SELL WITH REALTOR OR PRIVATELY: PROS AND CONS

[Reading Time: 12 min]

Very early in the selling process, you would have to decide if you want to sell on your own (which is called “for sale by owner” aka “FSBO”) or if you’re going to use a real estate broker.

Consider the pros and cons of each option including how quickly you need to sell, the conditions of your local market, the time you want to invest, any challenging features of your home that may require expertise in negotiation and the most publicized argument of them all… the commission!

Selling on your own

If you decide to use this option, you will have to manage every step of the sale. Not knowing the laws or the selling procedures can cost you greatly down the road in time, money and lawsuit. So make sure you know your stuff! Whatever you are not familiar with or good at, you should allocate more time to acquire the necessary knowledge or skills on top of the selling procedures.

Here is something that you won’t hear too often from a realtor, I do believe that you can sell on your own. However, the home seller has to be ready and committed to taking the time to learn everything about selling a house and take the time to market it, to do the visits right, to do the follow-ups closely and so on. He/she will most likely do a better job than the average realtor and save on the commission. Some people already have some or all of the knowledge and skill set.

The truth is that the property for sale with or without a realtor has exactly the same value. Have you ever seen a professional home evaluation report where an extra value is added because it is for sale by a realtor? The answer is obviously no. So why hire a realtor then? The short answer is that you don’t want to do it. You want to hire someone that can do it right, fast and for a commission that is fair to you. Just like when you are eating out, you can do a similar salad at home but you don’t want to take the time or have a headache to do it. It may even taste better than yours! So hiring a good realtor follows the same logic.

For the majority of the home sellers, this is not their reality because they have not been honest toward themselves. Some of them would say that they took the time to learn everything but they did not. Most sellers don’t have a realistic perception of the real estate market because they cherry-pick what they want to take into consideration. Even worse, many of them would overvalue their house because they are too emotionally attached!

Those sellers will usually get discouraged after a certain period and remove their property off-market or turn to a realtor for help. The statistics on the website Zillow, the biggest multiple listing real estate website in the US, proved my point:

“Just 10 percent of sellers who sold in the last 12 months completed the sale of their home without ever engaging a real estate broker. Another 10 percent tried to sell on their own but eventually turned to real estate broker for help.”

This option is feasible if you take the time that’s needed. Selling a property is easy. Selling it right for top dollar is a different question!

Note: if the buyer is represented by a real estate broker, you will have to negotiate directly with this real estate professional as long he or she has an “Exclusive brokerage contract-purchase” with the buyer.  If not, there is a loophole you can use to negotiate directly with the buyer without the realtor. It is technically possible, but ethically wrong.

Using the services of a real estate broker

Not all realtors have a strong academic background (this is needed for good professional advice), great work experience/ethic, good people skillset and the level of integrity that you are looking for.

Here are some pointers to help you find the right realtor for you:

Interview at least 5 real estate agents before making a decision.

If you believe in the Pareto principle of 80/20,  which can be summed up that only 1 out of 5 realtors would be considered great. So for you to have the chance statistically to find at least one good realtor, you would need to interview at least 5 realtors.

Furthermore, the more realtors you interview, the more likely you will be able to pick up on some odd practices. The less experienced realtors will usually follow a pre-set script just like a robot. The more interviews you would do, the more you will hear the same script over and over.

The most common script we use would be from Tom Ferry, Mike Ferry, and Craig Proctor. They usually have similar Comparative Market Analysis layout design (aka CMA) and they have typical generic answers to all of your questions and objections. They always, always, always finish their presentations with a pushy sales technique to make you sign on the spot and they won’t give you their CMA if you don’t sign with them.

As for the best realtors out there, they will ask you a lot of questions about your needs before giving you options tailored to you. They don’t really follow a script but rather talk to you like a real human being that is consulting a professional. They are very confident about the quality of their service and will gladly give you any material that they used during the presentation including the CMA. Often, they will give you the time to think about their services offered and contact you back after a few days. They are always ready to walk away from an unreasonable seller.

• Never sign a selling brokerage contract the day you are meeting with the realtor. Take time to think through all the offers of the realtors before making a decision. In doubt, meet your top realtors again and again.

• Make sure the realtor works full time. On average, agents involved only part-time just don’t have as much insight and knowledge about the industry to advise you optimally!

• Ask them about their marketing plan. Even if you have the right marketing plan but the wrong pricing, you won’t sell your property. Make sure the plan proposed by the realtor matches your expectations.

• Ask them for a free detailed CMA. This is the single most important information that you will need to sell your property! Make sure these elements below are included in the CMA and ask them to show you how they came up with the number.
  • All CMAs must include all comparable listings SOLD. This will tell you what is the Fair Market Value (aka selling price) to sell your property. To do a great home evaluation analysis, you would need to compare at least the type of property, the right section of the neighborhood, the overall conditions, the right characteristics (such as the number of bedroom, the size of the living space and land, etc.), when the comparable was sold, etc.
  • When available, CMAs should include all comparable listings that are expired (aka properties that were for sale but didn’t sell). This will give you a lot of valuable insight about the market conditions. Unfortunately, professional home evaluation reports or most realtors don’t pay attention to this.  This comparable will help you understand what is the price limit in your market and confirm the market conditions.

Example 1:if your neighbour with a very similar home in a similar condition wasn’t successful selling at 525,000$, then you know in this market and under these specific market conditions that 525,000$ is too much. So if you opt for an above market price strategy, make sure not to price it at or above 525,000$. As Ford said, only fools do the same things to expect different results! You don’t want to waste your precious time, someone already tested it for you. Be smart about it! There are always exceptions, but a good realtor can let you know when it is the case.

Example 2: if you find little or no expired comparable listings, it usually means that you are in seller’s market. However, don’t mistake low inventories with a seller’s market, you have to look at other factors to justify your stand. if you find little or no expired comparable listings, it usually means that you are in seller’s market. However, don’t mistake low inventories with a seller’s market, you have to look at other factors to justify your stand.

• Look at all active direct (same type of property) and indirect (a substitutable type of properties i.e. buyer that wants a bungalow but would consider a spilled level) properties to compare. This information will help optimize the Positioning Strategy that will be discussed later. This advanced sale technique, on average, will net out more money in your pocket and shorten your time on the market. Again this comparable is often overlooked by many professionals because they don’t know what to look at or do with this info. Professional home evaluation reports don’t talk about this at all.

• Is your realtor using a lockbox strategy to show your property or will they be there in person for each visit?

Seller-realtors that use a lockbox strategy will leave a set of keys in a lockbox for the buyer-realtors to have access to the keys and show your house when needed. In general, your realtor won’t be on-site at the showing.

Why is it better to have your realtor show your house in person?

• You’re paying your realtor a big commission to sell your property. You should expect great service from them. Being present at each show is the service provided by all great realtors that focus on their client’s needs first rather than making their job easier! If not, what are you paying them for?

• Would you trust a stranger to come into your property without you? Having a lockbox would do exactly that. If your realtor is not there, would you trust the buyer-realtor to protect your interest? Or does he/she have their buyer’s interests above yours?

• Are you willing to make less money if your realtor is not present at the showing? When he/she is not there at the showing, he/she is losing potentially important insight from the buyer’s side that could be very valuable at the negotiating stage.

Case Study:For example, at one of my showing, the seller bragged about how much money he made selling his property in Ontario and how stressed he was because he only has 30 days to move to a new house in Montreal. A day later, the buyer sends us an offer at 6% under the asking price. Knowing there is no inventory in the market and that the buyer has a very short delay to move in and that he is overwhelmed by stress, I was confident to advise my seller not to reduce the price. After a few negotiations back and forth that night, we closed the sale at 0.5% discount only. We negotiated back 5.5% from the first offer! Not knowing this valuable information from showing, my client might be more open to negotiation. But with that insight on hand, my seller was more confident opting for a harder negotiation.

If showing the property in person is important for you, add a clause into your Seller Exclusive Brokerage Contract – Sale imposing your realtor to be present each time. Make sure to add a penalty clause to that so each time he or she doesn’t show up, listing agent commission would be reduced by a certain amount. Normally, a reduction between 500$ to 1,000$ would be a good number to put as a penalty.

• Look at how many listings the realtor has. Too low, he might be a part-time realtor. But you have to take more than one factor to come up with this conclusion. Sometimes, some realtors prefer to work with buyers, so there are no listings to look at. Too high, he or she won’t be able to give you A1 service. On average, around 25 listings at one time per realtor is the maximum number of clients they can serve efficiently. Beyond that number, realtors would rely on a system of the lockbox to show your property or even worse, ask you to show the property while paying them top dollar. All realtors that focus on giving a fully personalized service shouldn’t use a lockbox or ask their clients to show the house!

• Read their online reviews. Be aware that some of them might be fake. Here are some pointers to spot fake reviews:
  • Lacks detail. It’s hard to describe what you haven’t actually experienced, which is why fake reviews often offer general praise rather than digging into specifics.
  • Look at dates on the reviews. Did a bunch of positive reviews flood the site at once? If so, you’re probably looking at fake comments.

Note 1: don’t ever sign a brokerage contract with a clause making the contract non-cancellable (irrevocable). In the event that you are not satisfied with your real estate broker, this clause makes it impossible for you to cancel your contract without the approval of the realtor, even if they are offering a dreadful service.

Note 2: without any irrevocable clause, your contract can be cancelled at any time at your demand. However, the realtor can ask for a monetary compensation for the expenses they have incurred so far. The realtor needs to be able to provide proof/receipts of all the costs that they are claiming you for.