Today’s real estate market is one of the fastest moving in recent memory. With record-low inventory in many market segments, we are seeing multiple offers—and sometimes even bidding wars—for homes in the most sought-after neighborhoods. This has led some sellers to question the need for a Broker. After all, why spend money on a listing broker when it seems that you can stick a For Sale sign in the yard then watch a line form around the block?
Some buyers may also believe they would be better off purchasing a property without a broker. For those seeking a competitive edge, proceeding without a buyer’s broker may seem like a good way to stand out from the competition—and maybe even score a discount. Since the buyer broker’s commission is negotiated in the sale price, wouldn’t a do-it-yourself purchase sweeten the offer?
We all like to save money. However, when it comes to your largest financial asset, forgoing professional representation may not always be in your best interest. Find out whether the benefits outweigh the risks (and considerable time and effort) of selling or buying a home on your own—so you can head to the closing table with confidence.
SELLING YOUR HOME WITHOUT AN BROKER
Most homeowners who choose to sell their home without any professional assistance opt for a traditional “For Sale By Owner” or a direct sale to an investor, such as an iBuyer. Here is what you can expect from either of these options.
For Sale By Owner (FSBO)
For sale by owner offers sellers the opportunity to price their own home and handle their own transaction, showing the home and negotiating directly with the buyer or his or her real estate Broker. According to data compiled by the National Association of Realtors, approximately 8% of all homes are sold last year were sold as a FSBO.1
In an active, low inventory real estate market, it may seem like a no-brainer to be able to sell your home yourself. After all, there are plenty of buyers out there and one of them is bound to be interested in your home. In addition, you’ll save money on the listing broker’s commission and have more control (and cost) over the way the home is priced and marketed.
One of the biggest problems FSBOs run into, however, is pricing the home appropriately. Without access to all of the most recent information about the market comparable and market shifts in your area, you could end up overpricing your home (causing it to languish on the market) or underpricing your home (leaving thousands of dollars on the table).2
Even during last year’s strong seller’s market, the median sales price of FSBOs was 10% less than the median price of homes sold with a real estate broker.1 And during a more balanced market, like the one we experienced in 2018, FSBO homes sold for 24% (or $60,000) less than broker-represented properties.3 This suggests that, while you may think that you’ll price and market your home more effectively yourself, in fact you may end up losing far more than the amount you would pay for an broker’s assistance.
Without the services of a real estate professional, it will be up to you to get people in the door. You will need to gather information for the online listing and put together the kind of marketing that today’s buyers expect to see. This includes bringing in a professional photographer for not only still photos but also drone photos and 3D virtual tour. Writing the listing description, and designing marketing collateral like flyers and mailers—or hiring a writer and graphic designer to do so will also be needed depending on your market value position.
Once someone is interested, you will need to offer showings and develop a COVID safety protocol. You will need to schedule in-person showings (or in some cases, two or three) for each potential buyer. In addition, you will be on your own when evaluating offers and determining the buyers financial ability to close the sale. You will need to thoroughly understand all legal contracts and contingencies and discuss terms, including those regarding the home inspection and closing process.
While you’re doing all of this work, it’s likely that you’ll still need to pay the buyer broker’s commission. So be sure to weigh your potential savings against the significant risk and effort involved.
If you choose to work with a listing broker, you’ll save significant time and effort while minimizing your personal risk and liability. And the increased profits realized through a more effective marketing and negotiation strategy could more than make up for the cost of your broker’s commission.
iBuyer
iBuyers have been on the scene since around 2015, providing sellers the option of a direct purchase from a real estate investment company rather than a traditional direct-to-consumer sales process.4 iBuyer companies tout their convenience and speed, with a reliable, streamlined process that may be attractive to some sellers.
The idea is that instead of listing the home on the open market, the homeowner completes an online form with information about the property’s location and features, then receives an offer from the company. The iBuyer is looking for a home in good condition that is located in a good neighborhood—one that’s easy to re-sell at a profit and falls within the company’s algorithm.
For sellers who are more focused on speed and convenience, an iBuyer may offer an attractive alternative to a traditional real estate sale. That is because iBuyers evaluate a property quickly and make an upfront offer. If repairs after inspection are needed they will typically reduce the price by the cost of the repair.
However, sellers will pay for that convenience with, generally, a lower sale price than the market will provide as well as fees that can add up to more than both the listing and selling brokers traditional real estate commission. According to a study conducted by MarketWatch, iBuyers netted, on average, 11% less than a traditional sale when both the lower price and fees are considered.5 Other studies found some iBuyers charging as much as 15% in fees and associated costs, far more than you will pay for real estate broker’s commissions.6
In a hot market, this can mean walking away from tens of thousands of dollars since you won’t be able to negotiate, and you’ll lose out on rising home prices caused by low inventory and increased demand. In addition, iBuyers are less reliable during times of economic uncertainty, as evidenced by the halt of operations for most iBuyer platforms in early 2020.6 As a seller, the last thing you want is to start down the road of iBuying only to find out that a corporate mandate is stopping your transaction in its tracks.
If you choose to work with a real estate broker, you can still explore iBuyers as an option. That way you can take advantage of the added convenience of a fast sale while still enjoying the protection and security of having a professional negotiating on your behalf. Our company offers sellers the ability to obtain iBuyer offers, we help you evaluate them so you can compare them to what you would receive as a traditional seller.
BUYING YOUR HOME WITHOUT A BROKER
According to the most recent statistics, 88% of home buyers use a buyer broker when conducting their home search.1 A buyer’s broker is with you every step of the way through the home buying process. From finding the perfect home to submitting a winning offer to navigating the inspection and closing processes, most homebuyers find their expertise and guidance invaluable.
Still, you may be considering negotiating your home purchase directly with the seller or seller’s broker, especially if you are accustomed to deal-making as part of your job. And if you are familiar with the neighborhood where you are searching, you may feel that there is no reason to get a buyer’s broker involved.
However, putting together a winning offer package can be challenging. This is especially true in a multiple-offer situation where you will be competing against buyers whose offers are carefully crafted to maximize their appeal. And the homebuying process can get emotional. A trusted broker can help you avoid overpaying for a property or glossing over “red flags” in your inspection. In addition, buyer’s broker offers a streamlined, professional process that listing brokers may be more likely to recommend to their clients.
If you decide to forego a broker, you will have to write, submit, and negotiate a competitive offer all on your own. You will also need to schedule an inspection and negotiate repairs. You will be responsible for reviewing and preparing all necessary documents, and you will need to be in constant communication with the seller’s broker and your lender, inspector, appraiser, title company, and other related parties along the way.
Or you could choose to work with a buyer’s broker whose commission is included int the sales price negotiated. In exchange, you will obtain fiduciary-level guidance on one of the most important financial transactions of your life. If you decide to go it alone, you will be playing fast and loose with what is, for most people, their most important and consequential financial decision.
SO, IS A REAL ESTATE BROKER RIGHT FOR YOU?
It is important for you to understand your options and think through your preferences when considering whether or not to work with a real estate professional. If you are experienced in real estate transactions and legal contracts, comfortable negotiating under high-stakes circumstances, and have plenty of extra time on your hands, you may find that an iBuyer or FSBO sale works for you.
However, if, like most people, you value expert guidance and would like an experienced professional to manage the process, you will probably experience far more peace of mind and security in working with a real estate broker or broker.
A real estate broker’s comprehensive suite of services and expert negotiation skills can benefit buyers and sellers financially, as well. On average, sellers who utilize a broker walk away with more money than those who choose the FSBO or iBuyer route.3,5 And buyers pay nothing out of pocket for expert representation that can help them avoid expensive mistakes all along the way from contract to closing.
According to NAR’s profile, most buyers (91%) and sellers (89%) are thrilled with their real estate professional’s representation and would recommend them to others.1 That’s why, in terms of time, money, and expertise, most buyers and sellers find the assistance of a real estate broker essential and invaluable.
QUESTIONS ABOUT BUYING OR SELLING? WE HAVE ANSWERS
The best way to find out whether you need a real estate broker or broker is to speak with one. We are here to help and to offer the insights you need to make better-informed decisions. Let us talk about the value-added services we provide when we help you buy or sell in today’s competitive real estate landscape.
Sources:
1. National Association of REALTORS –
https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
2. Washington Post –
https://www.washingtonpost.com/business/2020/12/09/factors-consider-when-determining-whether-use-an-agent-buy-or-sell-home/
3. National Association of REALTORS –
https://www.nar.realtor/blogs/economists-outlook/selling-your-home-solo-to-save-money-you-ll-actually-make-less-than-you-think
4. Seattle Times –
https://www.seattletimes.com/business/real-estate/redfin-is-first-major-ibuyer-to-sell-in-seattle
5. MarketWatch –
https://www.marketwatch.com/story/selling-your-home-to-an-ibuyer-could-cost-you-thousands-heres-why-2019-06-11
6. Forbes –
https://www.forbes.com/sites/nataliakarayaneva/2020/03/19/billion-dollar-real-estate-businesses-ibuyer-suspended/?sh=c7f59f921747