Finding favorable FSBO markets

Although For Sale By Owner (FSBO) transactions represent a relatively small number of total home sales, the FSBO market can be appealing to both sellers hoping to pocket more of their sales profits and to buyers hoping to buy a property below market value.

In theory, by cutting out the commission fee paid to a listing agent, FSBO transactions allow sellers to walk away with more money from the sale, while buyers may have more room to negotiate a lower price. Commissions, traditionally 3 to 6 percent of the sales price, can run into the tens of thousands of dollars in many housing markets.

FSBO transactions accounted for only 13 percent of home sales in 2005, according to the National Association of Realtors, in part because FSBOs require more work on the part of the homeowner. Tasks normally handled by a real estate professional – setting an appropriate asking price, marketing the property effectively, and negotiating a proper purchase agreement – all become the responsibility of the seller. And buyers sometimes find it hard to locate FSBOs because, in the past, there hasn’t been a convenient way to find properties not listed on the MLS by a real estate agent.

While the majority of home sellers still choose to use the services of a real estate professional, new Internet services have removed some of these traditional barriers. Now homeowners can get an accurate assessment of their home’s market value, and expose their homes to millions of interested home buyers online.

FSBO transactions have benefited both buyers and sellers in many areas of the country, according to a RealtyTrac analysis of average sales prices for FSBO property in 2005. Interestingly, FSBOs did not always benefit both parties involved in the transaction. In some states, the pendulum swung heavily in favor of buyers, who were able to realize average discounts of 12 to 15 percent below market value, thereby erasing what the seller saved by not paying a listing agent. In other states, sellers had the upper hand and were able to sell their properties close to or above market value.

FSBO markets most favorable for buyers
California, North Carolina, Missouri and Texas were the most favorable FSBO markets for buyers, according to RealtyTrac’s analysis. FSBO buyers in California saved an average of $77,649, the most saved by buyers in any state and an average of 15 percent below market value. With an average savings of $33,825, North Carolina FSBO buyers also realized an average discount of 15 percent below market value. FSBO properties in Missouri sold for an average of 14 percent below market value, and FSBO properties in Texas sold for an average of 12 percent below market value. In the nationwide FSBO market, buyers also came out ahead, saving an average of $21,587 — 8 percent — below market value.

StateAvg. FSBO Sales PriceAvg. $ below market valueAvg. % below market valueJan. 2006 FSBO Inventory
California$455,994$77,64915%1,704
North Carolina$188,900$33,82515%1,493
Missouri$75,528$12,65314%995
Texas$160,752$21,62712%2,805

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FSBO markets most favorable for sellers
Sellers benefited the most from FSBO transactions in Arizona, Utah, Maryland and Florida. Arizona FSBOs sold for an average of $1,793 above market value, and Utah FSBOs sold for an average of $357 above market value. Although the average FSBO sales price was slightly below market value in Maryland, Florida and Utah, FSBO sellers in those states were better off than if they had sold the property for full market value and paid a 6 percent agent commission. Except for Maryland, all of these states also documented December FSBO inventories among the 10 highest nationwide, indicating that although a relatively high number of sellers in these states are opting for the FSBO method, there is still a healthy demand from buyers looking for FSBO property.

StateAvg. FSBO Sales PriceAvg. $ above/below market valueAvg. percent of market valueJan. 2006 FSBO Inventory
Arizona$266,936+ $1,793101%1,098
Utah$237,167+ $357100%851
Maryland$340,028– $7,13398%568
Florida$260,899– $10,45196%4,826

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While it’s not for everyone, a FSBO transaction — carefully managed — can be beneficial to both sellers and buyers.

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