For real estate agents, FSBO can be the most repellant four-letter word.
Nationally, 6.2% of homes for sale are for-sale-by-owners (FSBOs) as of the third quarter (Q3) of 2017, according to Trulia.
In an FSBO transaction, sellers choose to forego the myriad advantages that come with listing with a licensed agent and instead represent themselves, avoiding the 3% fee due to a seller’s agent. In some cases, FSBO sellers also refuse to work with a buyer’s agent —skipping the additional 3% fee owed to the buyer’s agent.
Fortunately for California real estate professionals, there are fewer FSBOs here. In the Golden State, FSBOs are a bit of an oddity, consisting of just:
- 2.8% of homes listed in San Diego;
- 2.9% of homes in Oakland;
- 3.0% of homes listed in Sacramento;
- 3.3% of homes in Los Angeles;
- 3.3% of homes in Riverside;
- 3.4% of homes in Anaheim;
- 3.5% of homes in San Jose;
- 3.9% of homes in San Francisco;
- 4.1% of homes in Fresno; and
- 5.0% of homes in Bakersfield.
Even in Bakersfield, which see the most FSBOs in any California metro, there are fewer FSBOs than the U.S. average.
Why does California — a state of rugged individualism — buck the national trend? This is likely due to the relatively rapid price increases experienced across the state relative to the nation.
When homeowners are catapulted out of near-negative equity as quickly as occurs in California due to the inertia of rising home values alone, they don’t need to worry about pinching pennies when it comes time to sell. Thus, California reaps the benefits of licensee representation.
The costs of FSBOs
A seller can save some money by listing themselves, but at what cost?
Nationally, FSBOs tend to be listed an average of 2% higher than their fair market value (FMV). As a result of this and other contributing factors, FSBOs sit on the market an average of one month longer than homes listed by a licensed agent.
However — and this is big — in California’s most populous metros, FSBO sellers are actually doing the opposite and listing well below FMV. Thus, the few FSBOs that exist in California sell significantly faster than in other states.
What is the reasoning behind listing below FMV? As sellers don’t have to pay the 3% (or in some cases 6%) agent fees, they can afford to list their home below FMV as an inducement to garner more buyer interest. Further, since homes have appreciated so quickly in California, there is more wiggle room for sellers to still make a profit.
But there are some notable drawbacks to listing as an FSBO, including:
- not being listed on the local multiple listing service (MLS);
- the absence of critical marketing by the seller’s agent;
- buyers looking past FSBOs due to the uncomfortable nature of dealing directly with a seller; and (perhaps most importantly)
- the lack of professional guidance and experience that only comes with listing with a competent agent.
Further, some buyer’s agents deliberately avoid FSBOs, knowing they will have to essentially do double the work. Most unrepresented sellers have no idea what forms or mandated disclosures are necessary, so the buyer’s agent ends up holding the buyer’s and seller’s hands through the process to ensure the transaction stays on track and the deal timely closes.
But real estate agents know all of this — clearly, some sellers do not.
Real estate agents: how do you encourage your seller clients thinking of listing their home as an FSBO to use your services instead? And how do you work with FSBO sellers as a buyer’s agent? Share your experiences with other agents in the comments below!