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It pays to go with a real estate broker

BY LEW SICHELMAN
United Feature Syndicate Inc.

This story ran on nwitimes.com on Sunday, February 26, 2006 12:12 AM CST

This is "The Case of the Missing 10 Percent." It's a tale of lost millions, and it stars a cast of thousands -- the thousands of owners who sell their own houses without professional help.

It seems that in their desire to save the 5 percent to 7 percent fee that real estate brokers charge for their services, FSBOs -- as in For Sale By Owners -- earn 16 percent less than owners of comparable houses who put the transaction into the hands of an experienced agent, according to a survey conducted by the National Association of Realtors.

Colby Sambrotto of ForSaleByOwner.com, an online marketplace where do-it-yourselfers list their properties and pick up valuable tips on going it alone, disputes that figure. "It just doesn't jibe with our experience," he says.

"We haven't put together a big study like (NAR's)," Sambrotto concedes. "But we ask all our sellers if they were successful, and 65 percent say they were. And we ask if they sold at or near their selling price, and 85 percent say they do."

But the 1.2 million-member NAR says it has the research to back up its claim. In what it calls the "largest and most authoritative" survey ever about how people buy and sell houses, a poll of 7,813 recent buyers and sellers located through county deed records found that the median price achieved by sellers with agents was $230,000 versus $198,200 for sellers without agents.

That's a difference of nearly $32,000, or 16 percent, with no significant differences between the types of homes sold.

NAR isn't alone when it says the desire to save the commission can backfire on sellers. Research by Texas University instructors found sellers realize little net gain when they turn to limited-service agents to perform some -- but not all -- of the tasks needed to bring a contract to closing.

The study found limited-service listings sold for 1.7 percent less than full-service listings and took 17.1 percent longer to sell. Additional research on the topic may be warranted, say James Ford, a lecturer in the College of Business at the University of Texas at San Antonio, and Ron Rutherford, a professor of finance. But for now, they say, it seems that limited-service brokerage offers "no dollar advantage."

Of course, not everyone does worse in the attempt to go it alone. At the top of the market, where even fixer-uppers are selling within hours, it's tough for sellers to make a mistake. People with "best-in-the-neighborhood" creampuffs usually fetch top dollar, too. And owners who sell to a friend, relative or neighbor often are unwilling to squeeze out that last nickel lest they jeopardize their relationship with the buyer.

But forget for a moment that NAR's findings might be seen as self-serving. For argument's sake, let's say the Realtors are right, that in the effort to save 6 percent -- the reason cited most frequently by what NAR calls "unrepresented sellers" for selling their homes themselves -- sellers lose 16 percent.

The mystery here is this: If you figure that would-be buyers automatically knock 6 percent off their offers to FSBOs because they know there's at least that much fat in their asking price, where goes the remaining 10 percent?

One glaring clue appears to be the inability of FSBOs to market their houses as widely or as professionally as, well, as the professionals.

Nearly two-thirds of the unrepresented sellers in the Realtors' study used yard sales to alert would-be buyers that their homes were on the market. And almost half used word-of-mouth between friends, neighbors and relatives as a marketing tool. Some also advertised in their local newspapers or for-sale-by-owner magazines. A third held open houses, and a small number used direct mail, just like the pros.

These are all good tools. But fewer than one in five listed his or her home on the Internet, either with its own Web site or on one like ForSaleByOwner.com. Yet, the NAR study found that three out of every four buyers -- 77 percent -- went house hunting on the Web. So go-it-alone house peddlers are missing a big part of the market.

Virtually everyone who uses the Internet to house hunt is in the game, the survey found. They're not tire kickers; they're actively looking for properties for sale, and they want photos, detailed property information, virtual tours, interactive maps and neighborhood information before they make that first phone call or hop in the car.

Internet users in the survey visited more houses than nonusers -- a median of 11 versus 6, but with one in 10 touring at least 25 properties before making a decision. And once they jumped behind the wheel, three out of four actually went to see something that caught their attention while online.

Interestingly, the sites used most frequently by home searchers are all controlled by brokers. Realtor.com, NAR's official site, was visited most often, followed by the sites operated by local multiple-listing services, real estate companies and real estate agents. Of course, to list a property on these sites, a seller must sign up with a broker, either a full-service office at full commission or a discount firm that charges a smaller fee for the privilege.

FSBOs who participated in the NAR survey also said they had more difficulty in understanding and completing the necessary paperwork, preparing their homes for the market and setting the proper price than they did in attracting buyers.

It's hard to see how handling the paperwork has an impact on the eventual selling price, but staging the house so prospects see it in its best light and determining the correct asking price can have a profound effect.

Face it: Many folks don't know how to make their homes show well. They fail to remove the clutter, for example, or put away all those personal items that distract visitors. Mostly, though, they cannot view their places as the commodities they become once they are put on the market. To them, the house is wonderful as it is, so they don't look at it through a buyer's eyes.

If there is a fatal mistake, though, it's probably that FSBOs don't price their properties correctly in the first place. Sambrotto contends they tend to price their houses too high. But too high or too low, do-it-yourselfers simply don't have the resources at their disposal to determine a fair and solid asking price.

While there are a number of Internet sites -- Sambrotto's is one -- with valuation tools to help owners determine what their homes are worth, most agents have the best tool of all -- the multiple-listing service -- at their immediate disposal.

Agents aren't always right. Indeed, they can misread the market, too. But with the ability to determine the contract prices of the most recent, up-to-the-minute sales of houses that are similar to yours, they have a sense of the market that nonprofessionals simply can't match.