How to Sell Your Home Without a Realtor

We received an email from a reader named Jeff about the benefits and saving as a result of buying or selling your home without a realtor:

“I’d like hear a podcast on buying/selling your home without a realtor or w/realtor at a reduced rate. There’s certainly an hour’s worth of content here to be discussed…and significant money to be saved.

This is an excellent set of questions, and we’ll answer each part individually.

Buying a Home Without a Realtor

Let’s tackle this part of Jeff’s question first.

Generally speaking, there’s little advantage to you as a home buyer to not use a real estate agent. The primary beneficiary of excluding an agent goes to the seller, who will avoid having to pay the real estate commission on sale.

As a buyer, you don’t pay this commission, but the fee is paid out to the realtor from the money you pay for the property. There’s some debate over whether or not you can get a better price on an unlisted property, but that’s not certain. In most cases, if the seller is not using a real estate agent, their primary purpose is to maximize the net proceeds from the sale. That means that it’s entirely possible that you will still pay full market price for a house even if it is not listed by an agent.

There are, however, potential negatives to you as a buyer when not using a real estate agent. First, you will not have the benefit of the agent’s knowledge of the local housing market. That increases the likelihood that you may pay too much for the property.

Read More: The Real Cost of Using a Real Estate Agent

Second, it will give you the burden of creating the contract and other sales documents without the benefit of an experienced professional. This may also cause you to overlook certain standard purchase procedures, such as ordering a home inspection.

Finally, you will give up the advantage of having representation during contract negotiations. It will be much easier for you as a buyer to play “hardball” through an agent. This helps you greatly when ironing out the price and other terms of the sale, rather than negotiating directly with the seller.

For all of those reasons, you’re almost always better off using a real estate agent as a buyer.

Selling Your Home with For Sale By Owner (FSBO)

As noted above, the biggest advantage to not using a real estate agent in a property transaction goes to the seller, who does not have to pay a real estate commission. This is not only the single biggest reason for doing a FSBO, but quite possibly the only one! All of the same disadvantages that a buyer faces without using an agent will also affect the seller.

There will be nobody in the transaction to write a contract offer, handle negotiations, and set up the closing. As the property seller, you will have to participate in all of that — hopefully with the full cooperation of the buyer.

This is not to minimize the advantage of avoiding the real estate commission. In most markets, the commission is typically 6% of the purchase price. If that doesn’t sound particularly awful, realize that while it is based on the sale price, it actually comes out of your home equity. That increases the impact of the commission, and drastically.

For example, let’s say that you’re selling your home for $500,000. You owe $400,000 on a mortgage on the property, which means that you can potentially clear $100,000 on the sale. But if you are using a real estate agent, $30,000 ($500,000 X 6%) will be deducted at closing in order to pay the commission. That means that you can walk away with no more than $70,000.

If you consider the real estate commission against your home equity, rather than the sale price, it’s actually 30%! That’s the reason why so many people at least attempt to go the FSBO route before hiring a real estate agent.

Even still, it’s far from the easiest financial adventure you’ll ever undertake.

How to Do a For Sale By Owner

There’s one major reason why property sellers ultimately decide to hire a real estate agent, either from the beginning or after a short period of trying on their own. It’s because the FSBO route is a much larger undertaking than many assume.

Whether you agree with paying the real estate commission or not, real estate agents are assets. They bring not just experience to the transaction, but also established marketing strategies. If you aren’t prepared to somehow duplicate those strategies, the FSBO route will be hard to pull off.

In order to successfully sell your own home, there are a few things you must do first.

Establish a fair market value for your home. This must be the first step. Overprice your home, and it won’t sell. Underprice it, and you will lose money. For that reason, you have to get the valuation right.

In order to do this, you will have to gain access to closed sale prices. Asking prices for current listings don’t count, as they only represent what sellers hope to get for their homes. Closed sale prices are “hard prices,” in that they represent the true market value.

Learn About It: How to Run Home Comps and Why They Matter

You can get closed sale prices at the county courthouse in your area. Sites like Realtor.com and Zillow often have this information, too. Be sure that they represent recent sale prices, such as those sold within the past six months. As an alternative, you may be able to get the same information from a real estate agent friend, who can get it from the local multiple listing service (MLS).

Once you have that information, you need to make sure that the comparable sales are located within about a mile of your home, and then adjust for variances in property type. For example, if a property sale is for a larger home, you’ll have to lower the value of your property. If it is a smaller home, you can increase it. This is a very complicated process, and extremely difficult for nonprofessionals to do properly.

If you really want to have a solid idea as to what your property is worth, your best bet is to order an appraisal of the property. This will cost between $300 in $500, but it will be money well-spent. It will give you the closest approximation of what your house will actually sell for.

Related: 10 Little-Known Facts About Home Appraisals

Market the property. This will involve purchasing an attractive “for sale” sign for the front lawn, designing compelling marketing flyers, and writing convincing ads for the local newspaper, Craigslist, and other available online marketing sites. You have to be consistent with this effort, maintaining your marketing strategy in full force until the property is sold.

Hosting an open house. This is an attempt to open your property to multiple buyer prospects. They’re most often held on the weekend, and you can host as many as you feel is necessary. You may find your eventual buyer as a result of an open house, so this is a step you must take as part of the marketing process.

There are some situations of which to be aware. The first is that it’s entirely possible that most of the visitors you get will be real estate agents trying to get the listing on your home. The second is that you will get more than your fair share of unqualified lookers. That is, even if they’re interested in the property, there’s a likelihood they can’t afford it.

Property showings. If you don’t use a real estate agent, this is a function that you will have to handle on your own. You must make yourself available to show your house at the buyer’s convenience. You will also have to put your sales hat on! That means being prepared to sell the benefits of the property without being pushy.

You will need to not only tour the property with them but also field their questions. Be prepared to confidently answer any question a prospect asks; otherwise, you risk losing a potential sale.

Contract negotiations. If you do get an offer on your home, you will have to handle negotiations yourself. You will need to be firm, without being obstinate. Always remember that negotiations involve give-and-take. That means that you will need to make some concessions. Those concessions will be an integral part of your ability to complete the sale on your property.

Once you agree on a price, you will need to prepare a contract. That document will spell out all of the other terms of the sale, including the closing date, specific contents to be included in the sale, closing costs, and contact information. You can use a standard real estate contract form, which is common to your geographic location. It will be slightly different in each state, based on state law. You can find examples on sites like Rocket Lawyer.

All of the terms of the closing will have to be worked out between you and the buyer. That will include selecting a mutually agreeable closing attorney or title company to handle the closing details. You’ll also have to determine if a property inspection will be necessary, or any other inspections that the buyer may request.

What About Taxes? How to Pay Zero Capital Gains Tax When You Sell Your Home

Critical step:Somewhere in the contract negotiations phase, you must get a copy of the buyer’s mortgage pre-approval. You must have this in order to know if the person you’re negotiating with even has the wherewithal to complete the sale. If you are reluctant to ask for this information verbally, you can make it a condition of the contract. Just make sure that it is provided early in the process, such as within three business days.

Holding an escrow deposit. Any real estate transaction should be accompanied by an escrow deposit. This is usually a flat amount, or a percentage of the sale price, that the buyer puts up as a good-faith deposit on the property. It provides an incentive for the seller to remove the property from the market.

In most cases, this deposit should be held by a third-party, just in case a dispute should arise. The real estate agent would normally be that third-party. Since you’re going FSBO, though, it will likely be either the attorney or the title closing company.

The work required to complete these steps is a major reason why people decide to list their properties with real estate agents.

Using a Realtor at a Reduced Commission

If you decide that FSBO is too big of a task, but you don’t want to pay a 6% real estate commission, you always have the option of listing the property at a lower fee.

There are two ways to do this. The first is to get a real estate agent who agrees to work for less than 6%. The second is to work with a discount real estate agency, that routinely lists properties for less than the going rate.

I’ve actually used this method myself. And while I was generally satisfied, there are a few things of which to be aware.

I listed my house with a discount agency who accepted a commission of 4%. The amount of that fee was not arbitrary. A full 3% would go to the selling agent, while the rest would be paid to the listing agent, who was the discount broker.

The reason 3% would go to the selling agent is purely incentive. This is the amount selling agents would get on any other normal real estate listing. If they are paid below that, they will be less likely to even show your property to prospective buyers.

For example, if the commission included only 2% to the selling agent, realtors across the market would avoid showing the property. Instead, they would show buyers properties on which the they would pocket 3% for the same amount of work.

The 1% paid to the listing agent was the real discount, but it came with limitations.

Since the fee was so low, the selling agent basically did little more than list the property on the multiple listing service. That’s a huge factor when you are selling your home, but it costs the listing agent relatively nothing to do.

But that’s about all the discount listing agent did. We had to do the marketing of the property, including advertising and creating flyers (though the agent did provide a yard sign). Also, we had to handle the open house events and work at showings with selling agents.

We saved several thousand dollars using a discount listing agent. But here’s the thing: you can’t expect full service erformance when you’re using a discount realtor. My wife and I had some experience in marketing, and in selling a house, so we weren’t exactly novices. But if you have never sold a home, and especially if you’ve never sold anything, the discount route may not be entirely satisfactory. Or successful.

Conclusion

If you are buying a home, by all means use a real estate agent. It’s unlikely that you will save any money if you don’t. In fact, you may end up doing a lot more of the work in finding and negotiating on a property.

When selling your house, try the FSBO route at least for a while, but make sure you do your homework in advance. If that doesn’t work, try the discount listing agent approach. If neither works? It will be time to call in a full-service real estate agent. Good luck!

Have you bought or sold your home without a realtor, or with a discounted realtor, before? Would you do it again?

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