You will not save $18,000 when you sell your home privately

moneyAre you considering selling your home privately?

I had a few comments and some emails about the posting I did last week – For Sale by Owner franchises, what exactly are you paying for? I guess I opened up a can of worms. I pointed out a couple of things that didn’t make sense to me (claiming to be the best online listing, promoting listings that never expire) and I said there was a lot more misleading information contained on a well known home private selling franchise website. One email asked me, “what other misleading information?”

Lots.

Today, let’s explore the money you’ll save by selling your home privately.

Home selling franchises’ value proposition is “You’ll save the commission”. But how much will you really save? How much will you spend (upfront) to save the commission?

The home selling franchise’s website claims you’ll save $18,000 when you sell your $300,000 home yourself.

$300,000 x .06 = $18,000

This is based on a commission rate of 6%. However, the typical commission rate in Kitchener Waterloo is 5%. Some houses sell at 6% commission, but not very many. The commission saved realistically is $15,000.

$300,000 x .05 = $15,000

If you save $15,000 in commission that is still a great savings! But what are the expenses you’ll have to pay (in advance) to save this possible commission?

Assuming you go for the home selling franchise recommended package, which includes “taking fantastic photos and uploading them to your listing for you”, you’ll spend $1833.

$15,000 – $1,833 = $13,167.

If you advertise in the Waterloo Region Record, it will cost you roughly $100/week. Other publications like This Week in Real Estate, Cambridge Homes and the Real Estate Book should also be considered, so over the course of six to eight weeks you might spend $500 for print media advertising.

$13,167 – $500 = $12,667

You should probably hire a “posting agent” to put your home on MLS, where most home shoppers begin their search. Posting agents fees, I’ve been told, can be anything from $99 to $999. Let’s split the difference and say $500.

$12,667 – $500 = $12,167.

There may be fees for professionals you’ll need to employ. Lawyers, inspectors or home staging consultants will be your responsibility. Let’s talk about lawyers. With many deals, there are conditions (for financing, insurance or home inspection). If your lawyer has already approved the paperwork but the deal subsequently falls through because the new buyers couldn’t come up with the mortgage, you’ll still have to pay your lawyer for his work. But this time, let’s just say that today is a perfect day and this is a perfect world. The deal sails smoothly through. No charge.

$12,167 – $0 = $12,167

Because I like round numbers I’m going to say you’ve spent $167 on miscellaneous expenses: gas for running around, parking, maybe missed a half day of work here and there, your cell phone bill went over the limit…miscellaneous expenses = $167.

$12,167 – $167 = $12,000

This still represents a great savings in commission.

If you’ve priced your house at the market rate, you’ve attracted a buyer, but this buyer has an agent. If you pay the buyer agent, he’ll want 2.5% of $300,000 which is $7,500.

$12,000 – 7,500 = $4,500.

Oh really? You will not entertain any offers from agents with clients? No problem. Private home sellers are a small piece of the pie. The agent will help his client buy something else. No harm done.

They’ll be another buyer coming along soon and he won’t have an agent.

This buyer won’t have an agent because buyers know you are saving the commission too. They want to split the commission you’re saving by selling your home yourself and if they’ve gone to the home selling franchise website they think you’re saving $18,000 and they’ll want half of that ($18,000/2 = $9000). They want you to cut your price by $9,000.

$12,000 – $9,000 = $3,000

Oh dear. You’ve sold you home yourself and saved $3,000. Thank you home selling franchise.

$3,000 is 1% of $300,000. Houses typically sell within 1%-2% of market value. By selling you house yourself, you might not have saved anything. What you could have done instead was hire yourself a Realtor, one who is good with numbers.

Ok, so I’ve made some assumptions here, taken some liberties there (and had some fun too). Maybe you didn’t spend any money on advertising, or have any miscellaneous expenses and you negotiated like a champion with the buyer. You still haven’t saved $18,000, have you? And that’s the point, by selling your home yourself, how much (if anything) did you truly save (and is it worth the time, trouble, risks and costs)?

Can I post to the MLS without an agent?