Selling Real Estate – Listing vs. FSBO | The Personal Finance Playbook

My wife and I are contemplating putting our condo up for sale in preparation for our upcoming move across the state. We met with a realtor and heard her pitch last night. She seems like she would do a good job. No offense to any realtors out there, but I’ve always felt they were somewhat interchangeable. As long as you have someone that’s willing to hustle and be available to show the house when they get called, they shouldn’t hurt or help the house sell all that much. Ideally the buyer will just find a place that they really like and buy based on the place, not the salesmanship of the realtor.

What having a realtor will do, of course, is streamline the process. They handle all the marketing of your place. They’re locked in to the multi-list service, which only realtors have access to. The multi-list isn’t as big of a deal as it used to be, as you can view just about any home out there on the internet. I think the internet is the place that people most commonly start their search. Besides that, realtors have the lock box system that allows realtors to show the house. Unless you work from home, you probably don’t have the time to show your home as often as the army of realtors in your area.

The realtor could help you through the rest of the process as well. They’ll set up the closing, and make sure there’s someone there who understands what needs to be done. I had an active real estate license in college, and we had a special fellow with a broker’s license and 30 some odd years of experience that would help us run a closing properly. That’s another thing about going with a realtor – it’s the division of labor at its finest. Why should you spend your time selling your house when you make more money at your job than you’re saving? Plus, you’re allowing the people who do this on a day to day basis to do what they do, rather than trying to specialize in a type of transaction that most people will only have a hand in a few times over the course of their lives.

On the other hand, the transaction itself really isn’t that complicated. Most real estate transactions use a basic form contract (from the National Board of Realtors), and the realtor fills in the blanks. Realtors do tend to know the housing market well, because they’re constantly shopping it. It’s the kind of thing you can certainly learn yourself. You’ll need to know a few things about the real estate law in your jurisdiction, but typically it’s information that’s fairly accessible.

As far as marketing goes, if you’re trying to sell your house as a FSBO (for sale by owner), it is possible to market your house (without a realtor) beyond putting one of those red signs in your yard. More and more home searches now start on the internet. If you have a FSBO, one popular website is FSBO.com. This site, and others like it, aim to allow you to sidestep the process of signing with a realtor and attempt to market the property on your own. Of course, you may have to do other things. You’ll need to make some type of literature, perhaps host open houses and show the house to potential buyers.

Why go to the trouble? Because when you sell your house through a realtor, you have to fork over 6% of the purchase price. Of course, the realtor won’t get all of that. The commission is typically split 4 ways. The four parties involved are two brokers and two agents. The commission is split equally between two sides, the listing side and the selling side (3% and 3%). Those commissions are then split again, between the agent and the broker. It ends up like this: listing broker gets 1.5%, listing agent gets 1.5%, selling broker gets 1.5% and selling agent gets 1.5%. Of course, it could be split as little as one way if the listing agent is also the broker and the seller of the property.

If you look around, you can probably find an agent that’s willing to cut the commission to 5%. If you ask an agent that’s not willing to cut the rate about this, they’ll probably tell you that you get what you pay for. I don’t know. In theory, having the lesser commission will give them less of an incentive to try to sell your house. If they have two similar properties and one has a 5% and the other a 6% commission, the realtor would obviously have a greater incentive to push the higher commission property.

My take

We’re probably going to end up listing our place with a realtor. Not because of the complexity of the transaction or the special knowledge of the market the realtor has, but simply because they’ll have more time and energy to show and sell our house. The division of labor makes sense. Ricardo’s Law of Comparative Advantage makes sense. I think we’ll end up leaving it up to them. The fact that we have a condo instead of a single family just contributes to the case for getting a realtor. My wife and I may still try to rent our condo, too. If you have any thoughts or insight please share them in the comments. Thanks for reading.

Update: Somehow I forgot to mention Zillow.com for people who’d like to sell on their own. Lots of realtors use zillow too, but it’s a place that more and more people are looking at real estate. Check it out.