The cheapest ways to sell a house include listing For Sale By Owner (FSBO), utilizing a Flat Fee MLS Listing, and hiring a discount, full-service broker for a reduced commission. We’ll discuss each method in this article.
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Selling For Sale By Owner (FSBO) might be the cheapest way to sell a house because you could potentially save up to 6% in commission. In addition, the marketing costs for a traditional FSBO seller are minimal.
Many public search websites will charge you little to nothing to post your home for sale by yourself.1 Furthermore, it doesn’t cost much to buy a “For Sale” yard sign and to stick it out on your front yard. Nor will it cost you anything to email your friends and family and to share your home sale with your friends on social media.
We say that selling FSBO ‘might’ be the cheapest option instead of definitively declaring it as such because most FSBO sellers fail to sell altogether or sell for a much lower price than what would have been achievable by listing via Flat Fee MLS Listing Service (or through a traditional full-commission agent). In the latter scenario, FSBO is not the cheapest option since any commission savings were dwarfed by a suboptimal sale price.
Some stingy sellers will try to save even more money by not bothering to hire a professional photographer or getting a floor plan drawn. They’ll try to get away with amateur photos taken with their flip phone camera.
Unfortunately, saving a few bucks when trying to sell real estate is the classic case of being a “penny wise, pound foolish.”
Most sellers who go the FSBO route sell for far less than market value, if a sale happens at all.
That’s because FSBO properties are by definition off market because they are not listed in the MLS broker database nor all available websites. Remember that 90% of deals are still done between a buyer’s agent and a seller’s agent, which means that the vast majority of home buyers today are represented by a buyer’s agent.
Buyer’s agents generally search for listings on behalf of customers using the MLS because all listings in the MLS are automatically co-broked. This simply means when a seller’s agent uploads a property onto the MLS, the seller’s agent automatically and contractually agrees to split commission with all potential buyers’ agents.
Furthermore, buyers’ agents don’t need to look anywhere else but the MLS because well over 90% of all listings are listed by an agent, and all agent listings must go in the MLS if the agent is a MLS member.
As a result, selling a home For Sale By Owner may indeed be the cheapest way to sell a house, but it’s certainly ineffective because sellers by default will miss out on the vast majority of buyers.
1This isn’t true in some high priced markets like New York City, where local search websites will charge upwards of $800 per month to list a home FSBO.
Selling your home through a Flat Fee MLS Listing Service (also known as Assisted FSBO) is also one of the cheapest ways to sell a home, though it’s never free. By definition as the name suggests, sellers pay a flat fee upfront to a company or brokerage to list their home on their local MLS plus other relevant websites.
Keep in mind that flat fee MLS listings require you to offer commission in the MLS to buyers’ agents, so if you decide to sell to a represented buyer, you may owe a typical buyer agent fee of up to 3% in commission.
Be careful in choosing your Flat Fee MLS Listing provider, as many websites offering this service will charge an arm and a leg only to list your property on the wrong MLS.
For example, a seller in NYC can easily be fooled into paying up to $1,000 for a generic Flat Fee MLS Listing package from a company that claims to cover all 50 states. The flat fee MLS website will claim to list your property in your local MLS, regardless of where you are in the United States.
Unfortunately for this NYC home seller, there is no predominant MLS in New York City, and real estate brokers are mostly members of REBNY, a private organization that operates a broker database called the REBNY RLS.
The unsuspecting seller in our example might have paid $1,000 only to be listed on the New York State MLS or some other broker database that is completely irrelevant in NYC.
Lastly, watch out for flat fee MLS companies with names that are highly offensive to brokers. Believe it or not, many of these companies will have names that are variants of “Brokers No More” or “No Agents Allowed.”
Hilarious, since these same companies are offering a service that allows sellers to offer commission to these same agents, to entice them to bring their buyer clients. Just how incentivized do you think a traditional agent will be to cooperate with a company whose name speaks to a vision of eradicating traditional agents?
Instead, work with a Flat Fee MLS company that encourages cooperation and dialogue with traditional agents.
One of the cheapest ways to sell a property if you don’t have time to show your own home is to hire a discount broker. However, this approach is also fraught with risks. After all, if you could save on commission with no downside, why isn’t everyone doing it?
A discount broker typically has two approaches to splitting the commission. The first is to charge a lower total commission amount but to still split it equally. The second is to take less as the listing agent, but to still offer a full commission to buyers’ agents.
The former is better for the discount broker because he or she will earn more; however, it’s less effective as a selling strategy because a low co-broke will discourage many buyers’ agents from showing the property.
The latter is more effective for the seller because it enables sellers to still get the attention of buyers’ agents, some of whom won’t work for less than 3% or 2.5% in commission.
Many discount brokerages are nothing more than a one or two person operation. Unless these quasi sole proprietors personally enjoy attending showings for a tiny fraction of what their traditional colleagues make, they eventually realize that their business is not scalable and give up.
Sadly, what many of these well-intentioned disrupters don’t realize is that no one signs up to be a real estate agent in order to have the opportunity to earn a flat fee or just 1%. Aspiring agents get involved in the brokerage business because they have dreams of earning 6% on multi-million dollar condos in Manhattan. As a result, most small discount brokerage operations have trouble recruiting good agents, meaning they never grow larger and by default cannot scale their services.
Some discount brokerages will try to claim that their agents provide better customer service and have less conflicts of interest because they are on salary vs commission. What happens in reality is generally poorer customer service as brokerages who pay on salary will naturally try to cram as many deals as possible onto their agents since there’s no incremental cost to doing so.
We saw this happen when Foxtons tried to disrupt the NYC market with salaried agents. What ended up happening was customers would never hear from their overworked agents after signing a listing agreement, and they eventually went out of business. Furthermore, talent is relatively scarce in real estate despite the large number of licensed individuals, and talented salespeople by definition will gravitate to a more meritocratic role with commission upside.
Discount brokerage isn’t a new concept, and some of the larger discount brokers have been around for decades. However, there’s a reason why the real estate industry hasn’t been disrupted, and why some of these publicly traded discounters have less than 0.5% market share in their home counties.
That’s because real estate in the United States is a dual agent model where both the buyer and the seller will have an agent. As a result, agents need the cooperation of other agents in order to complete a transaction as 90% of deals are done between two agents.
It’s fairly obvious that there may be resentment and a lack of total cooperation by traditional agents when dealing with discount brokers who are contributing to falling commission rates.
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.