For sale by owner: Selling without a Realtor can be complex

With the days of multiple offers and double-digit home appreciation a fading memory, Thom and Becky Peer knew the value of their Stillwater house hadn't increased enough for them to sell, pay a real estate sales commission and still realize a healthy profit.

That's one of the reasons that just 18 months after buying the house, they took a shot at saving the sales commission by selling it themselves.

"If it worked out, we'd save around $10,000," said 26-year-old Thom Peer. "If it didn't work, then I'm not out that much and I'd list with a Realtor."

As with all home sellers who decide to go the "For Sale By Owner" route, also known as FSBO, the proposition was somewhat of a risk for the Peers. Did they know the market well enough to price their house correctly? Were they willing to give up their weekends to host open houses? And did they have the sales savvy to get the best price?

"You have to be comfortable talking to people, to strangers, and asking questions," Thom Peer said. "Some people don't want to deal with that -- they just want to sign that paper and be done."

And Realtors say that FSBO sellers often don't realize that selling yourself still costs money. They still must pay for marketing, legal services and a commission if another sales agent brings them a buyer.

That's why Chris Galler of the Minnesota Association of Realtors says that selling a house without an agent can be a hassle and still cost big money.

"More often than not they're being penny-wise and pound-foolish," he said. "People think that all the real estate agent does is find a buyer and all the pieces magically come together."

But some FSBO advocates say the approach is likely to gain more attention as home appreciation rates slow, making it more difficult for people who haven't accumulated much equity to pay a commission.

"With the housing market slowing down, people are even more interested in retaining the profits from their home sales," said Greg Lawrence, founder of HomeAvenue.com, a Twin Cities-area FSBO shop.

In recent years, the number of do-it-yourself sellers actually has fallen, according to some sources. In a 2004 survey of home sellers by the National Association of Realtors, the number of people who sold their homes with no professional assistance, including from firms such as HomeAvenue.com, represented 14 percent of all residential real estate sales nationwide. That's down from 18 percent in 1998.

Some theorize that FSBO activity declines during robust markets because sellers can afford to pay a sales commission more easily. However, Lawrence said the survey numbers may be misleading because they don't include sellers who used FSBO support services such as his firm.

Today, FSBO sales have become more sophisticated than two decades ago, when do-it-yourselfers relied on those standard black-and-orange "for sale" signs from the local hardware store.

Local FSBO support businesses now offer a full menu of options, including lawn sign and brochure box rental, access to the Regional Multiple Listing Service (RMLS), and a customized market analysis. Some will conduct the entire transaction for a flat fee.

Such services are offered in almost any a la carte combination or in packages that cost from about $400 to just under $3,000.

With customary real estate commissions in Minnesota hovering between 6 and 7 percent, the cost of hiring a full-service agent can be as much as $14,000 on a $200,000 home. FSBO sellers don't always realize that full savings, however. If the buyers are represented by their own agent, the FSBO seller usually is obligated to pay what's known as a co-broker commission, which usually amounts to 2.7 to 3.2 percent of the sale price.

The Peers, for example, initially spent about $550 on a package of services they bought from BuySelf Realty, which gave them a listing with six pictures on the MLS, a yard sign (installation included), a brochure box, a key box and some paperwork. They also had access to an appointment-scheduling service that validated a real estate broker's license number before giving access to the property. They said their expenses totaled about $800. Thom Peer handled all the disclosure paperwork himself and offered a commission to any agent that brought in a buyer.

Reciprocity changed the picture

Today's FSBO landscape has changed in large part because of a factor called licensed broker reciprocity. Introduced five years ago, it's an agreement that allows brokers' once-proprietary listing information to appear in the searchable MLS database on other brokers' websites.

The Regional Multiple Listing Service of Minnesota was a pioneer in establishing such collaborative agreements among Realtors. "It's been successful in making buyers more educated, more informed of the marketplace," said Tom Flaherty, director of marketing and communication for the organization.

The Internet has made it easier for do-it-yourselfers, as well. Today, 86 percent of prospective buyers conduct some form of Internet housing search before calling an agent. It's a trend that has inspired Lawrence to make significant upgrades to his website. "Our business is up by 20 percent this year, and I believe it's because of our big investment in our search engine, our marketing and broker reciprocity in the Twin Cities," he said.

But the FSBO process is not without risk. Galler of the Minnesota Association of Realtors said that improperly prepared disclosure paperwork can lead to lawsuits. "The learning curve on something like this is steep," he said. "We make sure that all the i's are dotted and the t's are crossed during this emotional time for sellers."

Albert Hepp, owner of BuySelf Realty, agrees that novices can stumble.

"Our clients are not out there completely alone," he said. "We provide the correct paperwork, a line-by-line guide, and our clients can get their questions answered by a Minnesota [licensed] agent at any time."

Sales agents say that while the FSBO route might seem appealing because sellers can avoid paying a commission, there's some evidence that using a Realtor might help maximize the ultimate sale price. The 2004 study by the National Association of Realtors found that on average, homes sold without agent involvement fetched $25,200 less than homes sold through a full-service Realtor.

However, the same study showed that FSBO sellers tend to have lower incomes, which means they might be selling lower-priced houses.

Despite recent innovations, selling your own home isn't effortless. The Peers endured nearly 50 showings and had to contemplate four offers before their house finally sold eight months after they put it up for sale.

Thom Peer said he isn't certain that hiring an agent could have prevented the delay. The first offer fell apart after the buyers failed to sell their home; the second fell through after the buyer's financing didn't work out.

In retrospect, the Peers say they priced their home too high -- a serious mistake in today's highly competitive market. They based that price on listing information they found on Internet search engines.

Ultimately, they ended up dropping the asking price of their house by $10,000. After more than eight months of trying to sell, they were motivated and wanted to "offer an irresistible price," Thom said.

"We would have never been able to come down to that price if we used a traditional Realtor," he said.

Lucie B. Amundsen is a Twin Cities-based freelance writer. She can be reached at lucie@twowordy.com.