When Rena and Richard Panush decided to move, they tidied up the living room, planted a sign on their front lawn and distributed fliers. They did all the things most prospective home sellers do, except one: hire a real estate broker.
“Are you kidding?” Mrs. Panush asks. “Why should we spend extra on a commission?”
Within weeks, the couple’s five-bedroom, ranch-style house in Short Hills, N.J., sold for about $650,000, just shy of the $690,000 asking price. The buyer was represented by a broker, whose commission was paid by the Panushes, but they pocketed the money they would have paid a listing broker–in their case, about $17,000.
“That’s a lot of money,” Mrs. Panush says.
During the recession of the early 1990s, desperate sellers with plunging home values would forgo brokers to try to limit their losses. Now that the real estate market is booming, many sellers are cutting out brokers again, but this time for the opposite reason: They think they can easily sell their houses themselves.
Real estate brokers–who obviously have a vested interest in this issue–aren’t exactly happy about these FSBO (for-sale-by-owner) transactions. Last month’s issue of Today’s Realtor magazine, a major industry trade publication, claimed that some brokers consider “FSBO a four-letter word.”
The brokers insist it isn’t just about lost commissions. (Brokers’ fees typically range from 5 to 7 percent of a home’s selling price, and are usually split between the broker representing the buyer and the broker representing the seller, or listing broker.)
They claim that do-it-yourself residential sales are risky, and that homeowners are better off paying to reduce the likelihood of such problems as buyers who aren’t financially qualified.
“You turn to a doctor for medical care, or an attorney for legal advice,” so you should use a broker for your real estate deals, says Layne Morrill, president of the National Association of Realtors. He notes that many states have enacted complicated disclosure laws and other rules that a broker is likely to know but a do-it-yourself seller may not.
According to a study released by the National Association of Realtors, 13 percent of home sellers last year weren’t represented by brokers. Walter Molony, a spokesman for the industry group, said the numbers “are perfectly within historic norms.”
But it is clear that traditional, full-service real estate brokers are seeing more competition from “discount” brokerages, which charge a low fee (usually under $1,000) to add a property to a multiple listing service. (Some discount brokerages provide additional services for an extra charge.) These companies aren’t new, but they are increasingly popular.
For instance, the Panushes of Short Hills paid $899 to the discount brokerage A Home for Sale Realty, Belle Mead, N.J., which added their house to a multiple listing service and gave them the “for sale” sign.
Richard Rosenblum, president of the brokerage, says listings have doubled in the last year to about 400. The 12 Southern California offices of Help-U-Sell Real Estate, another discount brokerage, showed a 22 percent increase in listings in the first three months of this year, compared with the same period last year, reports spokesman Roger Steiner.
Newspapers and operators of online residential listings also are noticing a rise in for-sale-by-owner listings.
Hans Koch, chief executive of Owners.com, a national online registry, expects its Web site to offer 200,000 such listings by year-end, up from 70,000 at the end of 1997.
Mark Smith, real estate advertising sales manager for the San Jose Mercury News, estimates that the number of FSBO listings have increased as much as 8 percent from a year ago.
“FSBOs have gone up in our area, in part because the market is so hot,” Smith says.
Of course, going it alone isn’t always easy. Owners not only have to contend with buyers whose finances haven’t been pre-screened by a broker, but they also have to determine the value of the house, field phone calls, arrange appointments for showings, and perhaps pay for advertising.
Kathleen Leix, an artist who lives in a five-bedroom house in Paradise Valley, Ariz., finally gave up on her FSBO efforts after 2 1/2 months. During that time, she received 50 phone inquiries and allowed 15 strangers to traipse through her home. But she got no serious offers, even after lowering her asking price to $685,000 from $700,000.
The lookie-look traffic was generated by a “for sale” sign on her lawn and a one-time, $250 ad in her local paper. But in the week after she retained a broker, Leix says 16 prospective buyers and brokers had visited.
“I’m very pleased,” she says.
Some homeowners claim that brokers even try to undermine FSBO sales, forming cabals to avoid showing homes by unrepresented sellers, even though these brokers would still receive a commission as buyers’ representatives.
Meryl Carmel, a former museum director, says she is convinced this occurred when she and her husband recently tried to sell their Columbia, Md., house without a broker.
“I think the agents were annoyed with our mode of operation, and I’m sure they boycotted our house,” she says.
For their part, real estate brokers deny any attempts to steer clients away from FSBOs.
“I’ve never known of an instance where brokers have ignored properties just because they are for sale by owner,” says Patrick Kane, vice president and general manager of Coldwell Banker Grempler, which has 19 offices in the Baltimore region, including the Carmels’ neighborhood. Rather, Kane says, “Either the (FSBO) house is priced too low, and the seller gives it away, or it’s priced too high and it scares away buyers.”
