Felicia Paik, staff reporter for the Wall Street Journal, may have opened a can of worms for the real estate industry when she glowingly reported (Friday July 10, 1998) the state of the FSBO in today's seller's market. What she left out of the article could fill volumes.

The premise of the article is that in the tight market of many regions, home sellers are deciding that they can do the job themselves. Let's look at some of the examples and see if they are experiencing the success they think they are:

In the article, Paik gives a number of good examples, but without more in depth knowledge of the market, the conclusions she draws are suspect. One example cites a successful FSBO transaction in which the sellers happily avoided paying $17,000 in seller's agent fees. But if you read between the lines, the cost may have been much higher. The home, which was offered at $690,000 was sold within weeks for $650,000 to a buyer who was represented by a buyer's agent. Although the seller paid the buyer's agent commission, as well as another $899 to a discount broker) the home was sold for 94% of market value, an average reduced price in an average market. In a tight market, by definition, homes typically sell within as close as 3% of list price (if priced correctly) and sometimes full asking price. In some markets, where homes attract multiple contracts, the final offer can be well over list price.

Without the benefit of comparables, among one of the most important REALTOR services, there is no way to learn whether the home was priced correctly in the first place. How did the seller determine the list price? By interviewing Realtors hungry for the listing, using their comparables and casting them aside? Or did the seller guess? The information had to have been obtained some way, and at the expense of the real estate industry.

The article raised the specter that the real estate industry boycotts or undermines FSBO's even though the brokers would still receive a commission as a buyer's representative. One FSBO accused agents of forming cabals to boycott her home, but the article failed to mention or interview any of those agents by name.

Again, what information seems to be missing? FSBO owners by the very nature of their intention do not want to do business with agents. And like most homeowners, FSBO's see their properties through rose-colored glasses. If they don't want to pay commissions, that makes them even more difficult to deal with, especially in seeing a buyer's viewpoint. Many refuse to pay any agent fee's, even the buyer's representation fee. Still others are willing to pay the fee, but their inexperience with contracts, getting inspection-related work completed, filling out disclosure forms, and other closing contingencies forces the buyer's agent to, in effect, represent the seller as well. And without fee! Still others will involve the agent and then bargain with the agent's fee in order to get the home to close. Is it any wonder why agents aren't beating down the FSBOs' doors to do business?

The last example features a woman who interviewed three brokers who independently suggested the same list price for her home, $265,900. She didn't like the price, and put it on the market through a discount broker, paying a flat $800 fee to get the home in the MLS at $275,900. The home did not sell for five months. Although she sold the home for $6,600 more than the brokers had told her she would, she admits that the home probably would have sold more quickly with a full fee broker, but she would have paid twice the commission.

Again, reading between the lines, five months is a long time in the real estate market, long enough for conditions to completely change. Some markets have experienced as much as an 8-10% increase and loss in home values in that amount of time. When a broker arrives at an asking price, it is based on current market values, not the future. The fact that no less than three brokers were in agreement on the pricing of the home, unbeknownst to one another, is testimony to the fact that numbers don't lie. Although she was able to sell her home for 3% higher than the market price five months before, did she get the true value of the current market. A savvy broker would have helped her market her home for even more.

What other information did she provide the brokers? Did she tell the REALTORS that she wanted a quick sale or time was of no object? If the woman felt her home was undervalued, what was the reason? Were there repairs that needed doing? Did she perform the repairs during the five months the home was on the market, thereby raising the home's value? And what other hidden costs were there? Did she advertise the home?

From a REALTOR's point of view, Ms. Paik simply did not ask the right questions to double check her FSBOs' information. But that is the problem with the whole industry. No one really knows what services brokers truly provide -they just think we are in it for the money.

Published: July 16, 1998

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