Comparative Advantage of Buying And Selling Real Estate Without a Realtor

Selling real estate can actually be pretty straightforward, so it is routinely accomplished without a realtor simply by utilizing the services of a closing attorney or a FSBO Attorney, such as myself.  With that said, some folks (especially first time sellers) really do benefit from having a realtor help them appraise, market and show the property.  Realtors tend be very personable as well, and they are trained in providing step-by-step guidance and negotiations through the process. Indeed, real estate agents tend to advertise that they can negotiate a higher price (or lower price) for the property – and apparently that’s correct, as evidenced by data compiled by the National Association of Realtors. So this is not a blog for criticizing realtors in order to promote some cost-saving alternative of a FSBO attorney (i.e., thesis – antithesis).

Rather, this is a blog to highlight that if you are a confident and intelligent homeowner who is comfortable marketing and showing your own property, and you don’t mind spending $1k or $2k on a skilled FSBO attorney, then proceeding without a realtor might be an attractive option for you because: (a) saves you money, (b) promotes direct information and communication between the parties, and (c) promotes traditionalism. The same analysis applies to buyers who proceed without a realtor – most people know how to use the internet to find homes for sale, and a FSBO attorney can help you negotiate and document every step of the transaction.

So what I want buyers and sellers to understand is that they should independently determine what is right for their own needs in relation to their own skills… the correct answer depends on your circumstances.

1. FOUR WAYS TO SAVE MONEY WITH A FSBO
Here’s how FSBOs save money: (a) no real estate commissions, (b) reduced sales price means lower annual property taxes and transfer taxes at sale, (c) reduced sales price means reduced monthly mortgage and interest (this helps creditworthiness), and (d) reduces sales price means reduced closing costs.

a. Commissions

The typical 6% commission charged by two real estate agents is added to the total cost of the home.  Either the buyer pays this commission in the purchase price, or the seller pays this commission by taking a hit on his home sale profit. So by eliminating the commission from the price of the home, both parties stand to benefit.

b. Loan Amount

Lenders use the purchase price to set the ‘loan to value ratio’ that is key to determining the buyer’s eligibility to purchase the home. Therefore, purchasers without a realtor have a slight advantage in this sense – the less you borrow, the less interest you pay.

c. Closing Costs

The escrow fee and title insurance premium are typically determined in relation to the purchase price. So a lower purchase price reduces these closing costs.

d. Tax

There are also two key tax advantages to a FSBO in California: (a) tax assessors use the purchase price of the home to set the assessed value, so by lowering the purchase price, the buyer lowers the annual property tax, and (b) the closing cost item of city and county transfer taxes are set as a percentage of the purchase price, so by lowering the purchase price the buyer also lowers the transfer taxes.

Where a FSBO seller has priced his home at, or slightly below the market value of the home, the seller has anywhere from three to six percent “negotiating room” because a commission will not be paid on the transaction. Therefore, it can be in the seller’s best interest to sell FSBO to help the home sell faster (because the home is more competitively priced than those listed or sold by full priced real estate agencies), and because the seller can ultimately net more from the sale.

Consider the example of a $600,000 home. Assume full service realtor commissions are six percent, or $36,000. In this scenario, the seller will only net $564,000 from the sale; $600,000 – $36,000 = $564,000. If the seller decides to sell FSBO, the price of the home can be significantly lowered, let’s say to $580,000. The seller then benefits by $16,000, the difference between the $580,000 sales price and the $564,000 net proceeds if listed with a full service agent. The buyer benefits by $20,000 because the purchase price was $20,000 less. It is a win-win situation for both buyer and seller.
2. DIRECT INFORMATION

Without real estate agents, you deal directly with the buyer or seller. When communication is direct and informative, this can add confidence to the agreement.

3. TRADITIONALISM

There is also a traditionalism that may come with a home sale by the owner. Talk to your family members about their property buying history and you may find what I did: one of our family homes was sold on a handshake in Davis, California. A gentleman’s agreement was reached on the essential terms of the deal, and then everything was put down in writing later. In a way, it helps builds community.

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Greg Glaser, Attorney at Law
Serving all of California
(925) 642-6651
greg@gregglaser.com
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
http://www.GregGlaser.com