Hiring an Agent or For Sale By Owner?
Let’s get the inherent bias out of the way. I am an agent, and my main goal as Broker / Owner of Velo Homes Group- a Keller Williams Team– is to advise you to help you make your best decision, and the purpose of this article is to do just that.
Now I could just list off the benefits of an agent and really miss what I think you who are reading this article are mainly thinking about:
These are the most common reasons for not choosing agents and going forward with a For Sale By Owner, and arguably I can wrap my head around them pretty well. I wasn’t always an Agent or Broker– I was once working in the entertainment industry and I bought my first home with an agent. Honestly, I never really heard from that agent again and she did not make a point to make herself known after the transaction. I actually barely heard from her through the whole process. We made it an easy transaction with her but the customer service wasn't there for what I was looking for, so I have definitely been a client with a less than favorable agent experience.
So let me address item 1:
Technology.
Technology is amazing and has made the home selling process and industry more transparent, waking up to new methods in selling homes. It is funny though how companies like Redfin, Opendoor, Felix Homes, or XYZ of any other online brokerage don’t alway give you a straight answer.
Usually they have 2 products:
Cash offers.
These programs are designed to get a guaranteed offer but these offers are usually well below market value and then they resell them on the open market for a market price while still charging you fees. You end up making less 99% of the time than you would have on the market. Case in point- I have had several clients that have received those offers and wanted to take them instead of listing with me, but I asked them to trust me that they were getting bad offers and that if we listed I could make them more. Not only was I able to get my clients more money on the list, we sold for at least 5% above asking on average for all of the listings we worked on. For their homes at 200-800k, on average that is an extra 10k above listing on the low end but has gone as high as $200,000 above asking- a new record. Those companies bank on having you leave money on the table, that is how they make money. So instead of letting them take your equity in your home, trusting an agent may make much more financial sense.
List for Less.
These are agents who usually list with the brokerage and get a moderate salary and will list your home for 1% of the asking price. Now they still have to pay the buyer's agent 3% so while you are thinking that you are saving 5%, you really are only saving 2% on your purchase price.
In our world I truly believe you also get what you pay for. The List for Less agents usually (and I can attest with my own eyes) use lower or poor quality photos, have less communication with the client and are not invested in the long-term and all the while, you have to pay more in fees than if you chose an agent with a standard 6%. While it might not be important (and may be more advantageous) that you are best friends with your agent, if you know an agent or are referred an agent with a long-term mindset, you won’t see the short cuts that other agents take just to make a quick buck. They want to do an amazing job to earn your business and referrals for a long time to come. There is a high priority focus on better quality, better communication, and better market knowledge. And in a race to the bottom, are you wanting a Walmart agent– cheap and you get what you get, or an agent that costs more but delivers, like an experience at your favorite restaurant? Think back to a time where you had a great server who kept you coming back because you enjoyed the atmosphere, the communication and what they were able to provide to your experience. Agents should make you feel well taken care of.
Bad Experiences.
Let’s face it, there are bad eggs out there in every single industry- restaurants, healthcare, tech, phone, internet, — the list goes on.
While it might seem like the right solution is to do it on your own, and while I freely admit I am not an astrophysicist and this is not literal rocket science, I just want you to consider this thought experiment:
Between 2 options-
If one person whose sole function is to be wholly dedicated to one task and is known for that, vs someone who does not necessarily know the task at hand but has had some encounters with it, which would you trust more?
Now while it might feel like you want to contradict me as you saw where this question was leading, really sit with it.
You are likely not a Real Estate investor with a portfolio of millions of dollars of property, likely you may own just your house, or maybe one rental. Which means you have precisely purchased 1-2 homes in your tenure. An experienced agent sells between 25-50 homes a year.
I think it is truly a trust exercise to ask someone you’ve not met to sell your most important asset, but an experienced full-time agent WHO IS A GOOD FIT with you and your communication style will likely yield better results than you could on your own.
Home owners tend to overshare and lose out on negotiations. They are not familiar with contract language and might end up costing themselves money on the contract, and likely are more willing to give in to negotiations that may not be necessary that end up costing more money through the process (the exact job of which the agent is there to protect you from).
If you have bought and sold multiple homes, you are investing, you might know your way around listing, and depending on what your goals are it might just be more time and cost effective to hire an agent you trust so you can buy more homes and find more deals than having to deal with staging, repairs, needy buyers, negotiations and all the paperwork for state compliance on your own.
So if you have had a bad experience, I would just say interview more realtors, and be slow to hire. Most can do a similar job, but are they aligned with you and are they the communicator and experienced agent you need to get the job done?
We have a seller checklist you can check out here about what it looks like to interview more agents.
I Don’t Want to Spend 6% on Agents. Whether or Not the Market I Am in is Hot or Cooling Down.
And finally if you haven’t gotten the hint of bias already, I think in more cases than not, you get what you pay for.
While the first two reasons might keep you from choosing an agent and spending the money I hope you can see that FSBO would begin to cost you more than just 6%.
As a thought exercise:
Say your home is $500,000.
A Cash offer program offers you $450,000 and you get the funds in few days but you are leaving $50,000 on the table (the average salary of someone in the US).
A List for Less agent will list for $500,000 but you have about an additional 1-2% in fees ( just see Open Door’s most recent judgment by the federal Trade Commission for misleading Owners ) and you will have to pay for some of the additional marketing packages they have.
And a regular 6% agent sells your home for the $500,000.
All things being equal your home sells for $500,000 - not including your individual loan payoff- you would take home:
~$435,000 After fees with the cash offer
~ $470,000 with a List for Less agent since you still have to pay the buyer’s commission of 3% plus the listing 1% commission- so 4% and this doesn't account for an additional $5,000 in fees (where we have seen personally some as high as additional $15-25k in fees).
~$470,000, with the agent.
While the marketing seems great, when you read the fine print of some of these companies you end up paying around the same amount anyway for less quality service as they undercut your equity, nickel and dime you for services and honestly have no investment in your equity. They are there to make a quick buck by making it “convenient”, but it’s your home and your equity and good agents should be there to protect and maximize your returns (unlike a company whose job it is to maximize the shareholder returns). While there is clearly a monetary incentive for agents, it’s for a job done, for their skill and attention to your net worth.
So FSBO or Agent? Depends on your own goals, but I wanted to at least expose you to some higher quality conversation on them, and that I truly believe in any market in any city, a good agent will make you more money than what you could ever possibly save using an online company or List for Less agent. And in all honesty, I’d pay them more (again the bias) if they did more to make my life easier, not less.