Use a “For Sale by Owner” Sale to Cut Commission Fees

Take these steps to save money

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Use a "For Sale by Owner" Sale to Cut Commission Fees

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Reviewed by Julius MansaReviewed by Julius Mansa

If you’re considering selling your house, one strategy you can choose is a for sale by owner (FSBO) route. By choosing not to use a real estate agent for the sale of your property, you take on more work—but save on commission fees. Instead of paying a real estate agent to stage your home, list it, market the property, and negotiate with the buyer’s agent, you take on a more active approach. In a FSBO sale, you prepare your home, market it as best you can, and directly work with buyers (and potentially their real estate agents).

Key Takeaways

• Home sellers can save thousands of dollars in commissions by using the for sale by owner (FSBO) method. 
• The FSBO process involves staging a home, marketing it, and negotiating with buyers or their real estate agents. 
• One particular FSBO approach utilizes a buyer’s agent but avoids a seller’s agent, saving sellers about 2% to 3% in commissions.
• FSBO sellers can pay a flat fee to list their homes on the Multiple Listing Service (MLS) themselves.
• FSBO sellers should leverage both physical advertising and digital advertising techniques.

How “For Sale by Owner” (FSBO) Works

Traditionally, home sellers have two options: use a real estate agent or conduct for sale by owner (FSBO) sales. Using a listing agent who works with and markets homes to buyers’ agents can be expensive, typically costing 4% to 5% of the sales price of the home.

Listing your own property—and finding the right buyer—can be difficult and time-consuming. That’s because most homebuyers work with real estate agents who have no incentive to show FSBO properties. Real estate agents working with homebuyers will often prefer to work with more experienced agents who represent sellers.

There’s a “hybrid” FSBO option in which the seller pays a small commission to the buyer’s agent and removes the seller’s agent from the picture. This approach gives buyer’s agents an incentive to show the home while the home seller avoids the expensive listing agent commissions.

How to Save on Commission Fees Using FSBO

Selling a home yourself requires some time and effort, but it can be financially well worth it. Saving 3% in sales commissions on a $500,000 home is $15,000. A seller can pay a flat fee to list their home on the Multiple Listing Service (MLS) and do the marketing as well as paperwork on their own to save that money. If you’re interested, here are some useful steps.

Step 1: Determine the Right Asking Price

After making your home attractive to potential buyers, sellers must determine the right asking price. In addition to relying on the market expertise of a real estate agent, buyers will search the internet and drive through neighborhoods scouting and researching homes.

Sellers should do the same. It pays to keep track of what homes in nearby neighborhoods sell for over time and find out the asking price of any homes currently for sale. Sellers should search internet real estate sites for homes for sale in the area and drive by those homes to get a better understanding of their location and appeal.

Another item to consider is an appropriate mark-up. Houses are strategically priced to incite interest from a buyer; however, the buyer may make an offer lower than asking or base their offer on what you’re listing for. Depending on your market, it might make sense to intentionally build in a small target price increase (around 1%) to leave room for some negotiation.

10% Rule

A general rule of thumb is not to price your house 10% higher or lower than the average home price in your neighborhood. This rule is contingent on house condition, house amenities, and house age.

Step 2: Prepare Your Home

Because you are not using a real estate agent, you must ensure your property still appears professional, well-kept, and ready for sale. Ensure you’ve done the proper repairs and maintenance you wanted to accomplish before the sale and consider hiring a cleaning crew prior to open houses or major showings.

Although your overall intention to skip the use of an agent is to save money, there are other vendors worth considering. Home staging companies can present your home in fantastic ways, helping prospective buyers envision the property fully furnished and complete. In addition, photographers can portray the beauty of your home. Your goal is to entice buyers with high-quality showings, whether in-person or digital.

Step 3: Hang Signage and Advertising

The for-sale sign is an important part of an FSBO marketing strategy. Homebuyers typically direct their real estate agents toward the homes they want to see. Regardless of whether there are other homes for sale in the neighborhood, potential buyers may be physically visiting neighborhoods they are interested in. In addition, for-sale signs attract the attention of neighbors, who may start word-of-mouth advertising.

Putting the asking price on the sign draws the attention of interested and qualified borrowers. Also, including the words “Buyer’s Agents Welcome” or “Will Work With Buyer’s Agents” on the sign lets both agents and buyers know the seller is willing to pay a commission to the buyer’s agent. Make sure you include contact information where interested parties can reach you.

Old House, New E-mail

An industry trick when buying or selling a house is to create a brand new e-mail address specific to the transaction. This cuts down on potential spam in other e-mails and helps track correspondence and receipts you might need in the future.

Step 4: Use the Internet

Numerous popular websites let buyers search for homes. Put the FSBO home on as many of them as possible. Include plenty of pictures of the home, and make sure any photographs used are current, clean, and accentuate the strengths of your house.

In addition to visuals, you’ll need to develop written content to describe your home. Consider what makes your property unique, and craft a truthful listing description. This description should be informative and honest, but it should still pique the interest of the reader.

Once you post your listings, consider sharing them on social media. Even if people within your network are not personally interested in buying a home, it makes sharing the information easier for your network. By leveraging people you know, you’re already getting the word out that your home is for sale.

Step 5: List Home on the MLS

The MLS is the database that real estate agents use to find and research homes. Several online vendors will essentially act as the seller’s listing agent by putting the home on the MLS for a flat fee. A quick internet search will turn up several listing agents who are licensed in the area. They’ll have several listing options with different levels of exposure and service and different prices. Choose an option that gives your home adequate exposure and includes at least one picture.

One piece of information included on the MLS is the commission the seller is willing to pay the buyer’s agent. A buyer’s agent commission of 2% will generate traffic and is enough incentive to get those agents to show the home.

Step 6: Navigate Contracts and Negotiations

When a buyer and agent present an offer, it will most likely be in the form of a standardized contract. This should provide some reassurance that there is nothing questionable going on. The seller should read through and understand the contract.

When reviewing changes to any contract, use red-line commentary. This tracks the original contract language and terms and makes a note of what changed and who changed it. Instead of having to review the entire contract every time, digital copies with red-line notes let you only review what’s different each time.

There are seemingly limitless terms and conditions you or the buyer may include in their negotiation. Some common contract terms include:

• Financing terms: If the buyer is not buying your home using 100% cash, they must demonstrate they are pre-approved for a mortgage using a pre-approval letter from a mortgage lender.
• Home Inspection: An agreement must be made on whether any home inspections are to occur and which party is to pay for any.
• Fixtures and Appliances: Make sure you and the buyer agree on whether the fixtures, appliances, and other heavy machinery will be left or taken away by the seller.
• Dates: Many terms of a contract revolve around execution dates. The most important will be the closing date—this will outline how many days the transaction has for both parties to meet all of their conditions.

Miscellaneous Items

Keep the house in showing condition and be ready for spur-of-the-moment requests from real estate agents to show the home. Frequently, those requests come from potential buyers who are in the neighborhood with a real estate agent looking at other homes. For security reasons, and to solicit feedback, require real estate agents to give you a business card when showing the home.

Buying or renting a lockbox can be an advantage, giving real estate agents access to the home so the seller doesn’t have to be there. This strategy gives prospective buyers more privacy as they look at your house and could make them more comfortable when honestly discussing the home as they tour it.

What Is a For Sale by Owner Transaction?

A FSBO transaction is a deal led by the seller, not an agent of the seller. Instead of hiring a real estate agent, a seller manages the aspects of the sale in an effort to save on commission costs.

How Much Commission Do Selling Agents Receive?

Typical real estate commissions are an average of 5.46% divided between the buyer and seller agents. Depending on the market and company they work for, these fees may be slightly lower or higher.

Do I Need a Selling Agent?

No, it is entirely possible and common to sell your own home without a real estate agent. It may be more difficult, require more time, and leave you with a lower selling price, but sellers can easily sell their own home.

The Bottom Line

Don’t be intimidated by listing a home on the MLS, getting your home ready for sale, and negotiating with potential buyers. Though selling a home via FSBO will require some time and effort, the payoff could be saving thousands of dollars in sales commissions. 

Still, an FSBO sale is not for everyone. The time commitment, logistics, negotiations, and legal and regulatory requirements that come with selling a home could be more than you are willing to undertake. If that’s the case, paying a seller’s agent commission could be a good investment.

Read the original article on Investopedia.