In what is perhaps the "most robust test yet" with the "largest sample ever tested," financial analytics firm Collateral Analytics has concluded that For Sale By Owner (FSBO) transactions achieve sales prices significantly below those achieved by sellers who hire a REALTOR.  

To reach their conclusion, Collateral Analytics used data from normal housing markets (i.e., those not in rapid rise or decline) in 13 counties and 1,008 zip codes during 2016 and the first half of 2017, which accounted for more than 1.35 million sales.  

The factors that go into one's decision to sell by owner or hire a REALTOR vary across price ranges, geographical areas, and even age ranges.  However, using an automated valuation model (AVM), Collateral Analytics made great efforts to account for all of the factors that might sway a seller one way or another.

The results: Price per square foot is 5.02% to 7.26% lower for FSBO sales than REALTOR transactions sold through a Multiple Listing Service (MLS).  Even in the most detailed and comprehensive comparisons made by Collateral Analytics (tests run based on zip codes with confidence scores of 80% or greater), the average difference in the sale price for FSBOs was 5.526% less than those of MLS sales.  

A common argument against studies like this is that FSBO sales prices are always lower because FSBOs are assumed to be lower priced homes.  This is simply not the case.  In Collateral Analytics' study, the average sale of the FSBOs in the study was 15% higher than the average sale on the MLS sales.  Yet, when those same FSBO sales were compared to similar sales completed by REALTORS, the average result for all markets landed the FSBO seller 6% less on a price per square foot basis. 

Collateral Analytics concluded: "Using three different sorts of data and methodologies, we find that the differential in selling prices for FSBOs when compared to MLS sales is remarkably close to an average commission rate."  So, while FSBO sellers may be avoiding commissions, they are netting prices significantly less than they would with an agent.

The takeaway?  While full service real estate brokers are a transaction cost that can be avoided by selling by owner, new empirical evidence suggests that FSBO sellers avoid commissions to their detriment.  In addition, the study did not take into consideration the additional costs a FSBO seller has, such as lawyer fees associated with preparing a proper legal real estate contract (don't Google one, trust me...please!), potential legal exposure for lack of compliance with local, state, and federal disclosure laws, and time and energy expended "DIY'ing" the deal from start to finish.  

After this study, you have to ask yourself: why do all the work and bear all the risk when you can hire a professional and come out in the same financial position?

For more in-depth reading, see "Saving Real Estate Commissions at Any Price," Collateral Analytics Research (Aug. 16, 2017).

By Chris Cole