The more time you spend in real estate, the more you will see things and wonder if they make sense or not. One of those is certainly the decision to list your property on the MLS with a broker or go the other route: For Sale by Owner (FSBO). When I was getting started, I thought FSBO was a great way to market a property and didn’t see any value in using a real estate agent. At the time, I didn’t think it made sense to pay someone a commission just to list a property. I have a sales background, so why would I let someone else sell my property when I can do that myself. Once again, this was one of the things I learned the hard way.
Early in my investing career, I sold many houses FSBO, which skewed my thinking even more. The first few I sold were rentals I had owned for a while, and it was during a time when financing was becoming easier to obtain. You are likely very familiar with the story of subprime lending and the subsequent mortgage crisis that followed. If not, well, it was very easy to get financing which made it easier to sell houses. This made selling to tenants customary. If you didn’t sell to a tenant who was looking to buy, they were eventually going to vacate because they had seen their friends, neighbors, and co-workers get mortgages, and they too wanted the dream of homeownership.
Selling FSBO does the following:
- Limits your market exposure
- Taints the market’s perception of you and your property
- Costs you more than hiring a real estate agent
Limits Exposure
Think this through with me: If your property is not on the MLS, it is receiving ZERO market exposure from every other broker/agent in town. If all you have is a sign in the front yard, you only get local traffic. No exposure means no buyers. Why would you limit yourself to such a small buyer pool? Even if you paid too much for this deal, or repairs spiraled out of control and you are going to lose money, you still need to move the property of your books as quickly as possible. The fastest way is with an agent/broker listed on the MLS.
Taints Your Property
There are two things going on here with regard to perception:
First, you are being cheap and don’t want to pay a real estate commission. Whether that is true or not, that’s what is going to be perceived. This will certainly prevent many agents from even showing your property to one of their clients, because they know they are going to have to deal with you personally (and not another agent), and they will have to negotiate some form of compensation/commission with you.
Second, if the asking price for the property is higher than the average sales price for the area, and/or is in an area that is more affluent, the perception will be that your property is not worth it. But you just spent $20K on the hardwood flooring, $18K on the custom cabinets, and $15K on the appliances. You put travertine in the kitchen and baths, modern chrome fixtures, and a number of other upgrades. No one knows this because they would have to call you to get the info. You are asking $750,000 for this house on the same street as another house that is listed with a local, brand named brokerage sign, who also has a stellar reputation. That house has a description of the same things in yours, but theirs is on every real estate site on the Internet. When buyers drive by, they see your $3 sign you bought from Home Depot that says For Sale By Owner with your phone number scratched in the white space at the bottom. Please don’t do this!
If you think that all an agent does is enter the property address and description in the MLS and wait for the deal to close so they can get a commission, you are absolutely mistaken. If that’s all your current agent does, it’s time to go out and find a good one. I can personally guarantee you from experience, this will make all the difference in your ability to make money flipping properties.
Costs You More
In most cases, you are going to have to pay someone a commission to bring you a buyer as most homes are sold by agents/brokers that are listed on the MLS. Also, in most cases, FSBO is going to keep your property on the market for a much longer period of time. The longer it stays on the market, the more interest, utilities, and property taxes you pay, along with the more landscaping you have to maintain. If you don’t have any experience working with buyers, you may end up going with someone who is not really approved for financing, wasting even more time. It’s much safer and faster to list the property on the MLS, with a good real estate agent, as it will certainly be more profitable.
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Mike Hanna is a real estate investor, mentor, author, and public speaker. He has been an active real estate investor since 2002 in both single family and multi-family properties, and has been in the hard money business since 2005.