By: Joshua Hill
Today’s real estate market in Greater Phoenix is one of the fastest-moving in the country. With record-low inventory in many market segments, we’re seeing multiple offers—and sometimes even bidding wars—for homes in the most sought-after neighborhoods. This has led some sellers to question the need for an agent. After all, why spend money on a listing agent when it seems that you can stick a For Sale By Owner sign in the yard then watch a line form around the block?
Some buyers may also believe they’d be better off purchasing a property without an agent. For those seeking a competitive edge, proceeding without a buyer’s agent may seem like a good way to stand out from the competition—and maybe even score a discount. Since the seller pays the buyer agent’s commission, wouldn’t a do-it-yourself purchase sweeten the offer?
We all like to save money. However, when it comes to your largest financial asset, forgoing professional representation may not always be in your best interest. Find out whether the benefits outweigh the risks (and considerable time and effort) of selling or buying a home on your own—so you can head to the closing table with confidence.
Most homeowners who choose to sell their home without professional assistance opt for a traditional “For Sale By Owner” or a direct sale to an investor, such as an iBuyer. Here’s what you can expect from either of these options.
For Sale By Owner or FSBO (pronounced fizz-bo) offers sellers the opportunity to price their own home and handle their own transaction, showing the home and negotiating directly with the buyer or his or her real estate agent. According to data compiled by the National Association of Realtors, approximately 8% of homes are sold by their owner.
In an active, low inventory real estate market, it may seem like a no-brainer to sell your home yourself. After all, there are plenty of buyers out there and one of them is bound to be interested in your home. In addition, you’ll save money on the listing agent’s commission and have more control over the way the home is priced and marketed.
One of the biggest problems FSBOs run into, however, is pricing the home appropriately. Without access to proprietary information on the Arizona Regional Multiple Listing Service, you could end up overpricing your home (causing it to languish on the market) or underpricing your home (leaving thousands of dollars on the table).
Even during last year’s strong seller’s market, the median sales price of a For Sale By Owner was 10% less than the median price of a home sold with the help of a real estate agent. And during a more balanced market, like the one we experienced in 2018, FSBO homes sold for 24% (or $60,000) less than agent-represented properties. This suggests that, while you may think that you’ll price and market your home more effectively yourself, in fact you may end up losing far more than the amount you would pay for an agent’s assistance.
Without the services of a real estate professional, it will be up to you to get people in the door. You’ll need to gather information for the online listing and put together the kind of marketing that today’s buyers expect to see. This includes bringing in a professional photographer, writing the listing description, and designing marketing collateral like flyers and mailers—or hiring a writer and graphic designer to do so.
Once someone is interested, you’ll need to offer virtual showings and develop a COVID safety protocol. You’ll then need to schedule an in-person showing (or in some cases, two or three) for each potential buyer.
In addition, you’ll be on your own when evaluating offers and determining their financial viability. You’ll need to thoroughly understand all legal contracts and contingencies and discuss terms, including those regarding the home inspection and closing process.
While you’re doing all of this work, it’s likely that you’ll still need to pay the buyer agent’s commission. So be sure to weigh your potential savings against the significant risk and effort involved.
If you choose to work with a listing agent, you’ll save significant time and effort while minimizing your personal risk and liability. And the increased profits realized through a more effective marketing and negotiation strategy could more than make up for the cost of your agent’s commission.
iBuyers have been on the scene since around 2015, providing sellers the option of a direct purchase from a real estate investment company rather than a traditional direct-to-consumer sales process. iBuyer companies tout their convenience and speed, with a reliable, streamlined process that may be attractive to some sellers.
The idea is that instead of listing the home on the open market, the homeowner completes an online form with information about the property’s location and features, then waits for an offer from the company. The iBuyer is looking for a home in good condition that’s located in a good neighborhood—one that’s easy to flip and falls within the company’s algorithm.
For sellers who are more focused on speed and convenience, an iBuyer may offer an attractive alternative to a traditional real estate sale. That’s because iBuyers evaluate a property quickly and make an upfront offer usually without requesting repairs or other accommodations.
However, sellers will pay for that convenience with, generally, a far lower sales price than the market will provide, as well as fees that can add up to as much or more than a traditional real estate agent’s commission. According to a study conducted by MarketWatch, iBuyers netted, on average, 11% less than a traditional sale when both the lower price and fees are considered. Other studies found some iBuyers charging as much as 15% in fees and associated costs, far more than you’ll pay for a real estate agent’s commission.
In a hot market, this can mean leaving tens of thousands of dollars on the table. In addition, iBuyers are demonstrably less reliable during times of economic uncertainty, as evidenced by the halt of operations by most iBuyer platforms in early 2020. As a seller, the last thing you want is to start down the road of iBuying only to find out that a corporate mandate is stopping your transaction in its tracks.
If you choose to work with a real estate agent, you can still explore iBuyers as an option. That way you can take advantage of the added convenience of a fast sale while still enjoying the protection and security of having a professional negotiating on your behalf.
According to the most recent statistics, 88% of home buyers use a real estate agent when conducting their home search. A buyer’s agent is with you every step of the way through the home buying process. From finding the perfect home to submitting a winning offer to navigating the inspection and closing processes. And the best part is that, because they are compensated through a commission paid by the homeowner at closing, most agents provide these services at no cost to you!
Still, you may be considering negotiating your home purchase directly with the seller or listing agent, especially if you are accustomed to deal-making as part of your job. And if you are familiar with the neighborhood where you are searching, you may feel that there is no reason to get a buyer’s agent involved.
However, putting together a winning offer package can be challenging. This is especially true in a multiple-offer situation where you’ll be competing against buyers whose offers are carefully crafted to maximize their appeal.
And the homebuying process can get emotional. A trusted agent can help you avoid overpaying for a property or glossing over “red flags” in your inspection.
If you decide to forego an agent, you’ll have to write, submit, and negotiate a competitive offer all on your own. You’ll also need to schedule an inspection and negotiate repairs. You’ll be responsible for reviewing and preparing all necessary documents. Plus, you will need to be in constant communication with the seller’s agent and your lender, inspector, appraiser, title company, and other related parties along the way.
Or, you could choose to work with a buyer’s agent whose commission is paid by the seller and costs you nothing out of pocket. In exchange, you’ll obtain fiduciary-level guidance on one of the most important financial transactions of your life. If you decide to go it alone, you’ll be playing fast and loose with what is, for most people, their most important and consequential financial decision.
It is important for you to understand your options and think through your preferences when considering whether or not to work with a real estate professional. If you are experienced in real estate and legal contracts, comfortable negotiating under high-stakes circumstances, and have plenty of extra time on your hands, you may find that an iBuyer or FSBO transaction works for you.
However, if, like most people, you value expert guidance and would like an experienced professional to manage the process, you will probably experience far more peace of mind in working with a real estate agent.
A real estate agent’s comprehensive suite of services and expert negotiation skills can benefit buyers and sellers financially, as well. On average, sellers who utilize an agent walk away with more money than those who choose the For Sale By Owner or iBuyer route. And buyers pay nothing out of pocket for expert representation that can help them avoid expensive mistakes all along the way from contract to closing.
According to NAR’s profile, the vast majority of buyers (91%) and sellers (89%) are thrilled with their real estate professional’s representation and would recommend them to others. That’s why, in terms of time, money, and expertise, most buyers and sellers find the assistance of a real estate agent essential and invaluable.
The best way to find out whether you need a real estate agent in Greater Phoenix is to speak with one. The Hill Group is here to offer the insights you need to make better-informed decisions. Let’s talk about the value-added services we provide when we help you buy or sell in today’s competitive real estate landscape.