The cost of buying a home has skyrocketed, especially in California – so when you sell your house, it helps to make as much money as possible (while adding the least amount of stress). Opting to sell your house “for sale by owner” (FSBO) is one solution that can potentially save you money – but it does have some downsides, especially when it comes to added stress.
Here’s why so few people opt for FSBO when selling their home – and what some alternative, low-stress solutions are.
Here’s Why FSBOs Remain Unpopular
Considering that the average home seller in California pays about $18,000 in listing agent commissions alone, opting to go the FSBO route might seem like a no-brainer. Why spend that hard-earned money when you can figure it out yourself?
And yet – only 10% of home sales are FSBO sales, and even that number is high for urban areas – in a major metropolitan area like LA, you might find only a handful.
So why do home sellers avoid FSBO sales despite the potential cost savings? There are a few reasons, it seems.
Access to buyers
One of the major reasons homesellers become frustrated with selling their homes themselves is because many of the major listing sites that buyers rely on to discover homes either don’t list FSBO homes, or hide them behind alternative buttons that many people don’t even notice.
Many homebuyers never come across FSBO homes in their search – and that can dramatically reduce the likelihood of getting the full asking price for your home. Fewer qualified buyers seeing your home = fewer qualified offers.
According to The National Association of Realtors (NAR), for-sale-by-owner homes sell for 5.5%-26% less than agent-assisted homes.
Time and effort
Much of the work a real estate agent does is in the background and out of sight, but in reality selling a home takes a lot of effort. You’ll be fielding multiple requests – sometimes daily – for showings yourself, putting up signage, and getting your home onto the MLS. You may also want to spring for professional photography in order to draw in more buyers and stand out from other FSBO homes that use lower-quality phone photos. There’s a lot of work that comes before a buyer ever makes an offer, and once that happens, there are hours and hours of work that go into closing the deal successfully.
Commission fees
What might not be obvious from the onset is that many FSBO sellers still end up paying commission fees – and this is because buyer agents are going to require some compensation to bring their buyers to the home and represent them in the transaction. The commission rate for the buyer agent is set when you create the listing, not after the buyer sees the home – so buyer agents can avoid bringing their clients to homes with too-low commission rates.
Risk
The average home in California now sells for about $705,000, representing a huge investment for home buyers. One reason buyers prefer having an agent on both sides of the transaction is that they want to protect their investment to the fullest extent possible, and they have little incentive to ditch agent representation since it’s the seller who pays the commission fees.
Most home transactions do not run completely smoothly, whether that’s because termites show up on the inspection report or there’s a problem with financing – and when that happens, it helps to have an experienced agent on hand to represent both sides of the transaction.
When homebuyers are tempted to FSBO homes, it’s often because the cost savings balance out the potential risk. In other words, they’re attracted to the home because it’s undervalued compared to the open market. Some FSBO sellers save money on the listing commission, only to lose the same amount – or more – because their home was undervalued. And without access to the industry pricing tools agents have handy, it can be tough to price homes accurately as a FSBO seller.
FSBO in California: Harder Than it Looks
Although selling a home yourself might seem like the quickest way to profit more from your home sale, it doesn’t always work out that way – and it can be a stressful extra job to take on while you’re also preparing to move and purchase a new home.
However, there are other (and more reliable) ways to save money when you go to list your home.
Commission Savings
One of the best ways to save money on listing your home is to reduce, rather than eliminate, the listing fee. You’ll receive maximum exposure on the open market, and have an experienced agent to handle everything from the lockbox to scheduling showings to negotiating the contract, while still saving a ton of money on commission fees.
The reality of home selling is exactly what most would-be FSBO sellers expect: modern efficiencies and technologies have made it easier and cheaper to sell homes, yet brokerages have been comfortable keeping the extra cash for themselves.
Luckily, there are a few companies shaking things up in the real estate market with low commission fees and full-service offerings. Four popular examples are Redfin, Clever, Houwzer, and Trelora (a sister company to Houwzer).
Of course, it will cost a bit more money to have an agent than if you do everything yourself. One benefit of working with a listing agent, though, is that it reduces risk on your side too. You don’t have to pay for photography, signage, marketing materials, or MLS fees – the brokerage covers these costs and you only have to pay when you actually close on the house. Conversely, if you go to purchase these services a la carte, they are not refundable – whether or not you successfully sell the house, you have to pay the photographer for their work.
Here’s the difference between some of the top companies with low listing fees.
Clever
Clever emerged on the scene in 2017 and has been gaining traction ever since. Clever is unique because it’s not really a brokerage, in the traditional sense. Agents don’t work directly for Clever. Instead, Clever’s business is basically in referral fees – they collect money every time they pair you with an agent in their network. Last year Clever changed their flat rate from $3,000 or (1% if the home sells for over $350,000) to 1.5%, regardless of selling price.
- Listing fee: 1.5%
- Listing fee for $600,000 home: $9,000
- Buy and sell with Clever incentive: $500 gift card
- Works with partner agents from other brokerages
Houwzer/Trelora
Houwzer and Trelora are both part of Newfound and operate with the same business plan, with coverage in different states. They charge a 1% listing fee, making it easier for sellers to save on commission costs. Since they recommend 2-3% for the buyer’s agent, sellers can save up to 50% in commission fees when compared to the traditional 3%-3% split. Both Houwzer and Trelora are doing things differently by bringing Realtors in-house as salaried agents. This way, their agents’ top priority is client satisfaction, not commission bonuses.
- Listing fee: 1%
- Listing fee for $600,000 home: $6,000
- Bundle mortgage + title with them when you buy: $2,500 back at closing
- Salaried in-house agents
Want to find out how much your home is worth?
Redfin
Redfin has made a name for itself thanks to its innovative approach to home listings. But are they a good choice when you need an agent to represent you? Reviews for Redfin are often mixed, and a common complaint is that Redfin agents are given too many clients to manage (and so they sometimes drop the ball while juggling multiple clients). When it’s your home, you want to be a priority. Still, Redfin offers a competitively low rate and is a nationally recognized name in the real estate industry.
- Listing fee: 1.5%
- Listing fee for $600,000 home: $9,000
- Buy & sell with them: listing fee drops to 1%
- Salaried agents
Buyer Agent Fees
As we’ve noted before, the buyer agent’s commission will be publicized on your listing, so you won’t be able to pull a bait-and-switch. However, it’s important to note that you can choose to go lower than the traditional 3% on the buyer agent’s commission. In fact, this became more popular during COVID when competition for homes ramped up.
We typically recommend a fee of at least 2% in order to keep agents incentivized to show your home. It’s a good idea to ask your agent what the standard is in your area. Some areas with higher average home prices have average listing commissions closer to 2%, whereas in Texas, the average listing commission is 3%.
Of course, you can offer whatever you like and see if anyone bites, but the caution here is not to be “penny wise and pound foolish.” Saving 1% on buyer commissions only to lose 5% on the selling price doesn’t save you any money at all – it costs you major profit.
Opt for an Inspection Before You List the Home
It might sound counter-intuitive to have an inspection done before you sell the home – especially because you’ll have to pay about $500 for it. However, there are a few potential financial incentives to doing so.
Once you accept an offer from a buyer, their main negotiation tool becomes the outcome of the home inspection. Of course, you can opt to list your home “as is,” but in the absence of a super-hot seller’s market this is likely to deter qualified buyers.
If you’re able to list all the major and minor issues of the home in the property disclosure – and perhaps resolve some of the minor issues before the house even goes up for sale – the buyer has little room to negotiate the price lower. If any major issues are revealed, it’s better to have advanced notice in case you need to hire a contractor. Otherwise you’ll be looking for someone at the last minute so that you can successfully close on the home sale – giving you less flexibility to find a budget-friendly contractor.
So: Ready to Save Money While Selling a House in California?
The costs of selling a house in California can quickly add up – so it’s no surprise that so many explore FSBO as an option. If taking on the stress and workload of a real estate agent doesn’t sound like the right choice for you, consider working with a 1% commission brokerage like Trelora. We’ll do everything for you – while still helping you profit more from your sale.
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