A homeowner selling their home without an agent is a realtor’s worst nightmare.
This is for two basic reasons.
1. The angst of “missing out” on a lucrative listing (and hence income), and
2. The fear that a buyer may ask the realtor to make an offer to a FSBO seller on their behalf.
Some background is required to understand the typical realtor’s FSBO trepidation.
Realtors are highly territorial. They “farm” their neighborhoods to gain clients and resent anyone who takes away their God-given right to represent home sellers on their “turf.” A FSBO represents not only a missed opportunity but an insult to the local realtor, who believes their competence has been (implicitly) called into question.
FSBO sellers have a well-deserved reputation for being hard-as-nails negotiators. This is likely because such sellers need not fear shunning or other professional retribution from realtors as they don’t (typically) earn their living from residential real estate. Realtors must take care not to alienate their fellow agents (and their brokers) lest they be placed on an unofficial “do not call” (i.e., black) list. For this reason (and a few others), the buyer’s agent and the seller’s counterpart routinely collaborate and collude to ensure (as much as possible) that a deal is struck; otherwise, neither gets paid. Even though both agents are, in theory, committed to getting the best possible deal for their clients, this is rarely the case. Both agents have a conflict of interest in which each will try to convince their client to compromise (buyer pays more than he/she would like; seller accepts less than they wanted).
When a FSBO enters the scene, this formula is thrown off kilter. There’s no basis for collusion because the seller only cares about maximizing their return (the reason why the seller’s agent has been cut out of the process).
Realtors are eager to cite statistics showing that FSBOs generally get less for the property than would have been the case if represented by an agent. The stats look something like the graph below:
These numbers are somewhat suspect, of course, and are never accompanied by a detailed, numerical, breakdown in support of this conclusion (15% less).
I have an intuition about why FSBO sales are difficult to pull off, based on some personal experience.
When I decided to sell my home several years ago, I was leery about hiring a local agent (most disliked my efforts to reform how the community was run because they stood to lose income). I tried to hire a non-local agent who had successfully sold a home in my community for top dollar, but she was unavailable. For six weeks I went FSBO, contracting with a company to post the listing I created on a local MLS, and hired a transaction coordinator to do the paperwork.
My home had the most sensational views in the community (as attested by friends and acquaintances). The house was in excellent condition (confirmed by a builder friend), spacious, and well-designed. I chose a listing price that was about 10% lower than what the online real estate portals (Zillow, Redfin) suggested. The home was decluttered and in excellent showing condition. The photos were not professionally done but serviceable. The outside shots were truly gorgeous.
A home down the block in very poor condition (represented by a realtor) was shown to thirty potential buyers over the course of a month.
How many showings did my home get?
0
After five weeks of no showings, I asked my transaction coordinator (who was also a broker based 100 miles from my community) whether I was missing something? Or was the home being “blackballed” by the local realtors?
He arranged for me to speak with a colleague who had been doing real estate for 40 years and knew the lay of the land throughout my part of the State.
The conversation went like this:
“Me: I’ve had no showings since the home was listed on the MLS five weeks ago. Are the local realtors shunning me?
Expert Realtor: There are two communities in this part of the State that are essentially “closed shops.” You live in one of them. No local realtor is going to deal with you because they only deal with each other, not with a FSBO. Sorry. You’re going to have to hire an agent if you truly want to sell your home.”
This expert confirmed my intuition that local realtors were steering clients away from my home. A house down the block was shown dozens of times during the month mine was a FSBO, so it wasn’t a matter of the realtors not knowing about my house being for sale.
I was eventually able to sell the home (using an outside agent), but that story lies outside the scope of the present discussion.
The point of my story is that many (perhaps 60%) FSBOs fail because realtors refuse to deal with such sellers (on professional chat groups, realtors routinely state they will never deal with a FSBO, no matter what). A key reason many FSBOs fail is that they are locked out of the market by local realtors.
There ARE situations where a FSBO can succeed. I personally know of two.
A friend sold their home in a highly sought-after community by simply taking out a newspaper ad. The home had a good offer within a week. In a white-hot market, a FSBO can succeed if the seller has access to a large pool of prospective buyers. My friend saved 6% on the sale by cutting out both the buyer’s and seller’s agents. This is the worst possible scenario for a realtor because they lost not one, but two opportunities to make money from the property’s sale.
In the other instance, a friend had just moved to a large city to begin teaching at a major university. His realtor told him there were no homes for sale in his price range closer than 30 miles away. Fortunately, he was staying close to campus. Early one morning, biking to work, he sees an elderly gentleman come out of a house and begin to put up a “For Sale By Owner” sign. My friend screeches to a halt and exclaims: “Put that sign away. You’ve just sold your home!” My friend lives in that home to this day, forty-five years later.
Under the nom-de-plume, Sherlock Homes, I examine residential real estate from the buyer’s perspective (with a forthcoming book written from the seller’s point of view):
“House Hunter Confidential,” available on Kindle, discusses some of the issues raised in this article (Chapters 11 and 20).