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How to Convince Sellers FSBO is Not The Way

Jul 9, 2020 12:00:00 AM

In an era where anyone with a car can become a taxi driver, and anyone who owns a condo can become a hotel operator, it’s not surprising that more and more home sellers are interested in trying to put their home on the market without the help of an agent.

 According to research by Zillow, 57% of sellers think selling FSBO (for sale by owner) will save them money, 36% believe an unassisted home sale is faster than an agent-assisted one, and 27% think they know their home better than an agent would. How many actually go through with an FSBO listing? That number is especially telling— over a third of sellers, or 36%, attempt to sell their home themselves, but only 11% are able to see it through.

 The takeaway? Selling by yourself is a lot harder than people think – but how do you convince FSBO sellers of that? To do it accurately, the first step is to clarify some of the most common misconceptions about FSBO listings. However, before we get into that, let’s address this strange new reality we’re in, and how the COVID-19 pandemic is going to affect FSBO sellers, as well as the rest of us.

Selling a Home in the COVID-19 Era

Real estate is an intensely face-to-face industry, so we’re in for a difficult time over the next several months. We won’t be shaking hands to close any deals, and no one is going to want to open their home to a bunch of strangers for an open house. Here’s the good news; we can adapt, and we already have a lot of the tools we need.

Even before the pandemic, Zillow found that listings with virtual tours racked up twice the views as listings that only had photos. In the age of social distancing, virtual tours are a necessity. But they can be daunting to create and stage for, especially for first-timers.

Agents bring a lot to the table (more on that below), and in this case that means technical proficiency and connections to professional real estate videographers. Luckily, it probably won’t be that difficult to persuade an FSBO seller that they need help making a virtual tour; show them one, and they’ll understand immediately what they’re up against.

Virtual tours work; before the pandemic, many foreign and luxury buyers bought properties sight unseen, after doing only virtual tours. And in China, where the pandemic started, the real estate industry has already embraced virtual showings. In February, Chinese agents held an average of 350,000 virtual showings a day, 35 times more than in January.

Of course, it’s going to be hard to close a sale without any in-person showings. I’d bet on a near future in which sellers hold individual showings for prospective buyers with serious interest, but considering the potential risks, the buyer would have to be pre-vetted, pre-qualified, and nearly ready to sign before they stepped foot in the house. Without the experienced salesmanship of an agent to pre-close the sale, an FSBO seller could find themselves opening their home to a procession of lukewarm buyers who promise to “think about it” and then disappear. Here’s the thing; this isn’t just a waste of the seller’s time, it could also be dangerous to their health. The most effective filter? An agent who recognizes serious interest when they see it, and knows how to close a sale. 

Now let’s look at some more fundamental facts about FSBO sales.

The Real Truth About FSBO Listings

One statistic you hear all the time is that unassisted sales are, on average, much lower than agent-assisted sales; some experts put the averages as far apart as $200,000 for FSBO listings, and $275,000 for agent-assisted ones. The problem is that this isn’t really true— and the real problem lies elsewhere.

 Ask a bunch of agents, and they’ll tell you that lower-priced homes are more likely to be sold FSBO, while higher-priced homes are more likely to be handled by an agent. It’s the different classes of properties that accounts for the price gap, not necessarily the involvement of an agent. When you compare sales of similar homes, there’s not much difference at all between sale prices for FSBO and on-market listings. 

This was confirmed by a study from the National Bureau of Economic Research, which looked at six years of data in the booming Madison, WI housing market, and found no significant price difference between FSBO sales and MLS sales. However, they did discover something much more interesting. The FSBO listings took significantly longer to sell— between 20 and 115 days longer than the average MLS listing, depending on circumstances. They also found that 20% of FSBO listings simply failed to find a buyer, and were then listed on MLS by an agent.

This backs up what most real estate professionals know instinctively; the longer your home sits on the market, the worse the outcome. That’s confirmed by data, too: an analysis by Zillow found that homes had a 59% of selling for the initial list price in the first week, a 50% chance in the second week, a 39% chance in the third week, and a 32% chance in the fourth week. Time is money, and FSBO listings take a long time to sell— if they sell.

 That brings us to the awkward issue of FSBO fails; one in five of them don’t sell at all. Sellers thinking about going FSBO may not be all that stressed about leaving $50,000 or even $75,000 on the table, but it’s hard to ignore a 20% chance of total failure. Selling a home is stressful; the idea of letting the process drag on and on, and then having to start it all over again, would give anyone pause.

And it’s not just a matter of weeks or months; sometimes sellers waste years. Here’s and example from Clever: we worked with a seller who’d been trying to sell her home as an FSBO listing for two years. She signed with one of our agents after realizing we could reduce her listing commission significantly, but wow— two years is a long time to waste! 

If you want to convince a seller to avoid an FSBO listing, don’t talk to them about price — talk to them about time.

FSBO Sellers Don’t Realize Everything an Agent Brings to the Table

And then there’s the portion of FSBO sellers who aren’t concerned with getting the highest price, or the fastest sale— they just don’t want to pay the 5% to 6% commission fees. Partly, this is because they don’t quite understand everything an agent brings to the table, and partly it’s because they don’t quite understand how the commission system actually works.

We’ve all heard stories of FSBO sellers who think they’re not going to pay a cent of commission, only to learn, after it’s already too late, that they’re on the hook for a 3% buyer’s agent commission. Here at Clever, the manager of our Concierge Team bought her first home from a FSBO seller— and the seller wasn’t happy when they realized they had to pay her buyer’s agent a typical commission.

This is a key point in convincing a seller to avoid the FSBO route; they’re only saving half as much as they think they’re saving. And they’re giving up a lot of services for that relatively small discount; most people have no idea how much work agents do behind the scenes of a sale.

Great agents bring a robust network with them. They’re talking to other power agents constantly, they have a steady flow of buyers who they’re bringing to listings. They’re consulting with buyers and buyer’s agents to learn about their needs and goals, so when they bring someone to see your home, that person is serious about buying. Bottom line, an agent brings in much better traffic than a website listing or a yard sign.

This is backed up by the NBER study I mentioned above, which found that the main reason MLS listings were so much faster and more successful than FSBO listings was that MLS listings were exposed to a much larger pool of potential buyers. More eyeballs equals more potential buyers— it’s just that simple.

A lot of FSBO sellers also underestimate how complex the negotiation process can be, and all the situations where they might need an agent to pull their fat out of the fire.

Home sellers are an optimistic bunch, and FSBO sellers are the most optimistic of all; they’re going to sell their home for top dollar, and they’re going to do it all by themselves. But ignorance isn’t always bliss. Educate them about the risks, and everything an agent brings to the table, and they’ll likely thank you for it— and reconsider their decision to go it alone.

Author bio: Luke Babich is the CSO of Clever Real Estate, the online referral service that connects home buyers and sellers with top-rated agents. Luke is a real estate investor in St. Louis, MO with over 24 units who specializes in multifamily units. His first investment was a house hack with Clever's cofounder, Ben Mizes.   

 

 

 

 

 

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