For Sale By Owner Has its Drawbacks…Even in a Seller’s Market

Meghan Webber
·4 min read
Even in a seller's market, selling a house without a REALTOR can have it's drawbacks.
Even in a seller's market, selling a house without a REALTOR can have it's drawbacks.

While sellers clearly have the advantage in today’s market, selling a home can still be an overwhelming experience. For some, the thought of selling their home on their own may seem like a great way to avoid the stress of a fast-paced, competitive market. But keep in mind that the process is far from easy and there are downsides when you go it alone.

The drawbacks of FSBO

When the inventory of homes is as low as it is today, buyers are eager to snatch up virtually any house that hits the market. This makes it even more tempting for homeowners to consider selling on their own (known as For Sale By Owner or FSBO). They not only believe it will be easy to find a buyer, but they also believe they can make more money.

While finding a buyer may, in fact, be a breeze in today’s market, raking in extra profits isn’t a sure thing. According to the National Association of REALTORS® 2021 Profile of Home Buyers and Sellers, FSBO homes sold at a median price of $260,000 last year compared to agent-assisted sales at $318,000 – a difference of $58,000.

There are a couple of reasons for this price discrepancy. First, FSBO sellers often fail to set the correct listing price.

Another issue is exposure. When a property is listed through a REALTOR® and entered into the multiple listing service (MLS) it is advertised to a much larger buyer population. The more buyers who see a home, the greater the chances are that there could be a bidding war.

REALTOR® Jonathan Lum, broker/owner with EXIT Realty Home Partners, has seen this issue firsthand, providing an example of a potential client who is considering a private offer she received from a neighbor, an offer that he estimates is about 25 percent below the home’s current market value.

“With FSBO there is always the risk of leaving money on the table, but for some sellers, price isn’t the only motivator,” he said. “I have some buyers who chose to sell their previous home FSBO to a close friend. They likely could have gotten more if they listed it through an agent, but for them, it was more about the relationship.”

Another downside of FSBO is handling the mountain of paperwork involved in the transaction, which has increased dramatically over the years. This is likely one of the reasons why only 7 percent of people chose FSBO in 2021, while from 2001 to 2008, that number ranged from 12-14 percent.

Some sellers are looking for alternatives

There are also some sellers who don’t feel comfortable with FSBO, but the intense buyer demand has them hesitant to list their home publicly on the MLS. Because of this, the term “pocket listing” has come up quite a bit in the media­ recently. However, this type of listing has caused some confusion — and some controversy — so it’s important that sellers understand the rules.

In 2020, in response to­­­­ concern about the fairness of this practice, the National Association of REALTORS® implemented the MLS Clear Cooperation Policy. This policy states “within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.” Public marketing can include anything from flyers, yard signs, email blasts, online ads, social media posts, etc.

Lum says in today’s market, the concern about “pocket listings” of “off market” listings and clear cooperation comes up quite frequently because the market is so competitive. The MLS keeps the market efficient, transparent and open to all qualified homebuyers.

“It’s not uncommon for agents to call each other asking about upcoming listings in an attempt to get ahead of the competition, but this is where professionals have to be careful to avoid any clear cooperation issues,” he said. “As REALTORS® we adhere to a strict Code of Ethics. It’s our promise to the public that when dealing with a REALTOR®, they can expect honest and ethical treatment in all transaction-related matters.”

If you’re thinking of selling your home and want to discuss your options, you can find a list of reputable local agents by visiting the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.

This article originally appeared on Lansing State Journal: For Sale By Owner Has its Drawbacks…Even in a Seller’s Market