In a sellers market, for sale by owner services promise real estate savings and MLS exposure. But that’s debatable.

It seems that almost daily we get calls from people who are considering the for sale by owner (FSBO) model. They say “I’m searching for a Guelph Realtor, what’s the lowest you’ll charge?”.

We know in reality, sellers are saying “we want the most money possible at the end of the day.” They think a discounted commission is the way to do it- and in most cases, it’s not the answer.

A plan that starts off by an agent discounting their service actually does everyone a disservice- and you haven’t even started yet.

Consider the marketing campaigns of two of the big local FSBO (for sale by owner) firms, Purplebricks and Propertyguys (they aren’t alone, there are more).  You’d think that all of the local real estate market is going to a low commission, high service savings bonanza based on their ads. But that’s not even remotely close to reality. 

Selling your own home by yourself is not nearly as popular as it may appear

In 2020, Propertyguys made up just over 1% of the total dollar volume in the local real estate listings. As context, the authors had a larger market share than Propertyguys and are just two people.

For Purplebricks, they rarely list their homes in the the local MLS interboard for Realtors to see (which is a whole other issue for those selling within the local market). Would you willingly list your home with someone who doesn’t even list it in their home market?

What is a Realtors Commission? And what’s the reality of what you save with discounters?

The standard commission rate to sell a house is 5%. Half of this goes to the agent who lists your home (2.5%), and half goes to the Realtor who has the buyer for the transaction (2.5%). To keep the buying agents interested, even if you were selling your own home, you’d likely want to keep the 2.5% in place. 

So, you’re really only saving the listing commission of 2.5%. On the average local home price, that equates to roughly $17,500

But are you really saving in the end? The data says not really.

Here’s where it gets interesting: on average in 2020, sales made through discount services sold for 2% less than the rest of the market, or $14,000 less. And that’s assuming it was listed properly from the start. It also took an extra week to sell.

So, on the average sale price in 2020, those who listed through a discount service saved $17,500 in listing commission and gave up $14,000 on sale price. And had to pay the discount service for their materials- let’s estimate $3000. 

So, in this scenario: 

Add $17,500 in savings in listing commission (2.5% at local market average of $750,000)

Deduct $14,000 loss, as discount services generated 2% less return than market average

Deduct $3000 as discount service fee for materials

Net gain: $500

Not factored into this is the value of your time. Is $500 worth it?

Of course, these numbers are not actuals and vary on individual situations, but the point is that the overall savings is not “total commission” at all as marketed. In fact, the fast legalese in Purplebricks radio ads says something to the effect of “actual savings don’t include co-operating (buyers agent) commission”. As a result, it may be cheaper to list with a Realtor in the end.

For sale by owner (FSBO) services meet the needs of some consumers who want to take control of the process of selling a home- and that’s just fine with us! But if you want the full, professional service of a Realtor, we’re here.

More about Beth and Ryan Waller here. You can read their blog of all articles here