Dear PoPville – Why no real For Sale By Owner (FSBO) market in DC?

Dear PoPville,

My husband and I live in Mount Pleasant, and have been watching our neighborhood real estate market since we bought our place in 2007. With an current inventory of ZERO single family homes in the area, and places going under contract within a week with multiple offers and no contingencies, we’re curious why there’s not more of a robust FSBO market. We’re considering the possibility of moving, and have a great place in the entry-level (for the neighborhood, of course) price point, but the idea of handing over 6% of the sales price–which could be the better part of our return on investment–to a realtor is really galling.

Without inviting the real estate lobby to argue for all the benefits of hiring a professional (staging, negotiation, open house management and so on), I’m curious for folks to weigh in on why they think more folks don’t try to sell by owner. (I say this also having moved from Madison, WI, which had a thriving FSBO market, where I bought my house with no problems from a lovely set of owners, so I’m familiar with the process.)

65 Comment

  • Great Question! I’m looking forward to this conversation.

  • Looking forward to it too! I found this article on the NYTs about Madison’s thriving FSBO market. Pretty cool!

    http://www.nytimes.com/2007/06/08/business/08home.html

    • I wonder how the Madison market is doing now since this was an article from the height of the bubble. And, I remember that study well. Happened to do some of the PR on it. lol

      • I’m good friends with a Madison RE agent – she’s bouyed by the increase in the rising going price of houses now but houses do not move fast there. She has to spend a lot of time showing and doing many open houses for each property. She’s not wealthy, even though I think she’s very good at what she does.

      • It’s a huge college town and the liberal utopia of Wisconsin, so I’m sure the long term picture is totally fine for home owners. And let’s face it, the prices during the crisis were not “real”, durable valuations. It’s going to take quite a while for most places to get back to 2007 pricing. Madison will get there eventually but at a pace in line with the historical mean.

  • bfinpetworth

    I’m in the process of buying a second home in Florida without the involvement of a realtor – seller used the forsalebyowner.com service to advertise. So far, I’m finding it less painful than a transaction with realtors involved, and my mortgage broker in Florida is providing the necessary forms, etc.. that would usually be provided by a realtor. We were able to negotiate $15k off the already aggressive price by foregoing a realtor.

    Having said that, the challenges are greater in DC where the criminal element is more pervasive. I may go down the forsalebyowner path whenever we sell our DC property. However, I may very well require a prequalification and other documentation prior to showing the house without the involvement of a realtor.

    The other challenge is that it only really saves you the 6% if the buyer is also not represented by a realtor.

    • Yeah — if the buyer has an agent, then you’re still on the hook for that person’s 3%.

      • I don’t get why this would be so. A seller has no contractual obligation to the buyer’s agent. The buyer is obligated to pay his/her own agent. The buyer (and the buyer’s agent) might try to negotiate for the 3%, but the seller wouldn’t have to agree to pay it. Am I missing something?

        • You’ve clearly never bought or sold a house.

          Last time I even looked at a standard buyers agent contract, part of the very, very fine print is that you will make up whatever is lacking the standard 3% difference.

          The standard rule of the transaction is that the buyers agent gets paid by the seller. If the seller isn’t offering a commission, then there is zero chance of that realtor ever showing that house to a client. And if they did, the prospective buyer would simply reduce their offering price by the 3%, or tell you to go pound sand. Buyers don’t pay realtors. If you want to try that, then your house will sit unsold.

          • I have bought a house in DC but never sold one. I do understand that the seller usually pays both commissions, but this is spelled out in the contact with the seller’s agent. No contract, no obligation. The fine print on the contract between the buyer and the buyer’s agent does not bind the seller. So, yes, the buyer has to make up the 3% and would plainly want to negotiate for the seller to pay it. In a hot seller’s market, it seems to me that all the leverage would be with the seller.

            So, to my original post, it seems that I was not missing anything. The seller is not “on the hook” but will face a certain amount of market pressure to pay the buyer’s agent.

          • @joker: you clearly have no understanding of basic contract law. Just because this clause exists in the standard form does not mean that either party needs to agree to it. You can buy and sell a house using any contract you like. If a buyer agent insists on keeping this clause and requiring the seller to pay his fee, the seller has every right to walk away and find another buyer.

        • I thought it was in the standard D.C. real estate contract… but I guess the contracts I’ve seen were written by real estate firms.

          Even so, I don’t think there’s any way the buyer’s agent would represent the buyer in a sale without some kind of payment. The buyer probably wouldn’t be willing to pay it himself/herself, so realistically, I don’t think a seller can expect to do a FSBO and not be paying the buyer’s agent.

          • Yep, they all use the standard GCAR contract, which is distinctly slanted to the realtors. There are provisions in it that harm both the buyer and the seller (e.g. putting buyer and seller on the hook for commission in certain contingent situations).

            As for the psychology of buyer’s agents … good point. That brings up the underlying question — do people look (sans agent, even if they have an agent) for FSOBs? What do buyer’s agents do when the two parties start talking directly?

  • My personal experience is that buyers usually used a realtor who would steer them away from FSBOs. Even if you offer the buying agent 3% – agents prefer to work with agents. I tried FSBO but nobody responded. With an agent, I had a contract in less than two weeks.

  • I’ve wondered this too! Not discounting the work realtors do, I have several good friends in the business, but for houses in desirable areas – especially with the huge prices in DC – and the enormous ease and effectiveness of online listings – I would think realtors would at least offer a reasonable set-price instead of the 6%. (Though I must admit – “Million Dollar Listing” – is a guilty junk-tv pleasure!)

    • Seriously — and what are they really doing differently for the sale of an $800K house versus a $400K one? My NW neighborhood of about 300 Single Family Homes currently has 0 inventory. Someone looking to move there would certainly see the sign in the front yard . . . Thinking long and hard about learning about this when the time comes to sell.

  • You answered your own question, the hot DC market. Thats the primary reason.

    FSBO is popular when folks such as yourself have little to no equity in your place, hence the desire to save tens of thousands of dollars paying someone list it.

    In areas with hot markets, where RE prices in some neighborhoods nearly reaches double digit percentage growth every year, people have lots of equity to play with and they decide they would rather not be hassled by selling it, even though it takes all of about 20 hours spread over 4-6 weeks of time and the money savings is significant.

    However, you won’t be saving 6%. You will be saving the 3% you would pay a listing agent. You will still have to pay the buyers agent their 3% unless you find someone who doesn”t have a realtor, in which case they are usually savvy enough to ask for a 2-3% reduction based on the fact that them being realtorless is saving you money.

    The second, less PC reason is, Realtors are in their own “club”, and are very protective of it. Hey who wouldn’t be when you make $1,000 an hour in commissions to “help” someone sell or buy the average priced DC house with absolutely no legal responsibility or recourse whatsoever? The standard realtor commission is the biggest joke in real estate, and while places like Redfin are making inroads, realtors firecely protect the gravy train they have. The truth of it is, realtors don’t take their clients to FSBO’s.

    I wish you luck. I’ve sold and bought a handful of property in DC without a buyers or sellers agent. When I sell, I save myself the 3% which has added up to more than 6 figures in savings, and when I buy, I use the lack of a realtor as part of the price negotiation.

    • Joker, you obviously know a lot more about real estate than most of us.

      Do you think FSBO is an option that anyone can pursue, or does someone need your level of knowledge?

    • I agree with most of what you said, but disagree with what you and textdoc said about the buyer’s realtor. The seller is NOT responsible for this 3% charge. If the buyer signed a contract with the realtor (don’t know why one would, but a realtor did ask me to sign one) it likely specifies that the buyer is responsible if the seller doesn’t pay it. I think the GCAR “standard offer” form puts this on the seller, but why would the seller sign that either?

      In reality, it’s just another thing to negotiate over, especially if the realtor didn’t help find the place. My brother bought a place FSOB and his realtor had no recourse. He paid her a fixed fee, since she did provide some valuable service, but that was because he “did the right thing” rather than because of legal obligation.

      • “If the buyer signed a contract with the realtor (don’t know why one would, but a realtor did ask me to sign one) it likely specifies that the buyer is responsible if the seller doesn’t pay it.”

        If you’re househunting and you sign a contract/agreement with a buyer’s agent, and that contract says that you’re responsible for the agent’s commission if for some reason the seller doesn’t cough it up, can’t the agent sue you to get his/her fee? Did your brother not sign such a contract?

        • No, he didn’t sign a contract. I get where you’re coming from now. If you do sign such a thing, it’s just like you say. I didn’t sign a contract with my buyer’s agent either, so perhaps we’re just coming at this from different experiences.

    • If the market is so hot and it’s a seller’s market, what is the incentive for a seller to sell through an agent? If buyers are lining up before the property is listed, all the seller has to do is field bids and pick the highest one right? Additionally why would anyone want to pay agent’s fees, whether they have lots of equity or none? Maybe it’s less incentivized but giving away a massive fee seems foolish. Feel free to arrogantly dismiss me as having no idea what I’m talking about but still don’t see an answer to why there isn’t a FSBO market in an area where getting offers is a piece of cake.

  • in b4 this thread gets flooded with activerain hacks

  • For what it’s worth…

    When I was househunting a while back, there was one house I looked at that was represented by NetRealtyNow.com, which turned out to be a quasi-agency that basically facilitates FSBOs. As far as I could tell, for a $300 flat fee and for a 3% commission to the seller’s agent, they allow owners to list their properties in the regional real estate database. So it’s kind of a cross between being _completely_ FBSO and being fully represented by a seller’s agent.

  • One or two houses sold well in Mount Pleasant and then suddenly, I observed, many other people put houses on the market to leverage the comparables. To me it is the classic evolution of a bubble. We’ll see….

    • Doesn’t Linda Low own every Mt. Pleasant listing now and forever?

      • Not sure. I live in a condo in Mt. Pleasant and just report my observations from recent walks around the neigborhood. There were a few sales, followed by many many many. Seemed a little frothy. Then again, it’s a good place to live.

  • I sold a house in DC several years ago FSBO. The buyer didn’t have an agent either. The agent that had previously helped me buy it was kind enough to give me a contract form. The closing/all the HUD-1 paperwork was done by the title company that I had used when buying the house. Everything worked out fine.

  • When we were looking to buy our house in DC a few years ago, our realtor did warn us about FSBO properties (although there were very very few of them on the market at that time too) – his warning was mainly a reminder that those houses would cost us as the buyers more, because we’d have to cover his 3% fee if the seller wouldn’t pay for it. But he was always willing to show us any place we wanted and said he’d talk to the sellers to see if they’d cover his fee before we looked at the house. Since we put everything we had into the down payment, covering our agents 3% fee wasn’t an option…so we didn’t want to look at FSBO places and risk falling in love with it only to not be able to afford the fee.

    If I were going to sell my house now, I’d try doing FSBO first but somehow make clear that I’d cover the buyer’s agent fee. I think you’d get plenty of potential buyers that way and you still save 3% by only paying the buyers agent. If no offers came in or things were slow, then you can always get an agent and re-list

  • I believe Redfin charges 1.5% vs the standard 3%.

  • I am a Real Estate Agent here in the DC and have a few things to add this valuable discussion:

    1) Real Estate Agent fees are not set at 6% or any other percentage and are negotiable. Especially in “hot” markets like the Mt.P example.

    2) FSBO websites and services charge flat fees for the listings and offer limited services.

    3) Not all real estate agents add as much value as their commissions indicate, but many do.

    4) People often think of agents as negotiating the price alone, but there are significant contingencies (home inspections, appraisal, radon testing, sale of buyer’s home, etc.) that individually have their challenges and pitfalls and experienced agents know how to protect their clients through experience and creativity.

    5) Selling a home is rarely “order taking”. It is not like people just regularly show up with certified checks buying houses site unseen. There are showings 7 days a week at all hours, inspections on a Tuesday morning, appraisal on Friday afternoon and open houses on weekends. Many of my clients tend to have full time employment that make attending these appointments difficult to impossible. This does not take into consideration that many people, when selling their home, know that they cannot be an expert in all things and benefit greatly from the advise and experience of a professional who does only real estate. Peace-of-mind may be overrated, but is hardly entirely dismissible… especially with such a significant transaction and the risks involved.

    6) And then there’s safety. A good agent pre-qualifies leads and manages showings, including maintaining access logs and attendance of who has shown and visited the property. It is not safe nor practical to leave your home unlocked and open for anyone to show it. But access needs to be free enough that showings are encouraged and not inconvenient for buyers. Agents can coordinate these showings and keep records of who has come and gone if anything is missing or damaged in your home.

    FSBOs can work for some folks, but for many others (clearly the majority here in DC) there is no shame in hiring a professional to help what for many is the biggest financial decision/transaction of their lives.

    Thanks for hearing me out!

    Phil Di Ruggiero
    Agent/Owner
    GreenLine Real Estate, LLC

    • I’m sure we might disagree on details, but your post is well-argued.

    • the question is, are all of those services worth $15/$30k? Yes, those who are on the market should weigh all the costs and benefits, including realtors.

      • Or $60k in the case of a $1 million home, which in DC is fairly common. I would say that $60k is not reasonable for these services, important as they may be.

    • greenlinere,

      Is there any truth to the claim that Realtors are reluctant to show FSBO listings?

      • I don’t doubt it, frankly. We sold one to a client back in August though. The Seller had used a listing service (allowing it to be in the MRIS). This is really key as that is the first form of advertising in our industry. Sure supplemental and online advertising works, but if there is not one regulated place where terms and characteristics can be easily searched it is hard to find the property. Also, notable that the Seller was offering a commission. It should be no surprise that we, as professionals, need to be paid for our services. They were nice people and the sale went well.

    • I agree with many of your points, but don’t feel that a realtor’s job is that different for a $400k home than it is for a $800k home, so I don’t agree that the commission should be based completely on sales price.

      How about a flat fee for any home and then a 2% commission? Or a flat fee that is scaled – say up to $500k and you get $5,000. $500k – $1mil you get $10,000, etc? Plus a smaller commission based on sales price?

    • Valid points – and I love your videos – but honestly – 6% percentages are just insane in this world. Say you offer a set fee of $5,000.00 split between seller & buyers agents – that’s still $2,500.00 each. Does a showing/sale usually require 100 hours of your time? If it does, you’re still each making $25.00 an hour.

      Old arguments about overhead costs, advertising etc. have vanished with the ease of online marketing.

      • Advertising costs vanished? Hardly. If anything they are greater because, short of craigslist, each site you search have rates that they charge for their advertising. PoP, Trulia, Zillow, Washington Post… and on and on. Plus how much do you think the equipment, shooting & editing costs of high quality sales videos… hardly nil.

        Phil D.

  • Does anyone know if its possible to negotiate a lower fee with the sellers agent. I am contemplating selling a condo in the spring in a great neighborhood, metro access, renovated etc. I have a realtor I like but based on comps in the building and block, I think it will sell in one week priced appropriately. I don’t see a reason to pay 3% to my agent for one week of work. How open are agents to taking 1 or 2% instead just for an easy listing? This would be something not quite FSBO but not quite full service realtor. I don’t know anyone who has negotiated smaller fees.

  • I sold my house on Craigslist about 12 years ago. The buyer did not have an agent, so there were no agent fees at all. As for the paperwork and other contingencies, I folllowed all the steps I went through when I had gone through an agent. I also use their forms after using white-out over their logos and proprietary info. Everything went to settlement and was fine.

  • So if a 6% commission isn’t standard – what fee percentages have others here negotiated?

    I can absolutely understand the allure of saving money, however in my experience as a buyer, an agent was really necessary. We had lots of back and forth with the sellers, an unexpected situation with the appraisal which affected our loan, negotiations over inspection results, etc. that would have been impossible to deal with had we been on our own.

    • Anytime you deal with “money people” it’ s messy. A realtor may have some more connections to the stupid people you need to make things work – but then again, you might just find them on your own. I bought my first condo because I bartended for a bunch of besotted bankers. I’m now in the process of re-fi and have basically lost faith in the future of the human race. So never think there is just one way to do anything.

  • novadancer

    A friend sold her condo via a a flat fee broker (think it was around $800 – $1,000) which assisted with MRIS listing, pics and open houses. She sold it within a week above asking. I plan on doing the same when I sell my rental condo since comps are readily available.
    However, it’s not something I would do with our current home since I would want to rely on the agent for showing, comps, and other factors.

  • I have a friend that would love to get into the neighborhood. Send me an email! Josh.Louria@gmail.com

  • I have bought 2 properties in DC – a co-op apt in 2001 and a Petworth rowhouse in 2005. I initially was very interested in buying a FSBO property, thinking as a buyer I might be getting a better deal since there was no agent involved. Instead I found that most of the FSBO sellers seemed to want to keep as much money for themselves as possible – the FSBO houses seemed not to be in very good condition, were very hard to get to see, and worst – overpriced for the condition/location. So I always looked at the FSBO listings but hardly ever went to see any since my impression was usually that they were greedy/unrealistic sellers.

    When it came to selling my first place to buy the second one, I wasn’t excited about paying the real estate agent fees, but I needed to sell it fast. The agent definitely helped and my co-op went under contract in 5 days.

    One case where FSBO can definitely work though is if you hear word-of-mouth that a neighbor wants to sell and you know someone looking. This worked for friends of ours who were able to buy a house in Petworth only using a real estate attorney (a few hundred $ to write the contract).

  • I appreciate everyone’s comments however being a Realtor and Auctioneer for over 30 years gives me a different perspective. Why list the property for only a couple days and consider the first 5 or 10 contracts submitted. An auction sale is marketed for approx. 30 days and results in a tremendous amount of competition. People who are not represented by Realtors even get a chance to participate. Imagine what the bidding will be like if 30-40 registered bidders are gathered together to compete for the property. It is sold in As-is condition with no contingencies. The sale prices have been unbelievable in this format. Plus the buyer pays the 5% commission in the form of a buyer’s premium and all closing costs. The seller ends up paying only a modest marketing fee of approx. 1/2 of 1% of the property’s value. The seller can set a minimum price below which the property will not be sold.

    In addition, a lot can go wrong between the contract and settlement dates. A real estate professional has the experience to keep the deal alive and headed to the settlement table. Anyone can get a signed contract however not everyone knows how to get to the settlement table.

    Thanks
    Paul R. Cooper, VP.
    Alex Cooper Aucts., Inc.

  • I purchased a condo several years ago w/ no agent help. I would recommend finding a lawyer who will draw up the contract and all the standard disclaimers. I highly recommend this over a the blank form approach for the contract. Having someone available to explain the ramifications of the various clauses is incredibly useful.

    For final settlement, I was able to use the same lawyer rather than hiring a title company.

    On the buyer side, the only drawback compared to using an agent is you have to do a bit most legwork lining up inspections, etc. From the seller side, managing showings and not having access to the MRIS audience is a killer. Another problem that’s a PITA are real estate agents who will try to con you out of 3% even though it was likely their client who found the property. Your property tends to get blacklisted after one of those encounters.

  • Selling agents will negotiate their commission rate. Before selecting an agent it is advisable to interview 3 agents and let them know you are interviewing others. We have bought/sold several homes over the years and got a reduced rate every time. Consistently, and without much effort, we were able to get a 2% selling agent rate but did pay a 3% buyer’s agent commission. Also, we were offered that if the selling agent also brought in the buyer, then a total of 4% commission would be paid (2% for selling, 2% for bringing in the buyer). This actually happened one time. Also, during one buying transaction we hit a snag and our agent agreed to take a 1.5% commission to make the deal go through. So you can definitely negotiate. There is a lot of your money at stake. Don’t be shy about asking. There are a lot of good agents out there chasing too few homes to sell right now. If one agent won’t budge on their commission rate, then move on to one that will.
    I’ve decided to go FSBO next time we sell. We’ve done enough transactions to know the drill. We’ll likely offer a 1.5% or 2% commission to a buyer’s agent unless we can find a private deal first. That would still be a generous amount of money to an agent.
    One last comment. The agent’s commission is usually split between the agent and their broker so they don’t keep the full amount.

  • On a sale of a 500k property – 2.5% is $12,500. Split that between buyer & seller agents, and each still walks away with $6,000. That seems pretty damn fat enough.

  • I’m not an agent but I am going to put my condo on the market this year and have interviewed many agents. Believe me, they ARE NOT all interchangable. Most are ding dongs, and a few are not. Marketing your property well can make a differnce and generate a “buzz” that brings in multiple offers some times. This included professional wide-angle shots of a clean and clutter free home. Not your own digital shots. I am looking for a replacement home and if the pictures online look like crap, I won’t even bother unless it’s the exact block I want. But crappy photos do take away the “shine”. Any yes, the agent split the 6% and only gets 3% and then spilts that with their agency.

  • We’ve purchased two houses and sold one (all in Capitol Hill) without an agent. Each of those transactions went smoothly. All you need to do is provide the title company with a copy of the generic form contract.

    When selling, buyers agents did ask us to sign contracts with them that would obligate us (the sellers) to pay the agent a commission if their client bought the house. I just made it clear to the agent and potential buyer that we would raise the sale price by that percentage.

  • This is a very interesting conversation. Thanks POP for opening the discussion. Personally, I purchased my H street home with a prominent Capitol Hill Realtor years ago. It happened to be a FSBO. In the end, our Realtor confirmed with the seller that they would be willing to pay a 2.5% commission. Here are my thoughts:

    1) As a first time home buyer, I was not knowledgeable of the process nor the neighborhood. Thus, education is key. Realtors such as ours should have a great deal of education under their belt of which includes future development. My agent convinced us that H street was the best buy even though I had doubts. And, she was correct. The market value of our home is well over 100K of what we purchased it for….I wish I bought two houses in the neighborhood!

    2) We thought we were getting a good deal with a FSBO. However, after pulling the market comparables, the house was overpriced. I ended up paying less after our agent negotiated for us…I don’t think I would have been able to handle this process…And, being a buyer, I learned that FSBO does not always mean good deal. In this case it was overpriced and the seller was a jackass…fun!

    3) The agent showed me well over 50+ properties listed on the market. How would we gain access otherwise and in a timely fashion to lock in a property? Breaking down the commission that equates to $100.00 an hour roughly. I was happy for her. It was well earned…

    I could go on with regards to the buyers side. Sure, inventory is drastically low right now and FSBO is tempting even for us on the sellers side…But really agents bring the best offer to the table by exposing the home to 100% of the market. And, with the home on the market, the status of active comparables dictate the sale. Really FSBO is for sellers with little to no equity and borderline selling upside down. Their is only one for sale by owner in our neighborhood right now listed on CL…yikes…Its about 75K overpriced…So buyers beware…

    • I agree with the value of a realtor you noted. In effect, a realtor’s commission also has to cover the times they take folks out to 50+ houses and there isn’t a sale.

  • I sold a condo FSBO in 2 days – I simply posted it on craigslist. We negotiated the price and agreed to pay the buyer’s agent 3%, but it saved me $9,000. I would not be afraid to sell FSBO again.

  • @Joker. We do not make $1000 an hour. I am not going to belabor this issue, but you have no idea how many hours Realtors work. We don’t have set hours like most people, so we are “on-call” at night and weekends when clients are enjoying not being at work. WE get called out of dinners, called during movies, called on vacation, etc. and we are expected to respond immediately. I don’t begrudge doing it, but that’s just the nature of it. If I made $1000 per hour I would certainly agree with your point.

    To the original poster, you mentioned your property is probably geared towards a first time buyer. A first time buyer most likely isn’t going to have the money to pay their agent 3%. And most first time buyers are going to be more comfortable having a Realtor represent them. Just food for thought so you don’t limit your pool of buyers.
    I would love to launch into why I am worth it listing properties, and why I am worth it representing buyers, but I will spare you all that since that’s not the desired response from posts.

  • We are getting ready to sell a house in Takoma DC and are wondering the exact same thing. If houses sell so fast, 6% is a whole lot of moula for just a week’s worth of work.
    Has anyone ever used redfin? I see their commissions are 1.5% for selling and if they bring in a buyer 1.5%. I doubt a traditional agent would go that low – or would they?

    • We used Redfin to buy our new house and I’m now using them to sell my previous house. I have yet to list, so I can’t speak to how it will go, but the buying process went very well, despite a difficult seller and squatter issues (and we got $6k back that we put toward our closing costs).

      When selling, the Redfin agent gets 1.5% or $5,500, whichever is higher. According to my listing agreement, the buyer’s agent gets 2.5% for a total of 4%.

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