Study: FSBOs Don’t Save Commission

We have all seen the signs in Northern VA of that do it yourself homeowner attempting to sell their own home. One of the main reasons why For Sale By Owners (FSBOs) don’t use a real estate agent is because they believe they will save the commission. A new study by Collateral Analytics, however, reveals that FSBOs don’t actually save anything, and in some cases may be costing themselves more, by not listing with an agent.

In the study, they analyzed home sales in a variety of markets in 2016 and the first half of 2017. The data showed that:

FSBOs tend to sell for lower prices than comparable home sales, and in many cases below the average differential represented by the prevailing commission rate. (emphasis added)

Why would FSBOs net less money than if they used an agent?

The study makes several suggestions:

“There could be systematic bias on the buyer side as well. FSBO sales might attract more strategic buyers than MLS sales, particularly buyers who rationalize lower-priced bids on with the logic that the seller is “saving” a traditional commission. Such buyers might specifically search for and target sellers who are not getting representational assistance from agents.” In other words, ‘bargain lookers’ might shop FSBOs more often.

Experienced agents are experts at ‘staging’ homes for sale

which could bring more money for the home.

Properties listed with a broker that is a member of the local MLS will be listed online with all other participating broker websites, marketing the home to a much larger buyer population. And those MLS properties generally offer compensation to agents who represent buyers, incentivizing them to show and sell the property and again potentially enlarging the buyer pool.” If more buyers see a home, the greater the chances are that there could be a bidding war for the property.

Three conclusions from the study:

FSBOs achieve prices significantly lower than those from similar properties sold by Realtors using the MLS.
The differential in selling prices for FSBOs when compared to MLS sales of similar properties is about 5.5%.
The sales in 2017 suggest the average price was near 6% lower for FSBO sales of similar properties.

If I were a betting man, I’d also say the FSBO’s in Northern VA sit on the market a much longer time, even after they are listed with an agent!! I am a big believer that new listings create a sense of urgency and generate a higher sales price when sold in the first 30 days!! Home buyers have no urgency for listings that have sat on the market 100+ days!