'For Sale by Owner': the Benefits of DIY Real Estate
Technology and the new business models are changing the real estate game. Think about the empowerment that's been transferred to consumers in so many areas; the same goes for selling homes. Working with a real estate agent or broker is no longer your only option.
So, read on for a full accounting of what's changed in the FSBO (for sale by owner) world that's made commission-free real estate a viable option, and why you too might want to consider FSBO, thanks to the evolution in technology that's created a full-blown real estate revolution.
Traditional real estate transactions
If you have ever owned, bought or rented a home, you are familiar with the traditional real estate transaction: In exchange for the help of an estate agent or broker -- who shows you homes or markets yours, handles the negotiations and paperwork and completes the transaction -- you agree to pay a certain commission.
This commission varies, depending on whether you're selling, buying or renting. But, typically, the commission fee on a $500,000 home sale will be upwards of 6 percent, or approximately $30,000.
When you're trying to get the maximum price for your home, so you'll have some equity to apply toward another purchase or some other big goal, watching $30,000 disappear out of your pocket doesn't feel good. Even if the real estate agent did a fantastic job marketing your home and you realize that he or she needs to make a living too, it's still a hard pill to swallow.
Many a homeowner has concluded, "I could have done what they did -- and probably better!" And you may be one of them, asking yourself, "Do I really need a real agent to sell my home?"
These are the reasons the market for FSBO started to grow in the first place. However, in the days before technology, a homeowner struggled to quickly or even successfully sell his or her own home. The reason was lack of access to the same tools an estate broker has: like the MLS listing service. Instead, owners traditionally had to rely on an ad in the newspaper and a sign in the yard. Those traditional forms of advertising were typically a shotgun approach that might or might not catch a buyer's eye.
Another issue for the owner was how to gain the trust of buyers. Buyers have typically turned to a real estate agent because that person had experience with the market and could help them understand the paperwork and handle any problems with the transaction.
Even if those buyers didn't like big commissions, they could be reasonably confident that the transaction would go more smoothly than if they dealt with the seller directly. The rental real estate market was the same: It too meant difficulty for landlords locating renters and establishing the trust needed in that relationship.
For these and other reasons, the rental market has long been dominated by agents who have served as property managers and who (for several months to a year after the deal is completed) continued to take their slice of the monthly rental pie, in exchange for having overseen the transaction.
New DIY real estate tools enhance seller and renter profitability.
Thanks to emerging disruptive companies and a new type of property-listing platform, the notion that you can be your own real estate agent is fast becoming a viable option for someone selling or renting a house.
I recently spoke to Nico Jodin, CEO and founder of Beycome.com, a fast-growing site dedicated to commission-free sales and rentals by owners. The real estate revolution has occurred due to a convergence of factors, Jodin told me.
"It's incredible that in our current world of the internet, this real estate revolution has only started now," he said. "America has always been the leader in revolutionizing the more 'traditional' services. Think: Uber and cabs. Yet, in the major European countries, FSBO is the way to sell and buy homes" -- constituting 34 percent of sales in France versus 8 percent in the United States, Jodin said.
"It's time we catch up," he added, noting that sites like his are making it easier for homeowners to use previously "unknown" available resources to save money. "Perhaps this is why we've already started feeling the heat from the current real estate market, who don't want us to educate homeowners on all of these beneficial options easily available to them," the founder said. "Who else provides homeowners with their own legal contracts to close a selling? Beycome does -- and without the commission."
Armed with the information they need, buyers can now feel confident about working directly with sellers and removing real estate agents and brokers from the equation. Often, buyers have felt, too, that their real estate agents were not necessarily working for them in terms of seeking their best interests.
This implication of a lack of true service may be what has pushed more buyers to seek out direct deals with sellers, using the emerging property-listing platform models.
Research sources confirm the shift toward FSBO transactions: The National Association of Realtors 2015 Profile of Home Buyers and Sellers indicated that FSBO sellers surveyed that year were hitting their home-pricing targets more consistently than homeowners using licensed agents. In fact, FSBO sellers surveyed reduced their sale prices, on average, only one time or less, 91 percent of the time, before they closed the sale.
With real estate agents, this scenario occurred less -- occurring 78 percent of the time for homeowners surveyed. A study from Stanford University concluded that FSBO homes sell for more money, an average 4 percent to 7 percent higher, than sales by agents.
And when the absence of agent commissions is figured into the mix, the percentage increase in sales price, compared to that for traditional home sales (involving realty agents),is even higher.
All of this makes DIY real estate a much more profitable endeavor for sellers, given the additional money they receive that they otherwise would have forked over to a real estate agent.
Weighing the advantages and challenges
While there are challenges involved in DIY real estate and rentals, including possibly having to deal with a difficult transaction, the benefits appear to override these issues.
Plus, many of the platforms available offer support and guidance, in the form of online experts, to discuss problems with, and considerable content lending additional insights.
Both are designed to help you navigate the choppy waters of a home sale or purchase, if you're willing to take the plunge.