True/False: Skip the Realtor, Keep the Profits

Real Estate

For Sale, By Owner

Preparing to enlarge our family a number of years ago, my spouse and I once went to an open house at a unique property right by downtown Saint Paul. It was a huge old structure, full of the little nooks and crannies that give those properties so much of what we call “character,” and situated high on a tiny private drive above the ancient Indian Mounds bluffs. The lot itself had its own unique features as well—much larger than the average city lot, and the owners informed us that it was the only Saint Paul residential property zoned for horses.victorian3_s600x600-1

The thing I most remember—aside from a fascinating attic space with maze-like alcoves, brick chimney columns, and corridors (and, of course, the horses)—is that the owners had decided to sell the house themselves, based on a book they’d read about the subject, and used a kind of silent-auction-style, make-an-offer format involving a clipboard and a spreadsheet printout. As I recall, the house did sell quickly, and I remember filing that idea away as a future possibility (before I knew much about real estate).

In years since, I’ve come across plenty of properties “for sale by owner,” and even now, working in real estate, I understand why it sounds tempting. Although commission can sometimes be negotiated, 6% divided between the listing and buyers’ agents is standard in both Minnesota and Wisconsin, and for a homeowner operating with a slim profit margin, that may feel like an unacceptably large bite out of money that could otherwise go to a future down payment on a new home, college tuition for kids, or any number of other needs that seem more pressing than paying an agent.

So why hire a realtor? I can just skip the realtor and keep all the profits for myself!

Although you know I wouldn’t be writing this blog post if I couldn’t answer “false” to that premise, it’s a more complicated question than it sounds. There are certainly people who choose to go that route, and I’m sure you can think of some great positive and negative anecdotes of how well it worked for them. I could argue, however, that realtors bring incredible value to your home selling process in a number of different ways (as you knew I was going to say)—I’ve covered some of them already in previous blog posts (see How High A Price Can I Ask For My House, for instance), as have others, and we won’t go into that long list right now.

What I will say is this: you will pay anyway, whether you hire a realtor or not. The only real difference is whether you get any value for the money spent.

What does that mean? As most people know, real estate transactions are not the simple matter of an exchange of funds and deeds like in the game of Monopoly, but those outside the field of real estate don’t often put much thought into the specifics. For example, there are lots of expenses always associated with buying and selling property—for a detailed rundown of closing costs that will make your head spin, check out Coldwell Banker’s recent article, “What Are Closing Costs?

You will never simply sell your house and put the money in your pocket.sale

The increasingly complex world of real estate requires pages and pages of detailed, precisely-worded legal documents with actionable phrases—when to schedule inspections, for instance, and what kind, and with what stipulations, with contingencies based on what outcomes, and who is responsible, and under what conditions—even a seasoned agent risks letting things fall through the cracks, and an inexperienced home seller trying to navigate this endless paper trail can run into serious financial liability if he/she fails to take the right steps at the right times. Every transaction requires intricate expert counsel, and you will either pay for it with your own headaches and losses down the road, or pay for it with an expert who takes the headaches off your hands and makes sure your transaction goes smoothly without losses to you.

On another practical note, few buyers will enter into a real estate transaction without an agent of their own, and real estate transactions involve agent commission (as a necessary part of the negotiations, and often paid by the home seller). Put bluntly-- when “Molly” offers to buy your house, someone will be paying Molly’s agent for the legal paperwork (those documents don’t draw up themselves!) and other costs associated with the practice of real estate. That “someone” is you, in one way or another.

Sure, you could negotiate the selling costs differently. Anything is possible. But you need to remember that Molly didn’t necessarily plan to take on those costs when she went out looking at houses, and whether or not she was expecting it, if that money comes out of her pocket, she will have to make up the difference by offering you a lower price for your property. More likely, Molly will just shake her head sadly, walk away, and find a different property – so “for sale by owner” can really limit your pool of potential buyers. Either way, you’re actually the one paying, and even worse, you’ve opted to pay Molly’s agent for negotiating and working on her behalf, with no one to work on your behalf to protect your interests.

You could avoid an agent and pay a real estate lawyer to draw up and review the papers instead, but then, of course, you’re still paying—for a lawyer and for your buyer’s agent (who will get paid, no matter what). Buyers come with agents, and agents don’t work for free. We can’t afford it—no one can run a business that way!

In summary, can you maximize your profits by working to sell your house without a realtor? The fun answer is yes, anything is possible. But the real answer is - most likely - no.

Posted by L. Lathrop for Jim Burns