Once upon a time, in a beautiful place called (your market), there lived a very nice real estate sales agent named (your name).  And (your name) would do his/her best to help all the people in the land buy or sell their homes as best he/she could.

Well, one day, (your name) saw a house with a sign that said “FOR SALE BY OWNER call 555-1234.”  Furthermore, there was an ad in the local paper, too.

As the story goes, (your name) decided never to call that number, or to visit that For Sale By Owner.  “FSBO’s are mean,” (your name) thought.  “FSBO’s don’t like agents.  And, I wouldn’t know what to say to them.  What if they give me sales objections?  Besides, they’ll save 6%, anyway.”

One month later, (your name) was checking the MLS and saw that very home was listed by a competing agent.  And a month after that, that same home was listed as Under Contract/Pending.  (Your name) did the math and realized he/she just lost (your average commission check amount) by ignoring the FSBO.

Okay, okay, I know that was corny, and yet you know it’s a pretty true story throughout the real estate industry.  For whatever reason, most agents make up all sorts of crap about For Sale By Owners which justifies them not calling/visiting.

Let me put that all to rest:  For Sale By Owners (FSBO’s) need your service, whether they realize it or not.

1. A very small percentage of FSBO’s actually sell.  Most end up listing (and selling) with an agent.  You should do your own market research so you can use the stats to help you sell more.

2. The FSBO’s that do sell, on average, end up getting much less than if they listed with an agent.  The National Association of Realtors does a yearly study that shows listed homes sell for more money than FSBO’s, on average.  I just saw a statistic for 2007 that showed FSBO’s got a whopping 33% less!  So, do the math and you’ll see that even paying 6% allowed the seller to NET more if they used and agent.

These two points are true because of simple economic theory:

The reason why most FSBO’s don’t sell and end up listing is because, everyday, agents look at the MLS to see about new listings on the market, and FSBO’s don’t show up there.  Everyday, agents do searches for buyers, and FSBO’s don’t show up there, either.  So in the law of supply and demand, FSBO’s don’t even show up in the supply of inventory.

***And, quite frankly, I can’t imagine agents wanting to show FSBO’s to their clients.  Unless you have an iron clad buyer broker agreement, you’re opening yourself up to be left out of the process if the buyer and seller decide to negotiate directly.  Not to mention that your typical FSBO will only pay you 2-3%, so you get to do twice the work (buyer AND seller) and get paid half price.  That’s downright stupid.

And the reason that the FSBO’s that do sell usually leave truckloads of money on the table is because they are ripe for the pickings and they’re emotionally attached to the sale while negotiating for themselves.

Really, if 99% of the inventory is available to look at for free, then why would a buyer want to go looking for FSBO’s?

Can you say, “They’re looking to get a bargain?”  DING!  You’re correct!  Tell them what they’ve won, Johnny!

The fact is that buyers know a FSBO is saving 6%, so they automatically subtract that amount from the advertised price in their heads.  And most FSBO’s don’t know economics, either.  They usually over price their house, thinking they’ll get offers and negotiate, or they price their house exactly at the market, which just means they’re competing with every other house on the market, except those houses get shown to qualified buyers and theirs doesn’t.

This lends to incredibly low offers, if at any come in at all, because why would a buyer start out anywhere close to within 6% of the asking price, knowing the seller is already saving 6%?

*** The ironic thing is that many FSBO’s take advantage of real estate agents only getting paid by commission on completion of sale by having them do CMA’s under the guise of listing with them.  Then they use the data to price their home and go FSBO.  It’s ironic because the FSBO starts off knowing they need the services of an agent, then tries to do the agent’s job by selling the home themself.

“So you say this pain in my abdomen is my appendix ready to burst, Doc?”

“Yes, I think we should schedule an operation right away.”

“Well thanks for the information, I want to think about it.  I’ll call you.”  And then they go and try to take out their own appendix.

But of course doing it yourself doesn’t work, so what do they do?  They offer agents half commission or less to bring them a buyer.  So, they still need agents after all.

“Hey, Doc, remember me from last month with the appendix pain?  How about I let you do the operation, but you just charge me half of what you’d normally charge?”

Yes, it’s a ludicrous analogy, and an appendix operation is much harder to do than to sell a home.  Yet the idea is the same.  Let the professionals do what professionals do.

Hey, I know the real estate industry isn’t perfect, and there are lots of unprofessional agents around, but come on.  If you need the help of an agent to get your info, and are willing to offer an agent money to sell it, why the charade of doing it yourself?

Oh, yeah, I’ll save 3-6%.  Right.  I forgot.

The bottom line is that the For Sale By Owner is misguided, most of the time.  They think they’re saving 3-6% by selling it on their own, and studies have shown that the vast majority don’t sell themselves, and those that do get much less than when listed with an agent.

In my next post, I’ll talk more about how to help FSBO’s list and sell their home.  We’ll talk about mindset, the process, the numbers, myths and objection handling.  For right now, you need to digest the above information and believe it.  Don’t take my word for it, do the research if you’d like.  Just adopt the mindset that FSBO’s need your service.

Scott Friedman