The elderly couple planned to sell their small rental home on Washington State’s scenic Olympic Peninsula to a young neighbor they had known for years.
“We are not going to use a salesperson because it’s a pretty straightforward deal,” Sally Coombs said. “We’ve always liked this kid and I think we are charging him enough.”
Sally’s case is typical of a for-sale-by-owner transaction, commonly known as FSBO and pronounced “Fisbo.” According to a recent survey by the National Association of Realtors, 32 percent of sellers who sold a home without a real estate agent knew the buyer in advance – meaning about one-third of FSBO deals are not placed on the open market.
And, not surprisingly, the survey found the biggest problem areas for FSBOs were setting an accurate sales price, prepping their home for sale and understanding and completing paperwork.
Half of recent FSBO sellers surveyed said they would sell their current home without the assistance of an agent in the future, while 34 percent were unsure of what they would do.
There are more than 1 million Realtors in this country yet analysts believe there are approximately 1.4 million real estate salespersons nationwide. That’s because not all salespersons are members of the National Association of Realtors, even though consumers have used the term “Realtor” to include all folks in the business of assisting in home transactions.
While NAR contends the number of consumers (50 percent) who would enlist the services of a professional salesperson the next time around is a good indicator of how difficult the process can be, the percentage of FSBO sellers willing to repeat the process actually has grown considerably in the past decade. A few years ago, 80 percent of all FSBO buyers surveyed indicated they would hire a real estate agent the next time around.
The Realtor survey revealed a great percentage of buyers are finding agents the traditional way: 44 percent were referred by a friend, neighbor or relative; 13 percent used an agent from a previous transaction, and 8 percent saw contact information on a “for sale” yard sign. In addition, 7 percent found an agent on the Internet, 6 percent met a salesperson at an open house and 5 percent were “walk-ins” to a real estate office or referred by another agent or broker. Five other categories accounted for minimal shares.
According to the study, 42 percent said reputation was the key reason for choosing an agent followed by an agent’s knowledge of the neighborhood at 24 percent. Of consumers who chose an agent, 64 percent specifically chose a buyer’s representative.
The Coombes’ concern that their selling price might be too low was also understandable. According to David Lereah, NAR’s chief economist, the median selling price of a home sold directly by an owner was 15.4 percent less than agent-assisted transactions.
“It appears that sellers wanting to save money by not using an agent may be losing money in lower sales prices, despite the fact many FSBO homes might be smaller,” Lereah said.
Just who is buying and how long are buyers actively searching? The NAR data revealed that married couples continue to dominate the housing market, accounting for 62 percent of transactions through the first half of 2004. Single women purchased 18 percent of homes while single men made up only 8 percent of the market. Unmarried couples were 9 percent while 2 percent were listed as “other.”
The typical buyer walked through nine homes, searched eight weeks to buy a home and moved 18 miles from their previous residence. The typical seller placed a home on the market for four weeks, had lived in that home for six years and previously had owned three homes, including the one just sold.
Existing homes are a lion’s share of the market, accounting for 79 percent of transactions, while new homes made up 21 percent of purchases. (The NAR ratios differ from analysis of market share using statistics from the U.S. Census Bureau because the Census does not count new homes built on contract as a new-home sale).
Not surprisingly, a huge percentage of consumers are now using the Internet to do at least some home research before buying. The NAR data shows that 74 percent of all home buyers now go online to check out homes before buying, up from just 2 percent in 1995.
It’s a good bet the Coombes’ neighbor/buyer would be part of that 74 percent before making an offer.
Tom Kelly’s new book “How a Second Home Can Be Your Best Investment” (McGraw-Hill) was written with John Tuccillo, former chief economist for the National Association of Realtors. Tom can be reached at news@tomkelly.com.
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