What “By Owner” Services Won’t Tell You

For the DIY-minded, it makes perfect sense. If you’ve fixed up the house on your own, why shouldn’t you sell it on your own too?

Like starry-eyed television shows that portray renovation almost as a heat-and-serve proposition, selling ‘by owner’ usually involves fees that popular websites don’t mention.

By Owner Real Estate

Photo: zdblaw.com

Here’s the breakdown on how you can capture the greatest ROI for selling DIY:

Traditionally, realty agents charge 5% to 6% of a home’s sale price. That was painful enough when home values were rising, but in a stagnant market that commission will chip away at your net take-away.

According to The Wall Street Journal, as many as one quarter of mortgage-holding homeowners are underwater on their loans once the commission is figured in. In other words, the commission wipes out all their home equity.

That’s why selling by owner is so appealing. If 6% of the sale price leaves you with only a few thousand dollars—or nothing—for your stint as a homeowner, why not cut out the middleman and keep something for the effort of owning?

That’s the pitch, anyway. But the truth is that you will not save 6%. The most you will likely save is 3%.

How come? The 6% commission is split evenly among four parties: the agent who represents the seller (and that agency’s brokerage), and the agent who represents the buyer (and that agent’s brokerage).

If you sell by owner, you can wipe out much of the sell-side 3%—but not all of it.

To attract the attention of house hunters trawling online listings, you must first pay a fee to get your house into the multiple listing service, which feeds Zillow, Trulia, and other major online databases. If your house isn’t on those sites, it will be harder for buyers to find it. And if buyers can’t find your house, you will have difficulty completing the sale. That’s at least one reason to allot 1% for sell-side expenses, including listing on the MLS.

When you list on the MLS, how will you get buyers’ agents on your side? By offering those agents their traditional fee; otherwise they have no reason to bring buyers to your doorstep. Sweeten the deal by offering the buyer’s agents 2%, not the 1.5% they would get through a traditional commission.

To sum up: 1% in selling expenses and 2% to the buyer’s agent. That’s 3%. Not quite as good as 0% but a bit better than 6%.

Now that you know the true savings and out-of-pocket transaction costs of stepping around the typical real estate sales channels, you can better determine whether selling ‘by owner’ is the right choice for you.

For more on buying and selling homes, consider:

How To: (Really) Win a Bidding War
See Your House Through Appraisal Goggles
3 Ways Your Neighbors Affect Your Home’s Value