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John F. Wasik

In a tough market, you might do better selling your home yourself

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August 21, 2007

If you are selling property in a market bedeviled by huge inventories of homes and a credit crunch, you could do better if you dumped your real estate agent. With a wide range of flat-fee and Internet-based services, you may fare well on your own, yet it's still important to know your options.

For years, homeowners have relied on real estate agents or brokers, who charge commissions of 5 to 7 percent. These middlemen include your home in the Multiple Listing Service and do marketing, advertising, and negotiating.

What if you listed and sold the property yourself?

According to a recent study, people who used a "for sale by owner" website, also known as FSBO, got at least as much for their homes as those who went through a conventional broker.

In many cases, considering the website charged only a flat fee, the vendors obtained a higher net selling price than through broker contracts.

Researchers Aviv Nevo and Igal Hendel of Northwestern University and Francois Ortalo-Magne of the University of Wisconsin-Madison examined sales from 1998 to December 2004. Though the study looked at only one Internet service, it noted that listing on the MLS -- instead of the website -- "does shorten the time it takes to sell a house."

The study is welcome news for sellers who want to lower their commission costs and boost net sales prices. Homeowners could use some help. As the revolution in do-it-yourself home selling takes on new forms, it isn't having a significant impact in lowering brokerage expenses.

While housing prices have risen over the past five years, when adjusted for inflation, commissions haven't dropped, even with new services and increased efficiencies in real-estate transactions.

"From 1998 to 2005, US housing prices climbed 37 percent in real terms, and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period," according to a Federal Trade Commission report.

The mainstream real-estate brokerage industry has fought discounting in a number of ways. In 10 states, it has succeeded in having "antirebate" laws enacted that forbid brokers from discounting commissions, the FTC says. Agents typically split their fees with cooperating brokers. In antirebate states, no commission discount would be allowed, a practice that clearly hurts home sellers.

Another seemingly anticonsumer tactic is a "minimum-service law" in seven states that requires brokers to provide specific services to sellers, which can discourage discounting. Local real-estate groups were also accused of restricting flat-fee brokers' access to MLS services, which has resulted in several suits.

The Consumer Federation of America found that "the desire of traditional brokers to 'double dip' -- where one broker collects all of the commission -- lies behind all of their anticompetitive actions."

Is greed good when you are desperate to sell a property? Or are you better off avoiding a full-service broker altogether? The answer depends on how adept you are at selling your own property.

If you need full service and a broker can deliver a sale based on his referral network, it may be worth the commission.

"Limited service" or "flat-fee" brokers may charge you as much as $595 for listing or advertising your home. But that's all they are obligated to do.

You can often find a cheaper "MLS-only" package that will only add your home in the industry's listing service. You advertise, show, and negotiate.

"Flat-fee plus" packages often include negotiating and other assistance for an additional $1,500 or more. You can also upgrade to full service at discounted rates with some online brokers.

Keep in mind that if you take the do-it-yourself route, you will have to do much more work and it may take longer.

John F. Wasik is a Bloomberg News columnist. He can be reached at jwasik@bloomberg.net.

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