was active within 3 days and I received my lawn sign via UPS within 5 days and it cost me nothing. Apparently the war is heating up – http://news.com.com/Real+estates+Net+turf+war/2100-1038_3-6099762.html?tag=html.alert.
You’re full of fucking shit my friend!!!
JGP,
Don’t know if you’re talking to me or Mark C, but I’m assuming it’s me. Your eloquence is such that I suspect you’re a newly minted real estate agent.
If you’re talking to me – I agree with Jon – I’ve spoken with several people over the years regarding their horrible experiences with realtors – that said, I am very aware that people love to complain – but the underlying theme is always the same – too little for too much!!! Like I said, the homeowner is always more motivated then a realtor. Typically the homeowners have a reason to sell, be it relocation, move up, move down – what the case. The realtor’s only motivation is to sell their prospective home buyer “a” home; they don’t care if it’s yours or someone elses – the commission is the same. I’m quite confident in my skill set to market and sell my own home. Freefsbo.com simply provides me the necessary tools (FSBO real estate sign, professional webpage) to do it myself. I have more to gain then any realtor that I have come across. I do respect they offer a service; it is just a service fee that I can afford to do without. I think it’s prudent to point out that the realtor monopoly is currently being challenged by our justice department and that realtors are starting to eat their own by lashing out at discount brokers and MLS only listers – always the first sign of defeat. GO FSBO 🙂