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We're now in a quiet time for residential real estate, but many homeowners are starting to think ahead to the spring season. This past spring was obviously a hot seller's market with low inventory and low rates — and bidding wars were extremely common. This coming season, however, things will likely look rather different.
Interest rates have gone up sharply, home buyers are worrying more about economic volatility and inventory has increased. Now, many sellers are left feeling like they missed a prime opportunity to sell at the top of the market.
What many sellers don't realize is that there is now a wider range of alternatives for selling their home — some of which can actually help preserve more equity.
It used to be that sellers only had one viable option: work with an agent and pay approximately 6% of the sale price (3% to the buyer's agent, 3% to the seller's). But as the real estate market heated up, two things happened: sellers' agents were getting larger and larger commissions, and often for less work as houses were nearly selling themselves; and digital transformation was making its way to real estate, bringing new efficiencies to the traditional model.
These changing dynamics opened up a broader spectrum of options, leaving sellers with more input into how they sell their homes. Now, sellers can examine things like the level of exposure their property will receive, how much of the sales process they own, the source of expertise available to them and how much profit they get to keep.
My biggest advice to sellers is to take the time to understand the pros and cons of each option to make the decision that best suits their needs.
The Traditional Real Estate Agent
If you want to completely hand over the selling process, offloading all the research, paperwork and showings, for example, you may need a traditional real estate agent. Not only do they provide a full-service offering, but they can also list your home on the MLS, which is where almostevery buyer looks for properties. This creates much broader exposure for your property.
But even with an agent, you'll have to do some lifting. I learned this when I was working with a broker to sell my first home several years ago. From getting my home ready to show to coordinating schedules with agents to researching home prices in the area, the administrative tasks piled up. Fortunately, my home sold quickly, but I wound up writing a commission check worth more than 25% of my equity in the home — and I had done my fair share of the work.
For Sale By Owner (FSBO)
If you're not interested in writing a big commission check, many people think the cheapest alternative is to list it yourself as for sale by owner (FSBO). But keep in mind that FSBO means that your home cannot be featured on the MLS, which means that it won't show up on sites like Realtor.com or Redfin directly, resulting in a smaller pool of potential buyers.
If you choose this route, expect to hear directly from the buyer's agent, which is not typically the case in a traditional real estate scenario. In addition, FSBO requires you to navigate all the paperwork and disclosures on your own. With no professional guidance involved, this is truly a DIY option (and all the work and risk that comes with it).
And more importantly, a 2020 survey of more than 8,000 homes shows that the FSBO homes studied sold for approximately 26% less than homes sold by an agent, which often erases any savings in commission.
iBuyers
Over the past several years, more "iBuyers" have cropped up that will buy houses for cash, often without even visiting a property, and offer a quick close (within a week or so). There are obvious advantages here for motivated sellers who want no contingencies and a fast turnaround. Yet, the offers are often below market value, sometimes as much as 15% less, because typically the iBuyer just wants to flip it. A seller would have to be fairly motivated to sell under those circumstances.
Tech-supported Selling Options
It was only a matter of time before the home selling process underwent digital transformation. Today, innovative technology, complimented by a team of seasoned real estate agents and human experts, is available to sellers to help them take more ownership of the process. Unlike "For Sale by Owner," online home selling platforms help automate the sales process and do so without the hefty, percentage-based commissions. And unlike FSBO, sellers using these tools can get their property listed on the MLS.
As a result, sellers are able to hold on to more of their home's equity, sell their homes more quickly, and do so at sale prices on par with traditional agents.
However, be sure to pick a digital home seller that does more than just connect you to discount local agents. You want one that is actually changing the selling experience, with a superior technology backend that can automate the repetitive parts of the selling process. You also want one that has licensed agents on staff who can give you insight and the human touch.
There's no denying that technology is driving greater choice in home selling, offering greater options to those who want to drive more of the sales process and keep more of the profits. While traditional real estate agents, FSBOs and iBuyers can all play important roles in the selling experience, they are no longer the only game in town. One of the biggest pluses of new digital tools is that they put the power of the real estate experience back where it belongs — into the hands of the seller.