In the wake of new consumer-direct services and technology, the real estate industry is seeing a rise in For-Sale-By-Owner (FSBO) transactions. FSBO (pronounced Fizz-Bow) is a common ‘Do-It-Yourself’ practice that removes the professional REALTOR® from the equation with the end goal of saving commission fees. But there is a hidden downside to FSBOs that we think you should know about.
How FSBOs Usually Work
Privately listed sales have just as much chance of finding interested buyers as do registered MLS listings. If a seller places a FSBO ad on Craigslist, Kijiji, or uses a specialty website like PropertyGuys.ca, they will 100% find a buyer. But they won’t find the best buyer. That’s because the buyers who shop for privately listed properties are hunting for a bargain.
Picture it this way, let’s say you won a brand new iPad in a raffle, but you already owned an iPad–you bought from the Apple Store a week before. So, you decide to sell the new one. You click over to Craigslist or Kijiji to put an ad up for sale. After a few hours, the offers start pouring into your inbox. Now, you know what iPads are selling for at the Apple Store because you just bought one, and you notice that the offers you receive are half of what you paid. Why are they offering less? Because the small group of people who shop for privately listed sales are looking for a bargain. Only at the Apple Store will an iPad sell for full market value.
The Apple Store in real estate is the open market Multiple Listing Service system. That’s where a property receives full valuation, not to mention an above-average valuation, because that’s where the bulk of prospective buyers are shopping.
The Downside of FSBOs
FSBOs shoot themselves in the foot right from the start, because they are marketing to a marginal group of bargain shoppers. The idea behind FSBOs rests on the belief that avoiding the help of a professional REALTOR® saves you the cost of commission and is ultimately a better deal for both buyer and seller. While the commission bit is true, the conclusion is incorrect.
FSBOs come down to the meeting of two unfortunate ends. On one side, there is a seller listing the property with an incomplete sense of the market, and on the other side, a buyer who is specifically looking for a deal. What you get is not exactly a match made in heaven. While the FSBO does save commission fees, it’s not receiving the best offer because it is only ever presented to a small group of potential buyers, rather than the full open market where the best value would rise to the top.
Another hidden downside to a FSBO transaction is the potential for legal conflicts to erupt between the buyer and seller during the process. Real estate deals are complicated. The magnitude of the financial commitment involved, which for many people will be the biggest purchase of their life, combined with the required legal due-diligence over taxes and ownership can easily become a hotbed for emotional distress and conflict. Embarking on this journey without a REALTOR® is like wandering into the jungle without a guide who knows the way to the other side. It’s in this way, as a guide, that professional real estate agents are truly invaluable.
The Value of Working with a REALTOR®
In the real estate process, REALTORS® have less to do with firming up a selling price and more to do with guiding the process and creating market exposure. When you work with a professional REALTOR®, like our Condo Pros, you don’t just tag a listing price onto your condo and wait. It is the role of the REALTOR® to bring the open market to you and put your property in front of the biggest possible bidding arena to find the best offer. That’s what a good REALTOR® does.
It may seem like saving commission fees in real estate is a sweet deal, because it’s easy nowadays to overlook the value and role of a REALTOR®. With access to online listing services like Kijiji and PropertyGuys.ca, it seems normal to think you can do the work of a licensed sales representative.
But it’s not that easy.
Because the REALTOR® isn’t doing one specific thing that can be replaced. The REALTOR® is working in an entirely different marketplace than a private seller, providing a level of exposure and insight that private listings simply don’t receive. If you want to find the best value possible, then you want to buy and sell with a REALTOR® in the open MLS market, not in the bargain bin of private listings.