Why this article is important: FSBOs have traditionally made up a small slice of the market. But will AI change that, making agents all but obsolete? Hardly, and here is why.
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For sale by AI, the seller’s representative
Roughly 7% of sellers forego the use of a licensed real estate broker, choosing to pursue a for-sale-by-owner (FSBO), according to Zillow.
The primary reason behind a homeowner choosing an FSBO is to save money, skipping the cost of a seller agent. Other reasons include:
- having secured a buyer ahead of time; and
- confidence they can complete a home sale without a seller agent’s help.
It’s true, when a seller completes a sale without the help of an agent, they pocket the 2%-3% fee otherwise owed the seller agent. However, unless they wish to alienate the many buyers who work with an agent, FSBO sellers soon find out they still pay the buyer agent fee — it’s part of the price paid for a property.
Further, FSBOs sell for less than comparable homes sold by an agent, according to HomeLight. Usually, this difference more than makes up for the seller agent fee.
More, when considering the convenience and peace of mind of hiring a seller agent to check all the boxes and jump through all the legislated hoops required in each transaction, an FSBO tends to look less and less appealing.
These advantages of using an agent have helped relegate FSBOs to a small corner of the market.
However, the recent advent of artificial intelligence (AI) may be a game changer for FSBOs.
Where AI can’t cut it
Increasingly, talk of sellers using AI to sell their home is reaching agents’ ears.
Starting with a few simple prompts — How do I list my home? How much should I list my home for? What sort of paperwork do I need a buyer to sign? — sellers are gaining the confidence to take the FSBO leap.
But is that confidence warranted?
A seller (who is also a reporter) recently documented their experience selling their home with the sole assistance of an AI chatbot in the New York Times.
The experiment began after the seller contacted agents and was less than impressed with their home valuation techniques and selling strategies offered at the initial meeting.
The seller questioned: Why would I pay an agent 3% of the selling price when they bring no further expertise to the sale than I can find online?
AI walked the seller through the process, ultimately helping the seller list their home on the MLS and receive multiple offers. The chatbot even talked the seller through negotiation tactics to increase the selling price.
After the closing of the sale, the seller reached out to a local real estate expert who told him he had likely left money on the table. But — by the seller’s (AI’s) estimations — the higher price the seller would have likely received with a seller agent would have essentially been offset by their fee.
Still, when weighed against the many hours spent learning how to sell their home from scratch, along with the lingering anxiety their AI chatbot had missed something, is a “wash” really worth the risk of using AI over a licensed agent?
Unlike AI, agents rely on the fees generated by a sale to make a living. Thus, agents have a direct motivation to market and locate a buyer — the diligent effort duty — for their seller’s home for as much as ethically possible and as quickly as possible.
Fiduciary duties, lost
Unlike a licensed agent, AI has zero fiduciary duties to a buyer or seller.
Fiduciary duty is the duty owed by an agent to act in the highest good faith toward the principal and not obtain any advantage by the slightest misrepresentation, concealment, duress or undue influence.
To fulfill this fiduciary duty, the agent handles and ensures accurate completion of the following forms and disclosures for their seller clients:
- A property profile of the seller’s title from a title company in order to identify all owners needed to list, sell and convey the property.
- A Transfer Disclosure Statement (TDS), also known as a condition of property disclosure sheet, filled out and signed by the seller. [See RPI Form 304]
- A home inspection report (prepared by a home inspector) paid for by the seller and attached to the TDS before the seller’s agent reviews and signs the seller-prepared TDS.
- A natural hazard disclosure (NHD) on the property from a local agency or a vendor of NHD reports, paid for by the seller, and reviewed and signed by the seller and the seller’s agent. [See RPI Form 314]
- An annual property operating data sheet (APOD) covering the expenses of ownership and any income produced by the property, filled out and signed by the seller, together with a rent roll and copies of lease forms which the owner uses, to be included in the marketing (listing) package only after reviewing the seller’s data. [See RPI Form 352]
- Copies of all the Covenants, Conditions and Restrictions (CC&Rs), disclosures and assessment data from any homeowners’ association involved with the property. [See RPI Form 150 §11.9]
- A termite report and clearance paid for by the seller.
- Any replacement or repair of defects noted in the home inspection report or on the TDS, as authorized and paid for by the seller.
- An occupancy transfer certificate (including permits or the completion of retrofitting required by local ordinances), paid for by the seller.
- A statement on the amount and payment schedule for any special district property improvement bonds which are mortgage-type liens on the property (shown on the title company’s property profile).
- A visual inspection of the property and a survey of the surrounding neighborhood by the seller’s agent to become informed about readily available facts affecting the marketability of the property.
- Advising the seller about the marketability of the listed property based on differing prices and terms for payment of the price, and for property other than one-to-four residential units, the financial and tax consequences of various sales arrangements which are available by using alternative purchase agreements, options to buy, exchange agreements and installment sales.
- A marketing package on the property compiled by the seller’s agent and handed to prospective buyers or buyer’s agents before the seller accepts any offer to purchase the property. This consists of copies of all the property disclosures required to be handed ASAP to prospective buyers or the buyer’s agent by the seller and seller’s broker — always before the seller accepts and offer.
- A marketing plan prepared by the seller’s agent and reviewed with the seller for locating prospective buyers. This plan may include distributing flyers, disseminating property data in multiple listing services, newspapers and periodicals, broadcasts at trade meetings attended by buyer’s agents, press releases to radio or television, internet sites, posting “For Sale” signs on the premises, hosting open house events, posting on bulletin boards, mailing to neighbors and using all other advertising media available to reach prospective buyers.
- A seller’s net sheet prepared by the seller’s agent and reviewed with the seller each time pricing of the property is an issue. Issues may include obtaining a listing, changing the listed price, reviewing the terms of a purchase offer or when substantial changes occur in charges or deductions affecting the net proceeds from a sale since the net sheet discloses the financial consequences of the seller’s acceptance of a purchase agreement offer. [See RPI Form 310]
- Informing the client of the listing agent’s sales activities by weekly diligence communications advising what specifically has been done during the past several days and what the seller’s agent expects to do in the following days, as well as what the seller may do in response to comments taken by the seller agent from buyers and their agents, and to changes in the real estate market.
- Keeping records in a client file of all communications, activities and documents generated due to the representation.
Of course, AI now provides an ease of accessibility about all this disclosure material necessary in each transaction. Sellers know this — and will use this information to make more informed decisions when hiring an agent to represent them in the sale of their home.
Sellers interviewing agents are made more savvy by information obtained from AI chatbots — therefore, agents seeking employment need to step up their game to impress with an advanced package of representation material presented at the first meeting.
Sometimes, agents deserve to be replaced
When you act like an AI chatbot, you will be replaced by one.
As AI use has become pervasive in all aspects of our lives, the Department of Real Estate (DRE) issued a warning to unabashed agents who have become too reliant on AI.
While AI can make a real estate agent more efficient by eliminating some of their more mundane tasks, the DRE cautions against complacency and unchecked reliance. AI does not yet know that bringing in other ideas makes its output incompatible with the rules of conduct for agents in California real estate transactions.
Much like the untrained FSBO relying on AI, licensed agents who check in their brains and willfully disregard rules to rely solely on AI to direct their actions open themselves to the well-documented effects of AI hallucinations.
Further, when an agent behaves like a low-tier AI chatbot — copying and pasting generic property descriptions, texting boilerplate scripts, and churning out publicly available data — they are actively training the public to replace the need for an agent. Consumers will logically think, “Why am I paying a 3% broker fee when I can type the exact same prompt into ChatGPT and get the same advice and guidance for free?”
AI use in real estate can save time and boost efficiency. But it never replaces the advice of a licensed broker and agent bound by fiduciary duties and trained in real estate law and practice.
Related article:
Proper AI use
What can an AI chatbot help the broker with?
Some common activities a chatbot may conduct for the broker include:
- generating leads by taking contact information from website visitors;
- receiving and delivering documents;
- placing ads; and
- scheduling appointments.
However, as an unlicensed assistant, the chatbot may not:
- enter into representation agreements;
- take part in any property disclosures or negotiations which may lead to the creation of a real estate transaction [California Business & Professions Code §10131(a)];
- discuss or relay a property’s price or terms;
- discuss any type of property conditions; or
- discuss any aspects of an anticipated or present transaction. [Spielberg v. Granz (1960) 185 CA2d 283]
While use of AI makes a real estate agent more efficient by performing some of their mundane administrative tasks, the DRE cautions against unchecked reliance on AI activity. Agents must review the AI material, edit it to correct errors in judgment, and verify it as compliant with real estate law.
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