Selling FSBO vs Listing w/Agent and more...

It's an old question: Who fares better, home sellers who go the 'for sale by owner or FSBO' route, or those who use a REALTOR(R) agent to market their property?

A study was just released that suggests - at least in one market: Madison, Wisconsin - that FSBO's may actually fare better. The study, "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," became public today and has already received a fair amount of attention from an article in the New York Times.

Of course, it must be said in all fairness, that FSBOMadison.com is an unusually successful, well established for sale by owner site serving that community.

The NAR (National Association of Realtors) has for a long time published statistics that suggest that homes sold by REALTORS(R) fetch significantly higher (16% according to one study) prices than those sold by FSBO's.

Then I realized the consequence of this statement:

Since those homes sold by REALTORS(R) are also sold by cooperating REALTORS(R) to home buyers, in essence this means that buyers pay on average 16% more, when buying a home that is listed with an agent as opposed to a FSBO property!?!?

Hm... of course, realize that up until very recently no-one really cared about the buyer, its always been all about the seller, since the seller 'pays' for the commission (well, we can debate that point, but lets just leave it at that). Originally there was only an agency relationship between seller and listing broker, with agents who represented a buyer actually becoming sub-agents of the agency who represented the seller. Translation: Only the seller was represented. No wonder then that NAR never realized the fatal flaw in its promo:

If sellers get 16% more on average, then buyers PAY 16% more on average. If that's true then buyers should all buy FSBO's first!

Well, thank god the truth is of course that the spin-meisters at NAR probably portray the numbers a little bit more seller-friendly than they really are.

My personal opinion is that probably FSBO's and agent represented sellers at the end of the day net about the same. What the seller does get from a good agent is solid pricing advise, a faster (and even the Madison study finds so) sale due to much more significant exposure, less headaches, hand's off marketing (who has the time to tend to potential buyers at a moments notice?) and proper representation when a buyer does materialize.

And this especially is an important point. We find consistently from our own MLS only customers that once they have a buyer looking to make an offer, they get extremely overwhelmed and end up asking us to assist in this phase, which we offer as an optional service.

In any event, the point of this post is this:

When looking at the real estate industry overall, you have to take a win-win view. No longer is it all about the seller. Frankly the shift is probably going to take us to a much more buyer centric industry than most would like to admit. If we only focus on the seller and suggest that by using us the seller is coming out way ahead, then well, where does that leave the buyer? And how can we hope to successfully attract buyer clients?

Your comments are welcome, I think this is a great subject for debate. Certainly the adage that "List with an agent and you'll get a lot more money" is not all its cracked up to be.

May 2007 MLS Market Stats

Up until 8 months ago I published my monthly Sarasota MLS Market Stats. The truth is that it takes quite a bit of time to assemble the data and I was just too busy to keep with it.

Since then however I am being asked almost weekly about the stats and 'when am I going to send them out again', so here we go; I have resolved to get with it again and you can look forward to receiving my monthly stats report from now on again, via this blog. A download link is at the bottom of this post.

In the past weeks and months we have seen report after report in the media about how our local market area has improved, sales have picked up, and things are finally turning around. At the same time we had the NAR first admit that things are not as rosy as they seem a couple of months ago when they announced that we'd have a first ever in 40 years drop in median home prices of 0.7%; yesterday they revised that outlook significantly (price drop will be much worse, more than double the prior estimate). But... in late 2008 things will pick up again.

Well, we all need to take these reports with a grain of salt. Personally, I like to look at the actual numbers as they pertain to our local market area.

First, the good news:

• Fewer new listings are coming on the market than a year ago. In May '07 there were 2,191 new listings, vs. 2,396 new listings the year prior. This represents a drop of 8.56%.
• Average sales price in May for properties below $1 Million actually improved by 10%, believe it or not, now this is just one month so lets see how the numbers play out next month before we get too excited. Sales prices for properties over $1 Million dropped by 26%, and overally the numbers are flat.

Now, for the bad news:

• There were significantly fewer sales in May '07 than the year before, across all price ranges. Overall number of sales are down 26.83% for May.
• Average days on market increased, and I would like to give a big warning to all: The numbers are utterly inaccurate. Although I have requested this in the past (and was ignored by the board), the Sarasota Assn of Realtors continues to report inaccurate 'day on market' figures. If a property is listed with Broker A for 6 months, expires and then is relisted again with Broker B, the clock is reset and starts over again. Since most listing agreements are for 6 months and only 20-25% of those properties sell, it is reasonable to assume that many listings that are selling are actually re-listed properties and the true time to sell is not 125 days on average, but more likely close to 300+ days on average.
• We have now arrived at a 24 months inventory of homes on the MLS. As of 6/6/07 there were 12,530 (!) homes and condos listed for sale, with only 521 sales during the month of May (4.16% market absorbtion). A year ago we were at an 18 month inventory level, so things got worse since then. Moving forward I will monitor this matrix and put together a chart so we can see if the tendency is now up or down.

Some thoughts:

The current market realities are simply such that as a seller pricing absolutely MUST be the number concern given attention to. Only the best priced properties sell and even those usually sell only if the seller is willing to make concessions. As a seller, if you are not serious about selling - at 2003 levels or below if need be - then my advise would be to just take your property off the market and wait a year or two. Eventually the market will rebound since this area is growing strong and the current inventory levels will be absorbed over the next couple of years.

For right now however the market is what it is, and people begin to realize that the 'true market value' of a property is what a willing buyer is actually to pay. Sky Sotheby's recently hosted a hugely successful auction and their critics charge that they were not doing their sellers any favor when properties sold for 30-40% below asking price. Well, I would respond: What favor are those critics doing their sellers when they take overpriced listings that will linger for a year or two during which the market slides south?

With a two year inventory on the market, drastic measures are sometimes required, if you want to sell. When there are 25 homes competing for every sale then guess what, only the top 2 or 3 homes out of those 25 will even get any consideration.

Those properties which sold at the auction may well have sold 30% below 'asking price', but they sold at "Market Value", the price where a willing buyer was willing to buy, and a willing seller was willing to sell, end of story.

Buyers are of course in a very strong position right now but I do must caution those who are sitting on the side lines. Interest rates just today shot up significantly and will most likely continue to rise. The FED may raise rates as well. This means that real estate - or the cost to finance your purchase - will in all likelyhood increase significantly over the next 6 months and while this may drive prices down a little bit, in the final analysis you will be off worse. Plus sellers truly are willing to make concessions right now, if you wait until the market actually does begin to normalize then the best deals will be gone and you will be stuck dealing with those sellers who are not as highly motivated, meaning you lose negotiating advantages.

Your feedback as always is greatly appreciated;

Thomas Heimann, President & CEO
Bravo Brokers, Inc

Click here to download the May 2007 Report