Thursday, October 19, 2006

FSBO vs. Agent Representation - Get an agent!

Thomas M. Stevens, President of the National Association of Realtors (NAR) stated earlier this year that "the level of for-sale-by-owners (FSBO) is on a sustained decline and is now at a record low. In addition, a growing share of FSBO properties are not placed on the open market - they're private transactions."

Why is that? Why are more and more homeowners opting to hire an agent, and pay a professional fee (a.k.a. the dreaded commission) rather than sell the home themselves?

For starters, they end up with more money. According to a January 2006 NAR article:
The median home price for sellers who use an agent is 16% higher than a home sold directly by an owner... there were no significant differences between the types of homes sold.
Home sellers who are aware of this statistic recognize that an agent's commission will be far smaller than 16% of the purchase price of the home - 10% lower! On a $300,000 home, the average seller listing with an agent will net an additional $30,000 over their neighbor selling on his or her own, never mind the out of pocket marketing costs.


There are many reasons, actually. Says Stevens, "Agents know best how to prepare a home and maximize value, agent's provide a broader exposure to the market and are more likely to generate multiple bids..." Furthermore, "owners without professional assistance also have problems in understanding and completing paperwork, prepping the home for sale, getting the right price and selling within the time planned."

Marketing majors can tell you the "four P's of marketing" - Product, Price, Place (location), and Promotion. One of those "P's" you cannot control as a home seller - location, not without a very large truck anyway.

Your product is your home, obviously, and while it will have the same number of beds, baths, and common areas once your agent is done with it, a talented Realtor® has seen hundreds of homes and can help you stage your home to sell at the peak of its potential.

Your price, or the value of your home, is defined by exactly what homebuyers are willing to pay at a given point in time. Homes that are promoted as For-Sale-By-Owner are perceived by homebuyers as potential bargains. There's no colorful sign, there's no professional agent, there's no fancy marketing, and so on. It must be a deal, right? Furthermore, they don't get as many eyeballs -we'll talk about that more in promotion. Finally, if a home price is set too high, it will sit on the market. Homes that sit on the market are perceived as stigmatized properties, and typically garner a lower selling price than they would have gotten if priced correctly from the start. Professional Realtors® are trained to study the market, compare homes, and set a realistic home price that will allow the seller to maximize their value.

Finally, promotion. If your home is worth what a buyer is willing to pay, isn't it a benefit to have many potential buyers see your home? The more buyers, the more perspectives. The more perspectives, the higher potential price a buyer is willing to pay. Two interested parties? Three interested parties? Hmmm... a bidding war sounds pretty good right now, eh?

How do we promote your home? According to the NAR study, 54 percent of buyers used in their search. If you hire a Baird & Warner agent, your home will automatically appear on 50 percent use the Multiple Listing Service in their area. In Chicago we have two, MLSNI and MAP MLS. Baird & Warner uses both, by default.

38 percent of home buyers utilize a real estate company website. Who has the most popular, most active website in all of Chicagoland? You guessed it, Baird & Warner. 31 percent utilize real estate agent websites, your home will be listed there as well. 15 percent use local newspaper websites like - Baird & Warner puts every one of their listings there too.

Promotion doesn't stop at advertising your home online and in the paper, you have to show your home to potential buyers as well. Agents work evenings. They work weekends. They show your home to other agents who have buyers through activities like Office Caravans and Broker's Tours. These are opportunities that FSBOs miss out on altogether.

The option is yours, Mr. and Mrs. Homeseller - block off your nights and weekends for the next three months, develop your own marketing plan, monitor your competition through continual market research, seek out and complete complicated forms and contracts, and take a $30,000 hit to your net proceeds, OR hire a Realtor and sit back and enjoy the ride.