by Larry Weltman
I work as a representative at AccessEasyFunds, or AEF for short, which is a business that provides advances to Canadian real estate agents on the commissions they earn. I’ve been with the company since its inception and, as a result of my close working relationship with agents across Canada, I’ve had the good fortune over the years of being able to watch the trends that pass through the real estate market. I’ve seen the booms and the dips; I’ve seen mortgage rates change; and, more recently, I’ve witnessed the rise of the flat-fee, for-sale-by-owner phenomenon, otherwise known as FSBO (“fizzbo”).
For those who are unfamiliar with the term, FSBO represents the trend among homeowners to decide to sell their homes by themselves. In this DIY approach, rather than selling their property through the traditional assistance of a real estate agent, homeowners use the assistance of FSBO companies, which provide training literature to instruct the homeowners on how to sell their homes. Given the attention its had in the media recently, this DIY approach to selling a home may be getting more popular. Also another DIY option is simply to list your property for sale on MLS without an agent; which can now be done. Clearly, if these DIY trends grow in frequency and popularity among sellers, this could seriously shake up the dynamics of the greater Canadian real estate market.
Now I won’t say that I have an unbiased point of view when it comes to this flat-fee, for-sale-by-owner phenomenon. Obviously, the success of AEF is fundamentally tied up with the success and amount of business afforded to Canada’s population of real estate agents; and it goes without saying that any growing DIY trends that steer business away from real estate agents is not in my company’s best interest.
However, with that caveat being mentioned, I would still like to offer some very real, unbiased reasons why this DIY method of selling a home can turn out to actually harm the financial well-being of the home owner, rather than help it. And why I feel it is really losing momentum and not taking off as well! There may have been a push to do this a little while back, but definitely we see a trend away from DIY.
It has to be said that, for the most part, successfully making a deal with another party is not an extraordinarily complex process, even if the object of the deal is as significant as a home. However, as most things in life, the crux of the matter is what happens if something goes wrong. What happens if the deal goes sour. Well, if the deal is made between two parties who are being represented by licensed agents, these agents, using their industry experience, authority and knowledge, can usually orchestrate some sort of agreement that will see the deal through.
However, if a deal goes sour between one or two unlicensed and unrepresented individuals or parties, the only path to a resolution is through the medium of a costly lawsuit. What does that mean? It means that all the money that the home owner was looking to save by selling his or her home without the help of a licensed broker will be eaten up by expensive, headache-filled arbitrations. The possibility of a dispute during a real estate negotiation is a very real one and it should be seriously considered when thinking about using a DIY method for selling a property.
But, I’d like to mention one other point that I think should be considered in evaluating the benefits of a DIY approach – namely, that those who decide to sell their own homes – without representation – may not be fully aware of all that’s required of them when showing their home to potential buyers. Case in point, sellers who act without the guidance of an agent may be completely unaware of their duty to disclose other offers that are on the table; or, alternatively, sellers may be completely unaware of how much they must disclose regarding the defects to their home, or the level of detail with which these disclosures must be made.
A DIY seller may not really recognize and value what a good agent can do for them. Selling a home requires advance preparation, namely preparing the home for sale; deciding on the nest time to list the home; staging; and ultimately setting the selling price. A real estate agent is a qualified professional who should be doing this! As without a proper selling strategy you may be doomed for failure. Once the home is listed – who is going to vet all the prospective buyers, safeguard your home, do the showings! Does the DIY seller have all the time and knowledge? And when there is a real buyer on the table, you a need a professional, experienced and independent negotiator to handle this for you.
Although the seller pays the commission from the sale proceeds, it is really the buyer who pays the commission as far as I am concerned, in that the commission is built into the price. We have seen in the early days of the MLS opening up to DIY’s, that agents who are working with buyers would not show their buyers such homes in that there was no commission offered to them. Many of these sellers asked too much, as the truth said they should have priced their homes at 5% cheaper! When they could not sell, and turned to an agent, the market knew these homes had been on the market for some time and were now panic sellers.
In my opinion, real estate agents serve a very real need and very real function in a real estate transaction. And it’s doubtful that most people who have little real estate experience can satisfactorily assume the real estate agent’s role and function when deciding to sell their property. Like any professional you are hiring, you need to find the best agent to handle your sale and let this agent earn his or her keep!