For Sale By Owners (FSBOs)
Yes, you are perfectly capable of selling your own property. This is not rocket science. The reason you hire a broker is not because you cannot do it. Rather, the reason you hire a broker is to save yourself time. The time to do it, but also, the greater amount of time spent learning how to do it.
However, many and perhaps most FSBO sellers overestimate their real estate knowledge. And therefore do not take the time to learn the intricacies of the market and the process. Brokers and savvy buyers take advantage of their hubris.
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Let’s start with the good news. In the previous chapter we discussed the coming future where online systems provide For Sale By Owners a platform that basically walks the seller, and the buyer, through the whole process. Right through to the closing. I have no doubt this is coming. However, it is not here yet. But sellers can use currently available technology to make the FSBO process easier than it has ever been.
In the past, one of the primary reasons to list your home for sale with a real estate broker was to gain access to the local Multiple Listing Service (MLS), the formerly print and now online database of all available properties, maintained by your local REALTOR® association. Why was this so valuable? Well, if you put a For Sale by Owner sign in the front yard, how many people are going to see it? But if every local broker, with active buyers in your vicinity and for your type of house, can easily find it, the odds of a sale were much greater. And make no mistake about it, this is still true today.
But today, the local MLS has a competitor: Zillow. And no matter how Zillow thinks of themselves, or how they describe themselves, they are, in fact, a private, online MLS competitor. Yes, today, a seller can go to Zillow, claim their property, add some photos and copy, and change the status to, you guessed it: For Sale by Owner. So today, while FSBO sellers still do not have access to the local MLS, they do have access to the next best thing. And every buyer I have met in the last five years was all over Zillow. In fact, as I have mentioned, brokers no longer find homes for buyers; the buyers are finding the houses themselves. Using Zillow and other similar sites.
Okay, now the not so good news. So yes, sellers can get their property in front of active buyers. But guess what? Almost all of those buyers have real estate brokers that want to be paid. So sellers, you will get this call: Hey, I’m a broker and I have a buyer who found your home on Zillow; I’m calling to find out if you will pay me as their buyer’s broker?
Now the system I described in the previous chapter does not yet exist. There is no online platform, that I am aware of, that will guide the buyer and the seller through the process. So I would encourage sellers to agree to pay the buyer’s broker. While always remembering that the buyer’s broker works for the buyer, he or she can be useful to the seller as someone with a vested interest in walking the buyer through the process. Plus, more often than not, the seller needs some guidance to get through the process as well. While the buyer’s broker does not work for the seller, the broker will help the seller through the process because that is the only way that the broker will get paid.
And by taking advantage of this, the seller has cut his real estate commission in half.
But at this point let me return to the top of this chapter. Sellers need to be cognizant of how much they know and don’t know about the process. Sure, the buyer’s broker will keep everything moving forward. But they will not insure that the seller gets the best deal. Of course not; they work for the buyer. The buyer’s broker’s first goal is to get paid, but their second goal is to take care of their client, the buyer.
Now a complete discussion of the FSBO process and how to navigate it is beyond the scope of this book. In fact, I could write a separate book on this subject alone. But I would like to return to the original phone call from the buyer’s broker: Will you pay me as the buyer’s broker?
Let me revise my recommended response. Instead of a straightforward yes, I suggest the seller say: It does not matter whether I pay you or not; in any offer from any buyer, I am only going to be looking at my net. Here we put the buyer’s broker on notice that we, the seller, know that we are deducting our payment to the buyer’s broker from the Purchase Price. So, the response to the buyer’s broker’s phone call is not: No. That would halt the process before it begins. But it is not exactly yes either. Rather, it is: Yes, but I know how this works. And then, when an offer comes, you need to negotiate with this in mind: I see you are offering $300,000, but as you know Mr. Buyer’s Broker, that is only $291,000 to me.
One other really good response: Well Mr. Buyer’s Broker, I tell you what, I’ll split your fee with the buyer. To me, this is eminently reasonable. This way, the seller cuts his total real estate commission by seventy-five percent; down to around 1.5%. Be sure to add: But I am only going to be looking at my net (because this is still true).
Now, that’s the first phone call that a FSBO seller will receive. Let’s move to the second: Hey, I’m a broker and I want to list your property. They are soliciting your business to become your seller’s broker (or listing agent). They will most often break out their best scripts for this phone call: Hey, I was just wondering how it’s going? Would you like some help getting more buyer interest? Would you like me to show you how to net more?
Remember if you hire a listing agent, you will pay them plus you will pay the buyer’s broker. So if your answer to this question is ultimately yes, you are deciding to end your FSBO.
And I am not here to change your mind one way or the other. But I would like to point out something odd about these two phone calls. When brokers call, whether they use scripts or not, their demeanor seems to be one of helpfulness. And if they are really slick, cheerful helpfulness. Let me help you by bringing you a buyer. Or let me help you by listing your property. But in my experience, if you put forth any hesitation or resistance, especially if you make it clear you are not putting up with any scripted nonsense, you can easily detect a sense of…entitlement. Yes, I think that is the best word for it.
Yes, amazingly, there’s often an edge to these conversations. Entitlement to what? Payment. With an undercurrent of: If you don’t recognize that you need me and agree to pay me, clearly you’re a fool. Now I know many sellers never pickup on this. But just listen for it. If it is not there, maybe you are talking to a competent broker who does not need to play games. But if you do detect this underlying attitude, move on quickly.
Let me stop here for a question: Why don’t these brokers turn their payment entitlement attitude towards their own clients, the buyer? I am not sure, but it may be because, in order to acquire the buyer as a client, they told the buyer that they are paid by the seller. Right?
Now, this is a book on competence: Most listing solicitation phone calls will not come from competent brokers. This is clearly a Client Acquisition activity. So most phone calls will come from brokers who focus on that side of the business. As for the first type of phone call, most competent brokers will not care if you are paying them or not. If you are paying them, great. If not, they will include it in the offer. They know it is all about the net. Point is, competent brokers are much less likely to ask about payment. So when they call you, the question is simply: Hey can we come see it? Listen for the difference.
Finally, there is a third phone call: Hey my wife and I saw your house online, can we come see it? And this is call number three, because like I said, most buyer’s have brokers. Now, your response should be a question: Yes absolutely, do you have a broker? Because you want to know, and sometimes they have been told not to tell you. In any case, just because they have a broker, at this point you have not agreed and are not obligated to pay their broker. If they do, sooner or later, you will have conversation one from above.
But if the buyer does not have a broker, there is sometimes (perhaps often) a whole new set of challenges. If they like your house and want to move forward, what do you and the buyer do next?
Now I assure you, the point of this longish chapter has not been to end by saying you need to hire a broker. But if you FSBO, you do need to be prepared for what to do next.
The good news is there are solutions. Both parties want pricing help, on what to offer and what to accept. Get an appraisal. Or both sides can get their own appraisal. The buyer likely does not have a written offer. Tell the buyer to go hire an attorney (they will have to anyway) and give them some level of comfort that you will wait. Because it does take some time and they will be spending money on this.
Again, returning to the top of this chapter: The reason you hire a broker is not because you cannot do it. Rather, the reason you hire a broker is to save yourself time. The time to do it, but also, the greater amount of time spent learning how to do it.
Nevertheless, there’s never been a better time to FSBO. And if you believe my previous chapter, it is going to get even better.