The FSBO Tech Disruption Shouldn’t Be Ignored

For those involved in the real estate industry, the benefits of real estate agents to both homebuyers and sellers are obvious — expertise, marketing, negotiating skills, and often, a better price. It seems like this should be an open-and-shut case.

These days, however, making a case for using an agent is getting harder, not easier. New disruptive technologies are helping to make for sale by owner (FSBO) transactions easier and faster. Some new digital marketing tools and commission-free business models are already here, and more are on the way.

Of course, despite these developments, the role of the real estate agent remains invaluable. To win over FSBO sellers in 2017 requires an approach that takes these new technologies into account. Here are a few of the new FSBO challenges facing agents, and what it will take to overcome them.

Traditional Objections to FSBO Sales

Homeowners going their way and selling their home without an agent are nothing new. A small yet consistent minority of home sellers has gone this route for decades. For the last several years, it’s been around eight to nine percent of sales, according to National Association of Realtors data.

For almost as long as these sellers have been sticking a “For Sale by Owner” sign in the front yard, real estate agents and industry experts have been crafting lists of reasons in favor of agents and warning against FSBO sales. That’s still true today. A recent article on Realtor.com warns prospective home sellers of four “scary scenarios” they could encounter by going the FSBO route:

  • Their listing won’t be seen by many prospective buyers
  • Their home could sell for a much lower price
  • They could run into legal problems over disclosure mistakes
  • They might have more problems with sales falling through

In another recent piece in the Mint Hill Times, a local agent outlines for the primarily North Carolina readership why home sellers should choose to go with an agent. Anna Granger tells readers five important agent benefits include:

  • Professional marketing and exposure for the listing
  • The years of experience with transactions an agent brings to the table
  • The expert negotiation skills of an agent
  • The benefit of the agent serving as a buffer between buyers and sellers
  • The agent’s knowledge to set the right price for the listing

New Challenges for Agents

There’s certainly a good case for continuing to tell sellers considering a FSBO option about these potential challenges with FSBO and the benefits of working with an agent. But one factor today’s agents should also consider: these talking points don’t address recent technological advances in the real estate field that might make FSBO more attractive to some sellers.

Marketing and the MLS

A quick Google search for “FSBO” brings up several results today’s agents should be aware of. A top search result for FSBO.com offers buyers the ability to search for FSBO.com home listings and offers sellers two inexpensive packages for listing and marketing their properties. A basic package offers sellers a listing on-site and on Redfin.com for about $100. For $400, FSBO sellers can syndicate their listing on their local Multiple Listing Service (MLS) and major real estate portals, including Realtor.com, Zillow, Trulia, and AOL and Yahoo’s real estate sections. Yard signs are extra, but shipping is free.

Another site, ForSaleByOwner.com, offers similar MLS and marketing services for about $300. This portal is also connected to Xome, the end-to-end industry disruptor debuted by Nationstar (now rebranded as Mr. Cooper) in 2015. The website emphasizes upfront the specific dollar amount a seller could potentially save, as well as their high volume of business. Though agents may see the pitfalls of such gimmicks, for a seller considering FSBO, it could be a tempting offer.

Flat-Fee and Commission-Free Platforms

As the Washington Post wrote last year, commissions of six percent used to be the norm, but times are changing. Agents and brokers today are finding their commission rates under pressure. One factor at play is the proliferation of flat-fee and low- or commission-free real estate platforms.

Seattle-based tech broker Redfin has been experimenting with low-cost structures for several years. In May, Inman reported the firm is pushing into more U.S. markets with its one-percent listing fee offer. The article reports Redfin found this offer is attracting more clients than an earlier deal that paid a portion of the buyer’s agent commission in the form of rebates.

Discount, full-service real estate services may sound like a contradictory concept, but two Denver-based startups are gaining traction with the model. Active in over a dozen U.S. markets, flat-fee brokerage Redefy has enticed sellers with a $2,500 flat fee since 2011. Recently the firm upped its fee to $3,000 in preparation for expansion into “costlier” markets. Another Denver firm, Trelora, has been making waves in the Mile-High City market with a flat listing fee of $2,500 and a flat $2,500 for the buyer’s agent. That firm’s CEO told the Washington Post earlier this year that sales volume was up 30 percent in 2016.

Conflicting Data on FSBO Sales

Even data on FSBO sales isn’t as clear cut as some agents may think. Many agents have seen the data from NAR that paints agent sales in a far better light than FSBO sales, including that the typical sale price with an agent averages $46,000 more than the typical FSBO sale price, and that FSBO sales can languish on the market an average of 19 days longer than agent-listed homes.

Moreover, a recent Inman article reported that another new study by Collateral Analytics supports the industry claim that FSBO homes sell at a discount. According to this latest study, which crunched the numbers on more than 200,000 FSBO sales and one million MLS sales, FSBO sales net sellers about 5.5 percent less than those sold with the assistance of an agent. Of note, it’s a difference that tracks closely to the traditional commission rate.

However, agents should be aware that FSBO sellers are looking at different studies. A recent DIY real estate article in Entrepreneur Magazine touted a Stanford University study that concluded FSBO home sales netted sellers between four to seven percent more. Another figure of note, the article reported that FSBO sellers were more likely to hit their target for sale price than sellers working with agents.

Overcoming These New FSBO Objections

In 2017, agents simply can’t ignore the tech innovations reshaping the agent–client relationship and the FSBO marketplace. To overcome these objections and win clients, agents will instead have to address these new challenges.

In the case of marketing and access to a market’s local MLS, agents and traditional brokerages no longer have a monopoly on access and reach. Instead, agents could play up their marketing expertise and personalized hands-on approach. Rather than touting the ability to get a listing on a popular search portal, agents could talk quality over quantity, making a case for how their professional network can close a sale.

When it comes to fees, consumers often get what they pay for. Agents can counter the appeal of the many flat-fee and low- or commission-free services by emphasizing the many behind-the-scenes tasks and responsibilities agents take on that a FSBO seller would have to do themselves. It helps to remember that many FSBO leads are ready to sell, and having professional help may be more palatable once they know all that they will have to do on their own.

As for conflicting data sets over whose houses sell for the best prices, being prepared is probably the best advice. Agents reading this now know their FSBO prospects may have seen reputable studies that say agent sales cost more. It can be tricky to change someone’s mind when they have information that confirms their assumptions, but digging into study flaws is one option. Another route is to make a case for the value an agent brings being a worthy investment.

In any case, FSBO sales are unlikely to go away anytime soon. We might even see an uptick, as more sellers try out the innovative technologies coming into the market. For agents, this new FSBO environment calls for continuing to make a case for traditional agent-facilitated sales, while addressing these new tech disruptors head on. Ignoring them simply isn’t an option.

 

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