Real es­tate sales and why FSBOs are fiz­zling

Miami Herald (Sunday) - - Home - BY KEN­NETH R. HAR­NEY Har­n­ey­col­umn@gmail.com

WASH­ING­TON

What’s been hap­pen­ing to that good old-fash­ioned Amer­i­can way to sell your home — do­ing it your­self, with min­i­mal or no com­mis­sion costs?

If you be­lieve new data from the Na­tional As­so­ci­a­tion of Real­tors’ Buyer/ Seller sur­vey, for-sale-byowner trans­ac­tions — pop­u­larly known as FSBOs (“Fizz­bos”) — ap­pear to be on the same trend­line as buggy whips: They’ve just hit their all-time low of 7 per­cent as a share of to­tal home-sale trans­ac­tions. They were 8 per­cent the pre­vi­ous year. Both num­bers are down from 15 per­cent in 1981 and con­tinue a slow but steady de­cline.

So FSBOs are fiz­zling. But is that the full story? Or is some­thing else hap­pen­ing that’s a bit more com­pli­cated?

Tra­di­tion­ally, do­ing a FSBO meant that you, the home­owner, took on all or most of the tasks of sell­ing your home. You paid for ad­ver­tis­ing, put up for-sale signs, held open houses and pri­vate show­ings, ne­go­ti­ated with prospec­tive buy­ers, filled out con­tract forms, shep­herded the deal to clos­ing and pock­eted the sale pro­ceeds.

Though the NAR sur­vey’s 7 per­cent fig­ure gives no hint, FSBOs mainly don’t fit this tra­di­tional pat­tern any­more. Own­ers who pre­vi­ously would have done a pre-in­ter­net, old-model FSBO to save money now opt for a mul­ti­tude of ap­proaches, most of them in­volv­ing some form of re­duced com­mis­sion paid to a li­censed real-es­tate agent or bro­ker.

For ex­am­ple, own­ers can go on­line and sign up with a deep-dis­count or flat-fee ser­vice that will get them listed on their lo­cal Mul­ti­ple List­ing Ser­vice (MLS) at a mod­est cost. Get­ting on the MLS is cru­cial to most home sales of all types to­day; it opens the door for the prop­erty to be seen on gi­ant mar­ket­ing sites like Zil­low, Real­tor.com, Tru­lia and Redfin, among oth­ers. Since al­most all home shop­pers start their searches on the in­ter­net to check out what’s avail­able, get­ting listed on the lo­cal MLS is es­sen­tial.

Flat-fee MLS sites such as FSBO.com, ByOwn­erFlatMLS.com and oth­ers charge any­where from $399.95 to $95 — some­times even less — for con­nect­ing sell­ers to the wide au­di­ences that are only pos­si­ble via an MLS list­ing. Sell­ers can also choose among hun­dreds of dis­count-com­mis­sion realestate bro­ker­ages on­line to mar­ket their house. Some of­fer what they call “full ser­vice” rep­re­sen­ta­tion for low, flat fees of any­where from $2,000 to $3,000, or dis­count list­ing fees ex­pressed as a per­cent­age of the home price. For ex­am­ple, Redfin charges a 1 per­cent list­ing fee in many ma­jor mar­kets (1.5 per­cent in oth­ers) and of­fers re­funds of por­tions of the 2 per­cent to 3 per­cent com­mis­sions that list­ing con­tracts typ­i­cally give agents who bring in buy­ers. Other lim­it­ed­ser­vice bro­ker­ages charge flat fees or al­low clients to pick the ser­vices they want — a la carte — and charge ac­cord­ingly.

But here’s what’s re­ally hap­pen­ing to­day: For a va­ri­ety of rea­sons, home­own­ers and buy­ers con­tinue to make heavy use of realestate agents — NAR says 87 per­cent of pur­chasers de­pended on agents last year. But they’re pay­ing them lower and lower com­mis­sion rates. Steve Mur­ray, whose Colorado-based com- pany Real Trends is con­sid­ered the gold-stan­dard source on com­mis­sion rates and realty bro­ker­age fi­nances, told me last week that av­er­age com­mis­sions are drop­ping be­low 5 per­cent. That means that in an evenly split ar­range­ment of fees be­tween the list­ing agent and the sell­ing agent in a mar­ket where 6 per­cent is the “stan­dard” fee, the av­er­age com­mis­sion is al­ready at or slightly be­low 2.5 per­cent for each side — and slip­ping down­ward.

A study of 2,200 re­cent sell­ers and buy­ers in 2016 by Redfin found that fully 60 per­cent of sell­ers re­ported that they got a dis­count off the stan­dard list­ing com­mis­sion and that the av­er­age dis­count amounted to 41 per­cent. The same study found that 46 per­cent of buy­ers were of­fered ei­ther a re­bate or re­fund by their agents, av­er­ag­ing about $3,700.

Bot­tom line: FSBOs may be fad­ing, but so are av­er­age com­mis­sion rates.

That makes sense given to­day’s high home prices com­pared with years ear­lier. Back in 1981, when av­er­age com­mis­sion rates were near 7 per­cent, the me­dian home price in the U.S. was around $70,000; to­day it’s more than $265,000.

Keep in mind, though, that there are im­por­tant ex­cep­tions: If your house has unique fea­tures, a poor lo­ca­tion or is chal­leng­ing to sell in a mar­ket in­creas­ingly fa­vor­ing buy­ers, top buyer agents will still de­mand — and get — full com­mis­sions.

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