Licensed Realtor® vs. For-Sale-By-Owner – Which Would You Rather Do?

A few Arkansas Realtors® have recently begun an effort to introduce legislation that would prohibit property owners from selling a home without contracting with a Realtor®.

I don't necessarily agree with the proposed law. Americans have traditionally been free to make their own decisions, right or wrong, and certainly property ownership is no exception. In fact, property rights were some of the basic rights the founding fathers of our nation valued. An early version of the “Declaration of Independence” stated the rights of the colonists to “life, liberty, and property” instead of the final version of “life, liberty and the pursuit of happiness.”

On the other hand, there are many reasons to use the services of a Realtor®, some of which are so plain to see that I can’t understand why a buyer or seller would even consider trying to go it alone:

1. A person becomes a licensed Realtor® only after studying all the applicable laws, being tested on that knowledge, and continuing his/her education annually. Most Realtors® also seek advanced education resulting in designations such as Accredited Buyer Representative (ABR®), Certified Residential Specialist (CRS) and others. These designations require experience (a minimum number of transactions) as well as many courses to improve their knowledge to better serve their clients.

2. An experienced Realtor® knows the market inside and out and provides valuable advice to both buyers and sellers.

3. Most real estate agents primarily function as problem solvers. They provide a valuable buffer between buyer and seller to negotiate terms and solve problems without acrimony and to achieve a "win-win" situation for both sides. A lot of things can go wrong in a real estate transaction--from problems discovered during the home inspection, to problems with financing, to simple things like seeing that keys are delivered to the new owner. I don’t have enough space here to tell you about all the “fires” I’ve had to put out at the last minute to prevent a sale from collapsing.

4. Realtors® must comply with Fair Housing laws but owners selling their own property are exempt from the same laws.

5. Studies from the National Association of Realtors® have shown that for-sale-by-owners often receive less in net proceeds from the sale of their home than they would have if they had used a Realtor®--even after paying the commission. According to the National Association of Realtors®, in 2005 the median price of FSBO homes was $198,200 while the median price of agent-assisted home sales was $230,000.

6. Having a Realtor® saves a lot of time and trouble for a seller. The real estate professional will market the home, make valuable suggestions on presentation to help the home sell faster, assist with the complicated paperwork, and provide current data on home sales in order to price the home appropriately. Plus, because there will be a lock box on the home, the seller doesn’t have to go rushing home during his lunch hour to show it.

I don't argue with the right of a seller to sell his home himself. But as a buyer, I wouldn't even look at that home without the help of a buyer agent. How could I be sure that the person selling the home knows what he is doing? I would want to be assured of a clear title to the property. Would I know how to negotiate any necessary repairs? What if the seller would not cooperate in having the property inspected or properly repaired? What if the inspection discovers something so drastically wrong with the property that I ultimately don't want to buy it? Will the seller give my earnest money back or will I have to seek legal assistance?

For Sale By Owner (FSBO) sellers often think just getting their home on the Internet, putting a sign in the yard and ads in the paper, as well as having an open house, are all it takes to sell it. That is far from reality because:

1. Most buyers now have buyer representatives. This is especially important in NW Arkansas where many people are being transferred in (or out) because of employment. Most people relocating here do not pick up the newspaper to look for FSBOs or even look at FSBO websites. They get a buyer’s agent who knows the market and neighborhoods which will meet their family’s needs.

2. When the buyer’s agent looks for properties to show his buyer, he looks in the Multiple Listing Service. FSBO homes are not in the MLS.

3. People actively seeking a FSBO are few. According to statistics from NAR (National Association of Realtors®), 77% of homebuyers in 2005 purchased their home with a real estate agent, and 1/3 of For Sale By Owner homes were sold to someone the seller already knew.

4. Buyer’s agents bring qualified buyers to the table. Usually there is an interview process whereby the buyer’s agent assures that the buyer is able to get a loan to purchase the home. Many people who seek For Sale By Owner properties are those who ask for owner financing or other options because their credit is shaky.

5. Most important, the process of buying a home is a complicated one. The purchase of a home is the most important purchase most people will ever make. Until people are actually involved in the process, they sometimes think it won’t be much different than selling a car. Far from it! A home is way more expensive and there is a lot more to buying and selling one than simply signing the back of an automobile title and taking it to the DMV to get ownership transferred. A real estate professional can make sure that their client—the buyer or the seller—is informed of appropriate laws and procedures and handle the paperwork necessary to complete the sale.

6. Homes cost a lot of money and buyers need to be assured that the home is in the best condition possible, as well as being assured that they will receive a clear title to the property. Real estate professionals representing buyers and sellers can assure that the process goes smoothly, relieve much aggravation and potential conflict if there are problems with the sale, and obtain higher net proceeds for sellers, when compared to For Sale By Owners. On the buyer's side, an agent can guide the buyer as to his rights under real estate law and make sure the buyer does not pay too much for the home. In either case, the Realtor® does a lot of handholding.

I have been a real estate professional for many years. I don’t want to say that I’ve seen everything that can go right or wrong with a sale, but certainly I’ve seen most situations. I understand the financial and emotional impact buying and selling a home has on the average family.

What I don't understand is why people resist hiring a real estate professional. If a person is ill, he goes to a professional--his doctor. If he needs legal advice, he goes to his lawyer. There is no question of NOT paying for this type of professional help. Why do people feel that a Realtor® does not merit pay for professional services rendered? According to the National Association of Realtors®, the main reason sellers resist hiring a Realtor® is to save the commission.

Contrary to popular opinion, real estate agents earn every cent they make. They work long hours (including weekends and even holidays) on behalf of their clients and they defer payment until the home is sold. Real estate agents pay up front--out of their own pockets--for advertising, driving prospective buyers around, MLS services, website costs, telephone costs, computers, Internet access and so much more. It takes time, money, and effort to bring buyers and sellers together. Whether the agent represents the buyer or seller, if the transaction doesn't close, the agent receives nothing.

But if the transaction does close, the agent receives only a share of the perceived “standard 6%” commission. First, the commission is divided between the buyer agent's company and the listing agent's company. Then, and only then, does the agent get a share of his company's percentage.

If the house doesn't sell and the owner decides to not renew the listing or cancels it before the listing expires, the agent is out a lot of money and doesn't get paid anything at all. How does this square with the misconception that Realtors® "don't do anything?"

Most Realtors® work more than 40-hour weeks. They work when most people have the day off. They are not lazy people, and they put a lot of effort into getting their listings sold. Why do people not want to pay them? I'm still scratching my head.

Note: All real estate agents are not Realtors®. Realtor® is a term to denote a member of the National Association of Realtors®.

For more information:

http://www.realtor.org/publicaffairsweb.nsf/0/a7ca712a7fb7bb7a85256ba70055d57c?OpenDocument
http://www.realtor.org/prodser.nsf/files/2003HBS_sample.pdf/$FILE/2003HBS_sample.pdf
http://www.nwanews.com/adg/Business_Matters/158801