How to Get an Even Better Deal on a Home

Anyone looking to make an even better deal in the tanking real estate market should consider buying a home that's for sale by owner (FSBO).

The median home price for sellers who used an agent in 2007 was $240,000, compared with $180,000 for a home sold directly by an owner, according the National Association of Realtors' 2007 NAR Profile of Home Buyers & Sellers. That spread is basically unchanged from last year.

While prowling for that perfect owner-sold home, prospective buyers might also want to put out feelers among friends and acquaintances for someone who is looking to sell and might do so before the home is openly marketed. About four out of 10 FSBO sellers sold their homes to someone they knew prior to the transaction.

In private transactions, buyers have an even better chance of faring well on the deal. The median price of an open-market FSBO was $208,000 vs. $142,400 for closely held transactions.

But, data from the NAR report suggest that FSBO homes sell for less in part because they tend to be lower-end homes or ones in rural areas. According to the report, unassisted sellers were more likely to be in a small town or rural area, the home was more likely to be a mobile or manufactured home, and the owner's income was lower than that of sellers using agents. Also, some of that difference could be due to sellers giving breaks to buyers they know, such as children or friends.

The level of for-sale-by-owner transactions remains at a record-low market share of 12%, the same as in 2006, and has declined consistently over time. FSBO transactions accounted for 18% of homes sales in 1997, according to NAR data, down from about 20% in 1987.

However, data from ForSaleByOwner.com say that the number of listings on its site is up 10% over 2006. "With housing prices falling, we're seeing more homeowners choosing to maximize profit and safeguard their equity by selling their home themselves," said Greg Healy, Vice President of Operations at ForSaleByOwner.com.

The Internet company announced last week that real estate commissions are expected to total $55 billion in 2007, up $19 billion from 2000. During this time, commissions paid on an average home have spiked 43%, going to $13,900 from $9,700.

"Our analysis shows that agents and brokers charge substantially more than they did just several years ago," Healy said in a press statement. "We estimate that in 2007, for sale by owner sellers will save almost $9 billion in home value that they otherwise would have paid to real estate agents," he continued. "As home owners cope with a tough market in 2008, we expect the cost-saving trend to continue, as the 'for sale by owner' segment gains market share."

Three Northwestern University professors who wrote an August study about the FSBO market say that MLS-listed homes do not necessarily deliver a higher price, but do offer a higher probability of a quick sale, within 60 or 90 days. In addition, roughly 20% of FSBO listings end up relisting in the MLS, which translates into a longer time on the market. Thus, one of the advantages of MLS is a shorter time to sale, which translates into savings (on mortgage, taxes and insurance).

"Realtors undoubtedly can offer value, saving sellers time and helping them through a stressful and sometimes difficult period," said Aviv Nevo, one of the Northwestern professors who conducted the study. "They provide expertise with setting the listing price, preparing the house, checking potential buyers' qualifications, showing the house, bargaining the terms of the deal and handling the paperwork." Of course, the cost of using a real estate agent is significant compared, for example, with using FSBOMadison.com, which charges $150 for its no-frills services and listings for six months. FSBOMadison.com is a site the professors studied for their report.

Still, the argument goes, if homeowners can save on real estate agent commission fees, a buyer might be able to get a seller to reduce the asking price. Because if the home doesn't sell within a certain time frame, there's a chance the seller will end up listing with an agent eventually anyway and will have to pay the fees in the end.

Healy believes that in 2008 "an increasing number of consumers will utilize the resources and marketing power of the Internet to sell their home themselves."

According to industry data, 84% of home buyers used the Internet to search for a home in 2007, up from 80% in 2006, from 77% in 2005 and from just 2% in 1997. The Internet will have an even more significant role in the real estate process for consumers due to the proliferation of new online real estate tools and resources, such as home pricing reports, market information and blogs.

However, Jonathan Miller, CEO of New York real estate appraiser and consultancy Miller Samuel, threw out a note of caution: "My sense is [the market] appears to be getting weaker as sellers are becoming less willing to go on their own. During a booming market, a larger number of sellers were emboldened to do this because properties sold themselves."

Most important reason for selling home for-sale-by-owner
Did not want to pay a commission fee	51%
Sold it to a relative/friend/neighbor	22%
Buyer contacted seller directly	12%
Did not want to deal with an agent	8%
Agent was unable to sell home	3%
Seller has real estate license	2%
Could not find agent to handle transaction	1%
Other	2%

Cities with top percentage of listings on ForSaleByOwner.com
New York	12.7%
Chicago	5.1%
Washington, D.C.	3.2%
Miami	2.6%
Los Angeles	2.3%
Norfolk, Va.	2.1%
Atlanta	2.0%
Salt Lake City	1.8%
Dallas	1.7%
Tampa, Fla.	1.6%

Information for charts provided by ForSaleByOwner.com.