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Monday, Oct. 16, 2006 | Many do-it-themselves homeowners feel invincible when it comes to repairs, painting or installing new fixtures themselves, even down to the kitchen sink.
Eighty-five-year-old La Jolla resident David Palmquist is no exception. He poured $150,000 into renovating a Point Loma home he’s rented out for 20 years and is now hoping to sell it – by himself.
Instead of hiring a listing agent, he put up a big white sign in the property’s trees on nearby thoroughfare Rosecrans Street a couple of months ago, proclaiming “For Sale By Owner” and his telephone number in big black letters. He said he’s had about 20 people check out the house, many of them real estate agents who might come back with buyers.
“I have no objection to Realtors,” he said. “But think of how many thousand people drive by Rosecrans.”
To hear many professional Realtors talk about them, you’d think people who try to sell their homes themselves have been inhaling too many paint fumes while renovating the downstairs half-bathroom.
“Don’t try this at home” – that’s the title of a National Association of Realtors radio spot that targets these independent sellers, also called FSBOs, or For-Sale-By-Owner home sellers. The spot opens with a homeowner asking, “How hard can it be? You just put up a sign, you just wait for the offers to roll in.”
But a disgruntled would-be FSBOs cuts in with a sigh: “Evenings, weekends, kiss those good-bye.” And another responds, “It becomes a second job. I’m at work, I’m in the middle of something, I get four phone calls.”
NAR says those independent sellers – making up about 13 percent of the sales nationwide in 2005 according to its survey- often find the process “less than rewarding.”
The radio spot’s deep-voiced narrator interjects with some numbers – that homes sold by a Realtor in 2005 sold for an average of 16 percent more than FSBO sales, according to the association’s survey of buyers and sellers. NAR says the median FSBO price for 2005 was $198,000 compared to the agent-assisted transaction median sale price of $230,000.
But Steve Udelson, CEO of a FSBO listing website called Owners.com, said FSBOs are far more common in markets with lower median prices, which would lower the overall trend.
“You couldn’t come up with a more misleading stat,” Udelson said of the NAR median-price comparison. “You’ve got all these super-expensive homes mixed in with the lower-priced markets.”
Commission savings motivate many sellers to go independent. In typical transactions, where both buyer and seller are represented by a real estate agent, the portion of the selling price allocated to commission is usually between 4 and 6 percent. That commission is usually split evenly between the buyer’s and the seller’s agent, but Realtors say a slow market often prompts sellers to offer a larger chunk to the buyer’s agent – usually no less than 2.5 percent of the total selling price. On a $600,000 home, 2.5 percent is $15,000.
In any market, FSBO sellers take advantage of savings on seller’s agent commissions to offer their property at a lower price to attract buyers. But they still typically offer a competitive commission rate for the buyer’s agent.
“In a slow market, it may make more sense to splurge on the buyer’s agent and scrimp on the seller’s agent,” said Lori Alden, a professor of economics and owner of several FSBO listing sites in Northern California, and FSBOprimer.com. “Some sellers are offering larger commission to a buyer’s agent – 3 or 4 percent. They’re allocating it differently.”
Udelson’s San Francisco-based Owners.com, like Alden’s sites, allows home sellers to post the details of their properties with photos and descriptions. He said San Diego has been a pretty good market for his service, with about 120 current listings.
“We’ve seen pretty good growth in California,” he said. “Homeowners are taking advantage of the savings.”
Only 3 percent of the California sellers surveyed by the California Association of Realtors in 2005 conducted their sales without an agent. Leslie Appleton-Young, CAR economist, said that trend has been fairly consistent over time.
Udelson said the kind of people who try selling their home themselves fall into a few categories. Most are looking to retain savings and control.
“There’s one group going on a fishing expedition,” he said, referring to home sellers like Palmquist, who’s planning to sell his Malaga Street property and donate the profits to the Salvation Army.
“I’m not in any rush,” Palmquist said. “I don’t care whether I sell it tomorrow or next year.”
But most sellers don’t fall into that camp. Udelson said a second group comprises homeowners who are selling because they’re “a little tight on their mortgage and they really need to cut out the fat.”
“A third group could go with an agent, could afford it, but wants the control,” he said. “And definitely wants the savings. Think of that group as your working class people. They probably do their own taxes. They’re value-conscious.”
La Jolla homeowners Kjristi and David Burningham listed their two-bedroom, two-bath condo on Udelson’s site a few months ago. Kjirsti Burningham recently gave birth to the couple’s third child and said the price and control factors convinced them to try selling FSBO first. They’ve had about a dozen people through the house in the last six weeks, but she said they’d consider listing with an agent in a month or two.
“We decided to see if we could do it on our own without paying realty commissions,” she said. “It’s kind of nice to not have to have the house perfectly clean every minute. I don’t have to guess that if I’m out running errands, a Realtor might stop by.”
Locally, although the San Diego Association of Realtors hasn’t tracked FSBO statistics, president Charles Jolly said a large percentage of the home sellers who start out on their own end up calling an agent to help them sell after a while.
“Sellers need brokers and sellers,” he said. “They can generally get them more money.”
Anthony Napoli, a Realtor in Little Italy, said it’s little wonder to him that FSBOs end up using an agent. The word count of a typical home sale contract is 136,000, he said, and there are 47 places for signatures.
“They think they’re going to save money, but they might end up subjecting themselves to liability, to errors and omissions,” he said. “It’s a perception of savings. If you want full service, you’re going to have to pay full price.”
Real estate advisor Gary London of The London Group said a slow market’s the worst time to try to sell your home yourself.
“People might intuitively say, ‘The market’s down; I can’t afford to pay commission,’” he said. “But if you’ve got a good agent that’s willing to spend money to sell your house …”
London expects commissions to drop soon, anyway, and is surprised they haven’t come down sooner.
“With all the Internet media that’s at play here, I think there’s a lower propensity for FSBOs but a higher propensity to bring down the commissionable rate,” London said. “Six percent in a $600,000 market is a bit greedy. But local Realtors have a pretty ironclad hold on this market.”
Alden said many of the Realtors she’s talked to or heard speak have talked about FSBOs as if they’re “nothing to worry about” and “insignificant.”
“I think that’s a strategy to make people feel that FSBOs are rare and unusual,” she said. “But especially this year, in the slow market, I think it’s a better strategy.”
London said he’s been surprised by the real estate sector’s resilience in light of the market’s slowdown and the popularity of publicly accessible real estate sites like Realtor.comZipRealty.com.
“I really expected it to go quicker in the direction that the travel industry has gone,” he said.
Udelson thinks the decision to go FSBO may be as much a demographic trend as a financial consideration.
“Gen-Xers are becoming a big part of the market,” he said. “They are not predisposed like baby boomers to paying commissions. They have a disintermediated mentality.”
But Steve Cook from NAR said if the real estate industry were to go the way of the travel agent industry, it would have by now.
“Real estate is not a commodity,” he said. “It’s not like an airline seat, or a book. Every piece of real estate is unique. Most buyers and sellers prefer to have a human involved.”
But Palmquist said he’d rather hold onto the money he would pay a seller’s agent while he waits for the market to turn around.
“When [the market] hits the bottom, people are going to come around and buy it,” he said of the property he’s hoping to sell for about $700,000. “Someone can make an offer and I might like it. I never try to get the last dollar.”