This is the age-old question a lot of sellers ask before marketing a property. The question gets a little more complex considering hybrid brokerages that will post a property on the Multiple Listing Service for a reduced commission or a flat fee, with the seller doing most of the other work. Let’s take a closer look at some of the issues along with my opinions on them.
Does a seller need to use a real estate agent?
The fast answer is no if one is diligent and pays attention to detail, but there are many compelling reasons to use an agent and I usually do. What almost every seller is thinking about is saving on the commission. Commission rates are negotiable by law and in my area they are traditionally 5-6% for a home and up to 8-10% for vacant land. The seller pays the entire commission, unless otherwise agreed to in writing, and it’s usually a big chunk of $.
But don’t forget: - Selling real property is not only about finding a buyer. Knowledge and compliance with contract, disclosure, legal, title and escrow portions of the sale is necessary. Professionals are available, but for a fee, so doing it yourself is not a necessarily a cost-free proposition.
Does LDR (me) use an agent?
Yes, almost all of the time for my listings. I usually want to sell product ASAP and I want the benefit of full MLS exposure and the local industry experience of my agent. I also want experienced negotiating skills for special contract terms and addenda that I routinely place in my contracts (see my Contract & Negotiations posts).
F.S.B.O. – For Sale By Owner
It has been done - it can be done - it will be done - by some, but a F.S.B.O. needs to be careful. Exposure through available public real estate sites can be helpful, but lack of direct MLS exposure can be a huge liability. Also, great care should be taken in what is represented by a novice about the property, to include: what’s put in writing, online, and in the contract and disclosure statements. Make sure representations are complete, accurate and truthful. A seller can be held liable for misrepresentation, plus much more.
Also, I would never be a party to a homemade contract. This is where the expense of a qualified real estate professional is essential and if I were a F.S.B.O. I wouldn’t draft or sign anything without my attorney’s ok. This is not a place to scrimp in my opinion. Also, the parties need to be aware of real estate disclosure laws and if you don’t know what that means, then that’s what I mean!
A F.S.B.O. is sure to be contacted by real estate agents. One reason is to try to convince them that the agent’s professional services are worth using to sell the property vs doing it alone. The other reason would be a situation where they have a prospective buyer for the property.
A prepared F.S.B.O. should be ready to address whether they would pay a sales commission to an agent that brings a qualified buyer, payable at closing. If yes, the F.S.B.O. will be asked to sign the appropriate document before the potential buyer is delivered and be darn sure to fully understand it before signing. Yet another reason for an F.S.B.O. to have their legal professional close by.
Hybrid Brokerages:
This is typically MLS exposure through a reduced services brokerage, operating on either a flat fee or lower commission structure. A typical format would be “we list your property on the MLS, you do the rest”. Others offer a menu of a la carte services at ascending rates. I can’t say more since I have never used one, but if I did I would make sure to clearly understand the scope of services.
What is my property worth?
In my experience there isn’t a seller in the universe that doesn’t think their property is worth more than it probably is. Proof of this is to look at how many price reductions a given property goes through before it is eventually sold and closed. Also, how long it takes some to sell. The one exception is pro’s, who do it all the time. They know better than to waste massive time on an overpriced listing. If the market price doesn’t support the product they don’t develop in the area, unless they are creating a new market segment that supports a higher price point.
Finding true market value:
As a seller, my first step is to have an agent do a Comparative Market Analysis (CMA). Agents will typically do this at no cost, hoping to get the listing. Zestimates on Zillow and other resources provide similar information, but I have noticed the end results do not always agree.
No matter the source, one should look at actual closed sales, usually within a 6-month timeframe, of comparable properties in the local area. Please note – actual closed sales, not properties that are currently listed for whatever idiotic price…of which there are plenty.
Once the CMA is completed, the seller and agent can then integrate any unique positive characteristics of a property to adjust the asking price upward. Conversely, if the property has a lot of deferred maintenance or other warts, the asking price could be modified downward.
Typically: The more true a seller is to market value, the faster the sale. The reverse is also true.
A word on “Agency”:
When a listing agreement to sell a property is fully signed, it creates an agency relationship. The agency is with the brokerage firm, not the individual agent. So, if Carrie is the agent that I want to represent my property and she is with LDR Real Estate Brokerage, my listing agency agreement is with LDR Real Estate Brokerage, not Carrie as an individual agent. If Carrie leaves LDR and goes somewhere else, my listing with LDR is still intact until the date of expiration, unless released sooner by the firm in writing.
Listing commission splits:
It is traditional, but not mandated, that that the listing commission is evenly split between the Listing Agent, who represents the Seller and the Selling Agent, who represents the Buyer. A seller needs to verify what the commission split will be, then authorize it in the written Listing and/or Agency Agreement.
Dual Agency:
It is ethical and allowable for an agent to represent both parties in a transaction if allowed by law, the agent discloses it to the parties and they agree in writing. An example would be Jim, an agent, who lists Petunia’s house for sale. During the listing term Jim finds a buyer for Petunia’s home, a contract is signed and the sale closes. Jim has acted as both the listing agent and the selling agent. Bang, as a dual agent he is entitled to both the listing and sale sides of the commission.
What is an average Listing Agreement term?
Most agents want at least a 6-month term on the listing agreement to undertake the task. They have to pay up front costs in money and time. Things like professional photos & videos, property tours, placing the property on the MLS and public sites, marketing the property with other agents, positioning the property on additional websites, negotiating with other agents, communication on the listing and doing all required updating and follow up. I think a 6-month term is fair, but the actual term is negotiable. Some agents require a longer term for complex or super high-end properties. Why? Because their investment in time and money is usually higher.
But it’s so d&#n much money!
I know.
If the right person with the right property in the right market decides not to go with a traditional brokerage relationship and the professional experience it brings, things can work. Just remember that one never knows who is going to show up on the other side as the buyer and they could be real jerks or possibly far more experienced. Consider this: Joe and Jane Average are F.S.B.O.’s and the buyer turns out to be Fred, a real estate attorney. Are Joe and Jane prepared for that? If I go it alone, I make sure I am prepared and have thought things through first.
