'For Sale by Owner' Means Cutting Commission, but at What Cost?
'For Sale by Owner' Means Cutting Commission, but at What Cost?

By Sandra Fleishman
Washington Post Staff Writer
Saturday, April 29, 2006

Michael Mou and his wife listed their two-bedroom Arlington condo with a real estate agent last fall but didn't get a bite in 60 days. Now they're planning to remodel the kitchen and try to sell the unit, near the Court House Metro station, themselves.

The couple, who have two babies and two full-time jobs, know it will take a lot more effort to do it themselves. But Mou, a government information technology contractor, and his wife, Daphne Lin, also an IT worker, think it would be worth the time and energy if they can save the traditional 6 percent commission and put that money toward their next home.

"There were at least 50 people shown our home when we had an agent, but none of them put in an offer," Mou said. "So we thought if we fixed up the kitchen and were able to drop the price because we won't have to pay the agent, that will make it more interesting to buyers. That's one of the main reasons we're doing it: to avoid the cost of the commission."

But is going it alone a good idea now that the climate seems to be shifting from a seller's market to a buyer's market?

It's always tempting to consider "for sale by owner" -- "fizzbo," in real estate lingo. The idea has become more alluring as home prices in the area have doubled in the past six years. On a $600,000 sale, paying no commission means keeping $36,000. But don't sellers need real estate agents even more when the competition is stacking up?

It depends on whom you ask.

The real estate industry, which abhors FSBOs at any time, says this is the worst time to go without professional help because sellers need more guidance in a slowing market, not less. "You need to have it listed with someone who can go the distance. Sure, there are sprinters who can do it for a day. But to continue to market a house for 30 days, 60 days or even 90 days takes a long-distance runner," said Paul Valentino, Coldwell Banker Residential Brokerage's regional vice president for Virginia and the District.

Established brokers claim that FSBO numbers dropped as a percentage of all sellers during the hot market and won't climb when it's colder outside. They even scoff at FSBO savings. Thomas M. Stevens, president of the National Association of Realtors and a senior vice president of NRT Inc. in Vienna, points to a recent survey his organization performed that found that sellers with agents netted 16 percent more than those without. "So why would you go it alone? Why would you sit at home 24-7 and do all the work an agent would do for you and run the risk that you might miss a potential buyer?"

FSBO enthusiasts, however, say that while there are no official statistics on how many sellers try the route or on how much money they make, it appears that the number of do-it-yourselfers is multiplying. That's based just on the increasing volume of Web site listings of such properties and on reports of Web traffic.

The Internet makes marketing a home easier for lone sellers, said Colby Sambrotto, chief operating officer of ForSaleByOwner.com. He contends that a softening market does not mean FSBOs will drop off. "As we transition into a buyer's market, we think it's going to be good for our business. The fact of the matter is that people want to hold on to as much of the equity as they can."

Realtor.com, NAR's official Web site, is the mother lode of online listings, with about 3 million a year. But specialized Web sites such as ForSaleByOwner.com and Owners.com claim to be offering more listings every year and also provide do-it-yourself advice and materials, such as yard signs and "e-books" of information and forms. Big general-interest Web sites such as Craigslist.org and Google.com are also offering or starting to offer real estate listings on their for-sale bulletin boards.

Sambrotto said his site's listings and revenue doubled from the end of 2004 to the end of last year. On its Web site, ForSaleByOwner.com says it has helped sell more than 90,000 homes since 1997, saving about $1 billion in commissions on about $18 billion in sales.

That's still a teensy sliver of the pie. Nationally, the number of existing houses sold has jumped to a record 7.1 million last year from about 6.2 million in 2003, according to NAR statistics.

"By their very nature, [FSBOs] don't report," said Stefan Swanepoel, a California-based real estate consultant.

The industry has "for the last decade used a percentage between 10 and 15 percent," Swanepoel said. "But I've also heard people say that maybe as many as 20 to 25 percent [of sellers] might have started as FSBOs but somewhere in the process changed their minds. They dropped out either because it was too tedious or too lengthy a process, or because they decided there was too much traffic in my house or that they didn't want to spend the marketing dollars."

The big question for sellers, he said: "Can you be as effective as an agent? You always think you can do it faster, but it's not that easy."

A basic listing on Sambrotto's company's Web site costs $89.95 a month. Higher-end packages cost $699 and $899 for an array of materials plus access to the local multiple-listing service through a local real estate broker. The broker charges a flat fee, not a commission, for getting the listing into the Realtors' listing database, and the seller pays only the 3 percent commission to the buyer's agent.

In response to the popularity of FSBO Web sites, flat-fee listing brokerages and discount brokerages, the Realtors association in February unveiled a $25 million "public awareness campaign" to trumpet the value of its 1.2 million members. One of the new commercials, called "Don't Try This at Home," ballyhoos the recent association survey that says agents help their clients make a bigger profit than FSBOs.

The industry has faced official allegations that it deters competition by controlling access to listing information and other practices. The Justice Department and Federal Trade Commission are investigating various NAR practices; the association disputes charges that its policies are anti-competitive.

Unlike some do-it-yourself devotees, condo seller Mou is not opposed on principle to using an agent. But because his last outing with an agent tanked, he figures he'll try the FSBO alternative for a month or two. "If it doesn't sell in 30 or 45 days or whatever the average time on market is now, we may go back to find ourselves an agent. It's very emotional and draining to go through all the showings," he said.

Jim Landolt of Great Falls calls himself "a fan of FSBOs" -- he has sold two properties that way and is in the process of selling a vacant lot in West Virginia. But he said there are drawbacks. One is setting the asking price. "You will get no help for this."

But because there are more ways to access recent sales through the Internet, including new Web sites such as Zillow.com, which promises to provide an instant "zestimate" of the value of many houses, Landolt said it is becoming easier to calculate prices.

He said, "You also won't get help negotiating the terms." That could make some sellers nervous or send them to a discount broker for representation at the last minute.

Charlene Hout, who is selling her Georgetown house herself, said the process is intense and requires a full-time commitment. "I consider this my job, but if I can make the kind of money that I would give up in the commission, I've done really well, haven't I?" she said.

Hout said her attempt to market her three-story brick house for $1.95 million has drawn some flak in the tony neighborhood. "I've had real estate agents say, 'You can't do it,' meaning it's just not done here. That it's tacky or low-brow or something," she said.

But she has bought and sold houses FSBO before, and the incentive to keep going with this one is strong. "The commission on a house like this would be about $120,000," she said. (Paying a commission to a buyer's agent would cut into her savings or those of any FSBO, and most buyers have agents. In a typical transaction, the sellers pay 3 percent to their agent's company and 3 percent to the buyer's representative.)

Hout said she did her own market analysis and believes her house is the only one in the eastern part of Georgetown on the market for less than $2 million. Three neighborhood houses sold in the past year for $1.3 million to $1.5 million, and all had to be "totally gutted," she said. "Ours is move-in ready."

She has done other homework, including checking with a title company, getting the proper legal forms for sales and disclosures, and preparing ads. She has also agreed to "one-time showing" arrangements in which agents offered to represent her house to a client at a higher price so that they could get a commission.

Agents have been persistent in trying to get the listing, she said. "These people drive you nuts. They keep calling. . . . A lot don't even identify themselves when they come by. Or they will tell you that they have a client and then try to get you as a client."

But her goal is to stay FSBO. "I don't think they can make me any more money than what I would get if I sold without them," she said.

Norma Hetrick in Bowie is not quite as gung-ho about FSBOs as she was in January when she put her four-bedroom, 3 1/2 -bath home on the market for $699,500. She has reduced the price to $659,000. But she's not in a rush yet, either, because she and her husband are moving into a retirement community that's under construction.

"I'm not worried about it," she said. "Maybe a little anxious but not worried."

Hetrick said she doesn't find the time needed overwhelming. "You get phone calls and set up the appointments when it's convenient."

Stevens, the president of the Realtors association, concedes that FSBO sales are possible. "Hey, it can be done. But I can tell you I wouldn't do it, and I have my home for sale in Great Falls right now." With an agent, of course. "My wife and I don't have the time to do it."