Watch out for these sales pitches

If you're selling FSBO, you're likely to be approached by listing agents hoping to "convert" you.  Watch out for these pitches: 

1.  "I have a buyer who may be interested."

Several agent-coaching websites, including this one, urge agents to pretend to have buyers in order to get a foot in the door.

Unfortunately, it's hard to distinguish between these phonies and legitimate buyers' agents. Here's a rule of thumb: Legitimate buyers' agents will quickly look over the house and leave.  Listing agents will usually stay longer and try to bond with you.

2.  "Studies show that agent-assisted buyers sell their homes for 16% more than FSBO sellers."

This statistic seems to be based on data in a 2005 National Association of Realtors study, which found that the median 2005 sales price for a home that was sold by an agent was $230,000, about 16 percent more than the $198,200 median price for a FSBO home.

But it’s hardly fair to compare agent-assisted and FSBO sales prices. Many of those FSBO transactions (about 40 percent) were to buyers that the sellers knew, like family members, friends, and neighbors. One imagines that the sales prices in some of those transactions were set artificially low. The FSBO properties in the 2005 study also included a disproportionate share of manufactured and mobile homes, which surely dragged down the median price.

I'd go instead with a 2007 study by two Northwestern University economists, which found that FSBO sellers in Madison, Wisconsin, got roughly the same price for their homes as agent-assisted sellers, giving them "a significantly enhanced net sale price." 

3.  "Studies show that 90% of FSBO sellers eventually give up and list with a traditional agent."

Author Robert Irwin, in Tips and Traps When Buying a Home, writes that "[a]lmost 90 percent of sellers who start out trying to sell FSBO eventually give up and sell using an agent." An article by realestatecoach.com puts the figure at 84%. Steven Poscente, in a 1998 Realty Times article, wrote that "studies show that 70% eventually hire a Realtor." (He also claims, without providing evidence, that "80% of those who don’t say, 'Next time I hire a Realtor.'")

Are any of these statistics accurate or even plausible?  According to the National Association of Realtors, about 13% of successful property transactions in the US in 2005 were FSBOs. But the only way that 70% of FSBO sellers could have given up and listed with an agent is for 43% of all home sales to have started as FSBOs. But according to the NAR, only 4% of agent-assisted transactions in 2005 were originally listed as FSBOs. The 84% figure and 90% figure are also implausible. For 84% of FSBOs to have given up, 81% of all home sales would have had to start out as FSBOs. For 90% of FSBOs to have given up, 130% of all home sales would have had to start out as FSBOs--a clear impossibility.

How about Poscente's claim that 80% of FSBO sellers who succeed in selling on their own would hire a realtor the next time? The NAR's 2005 study also calls that into question. In their survey, FSBO sellers reported the highest level of satisfaction with the selling process, with 80% "very satisfied" and only 3% "very dissatisfied." Of those who sold their homes through a real estate agent/broker, only 65% were "very satisfied" while 5% were "very dissatisfied."

4. “Your price is much too low.”

Listing agents may use this trick (called “buying a listing”) to rattle you into signing a listing contract with them. If you fall for it, the agent will typically raise the price, allow the home to languish on the market for a month or so, then urge you to bring the price back down. You lose in two ways: you’re stuck with an unethical agent, and you waste precious time by having your home on the market at an unrealistic price.

5. “I’ll advertise your home for free!”

(Click here or here to see websites that teach real estate agents and mortgage brokers how to exploit FSBO sellers in order to generate leads.) Lots of legitimate websites (like ours!) will advertise your home for free. But some agents offer free advertising in order to grab leads for their businesses. The giveaway is that they use THEIR contact information--not yours--on the ads. When buyers call, the agent may tell the buyers about other properties, or offer to show them your property in order to capture the buyer’s agent’s commission. Either way, you lose.

6. “I’ll sell your home in 45 days or buy it from you myself!”

It’s not hard to sell a house quickly, even in a slow market. All an agent has to do is set a very low price for it. And the only way an agent could make good on a promise to buy all of his clients’ unsold houses would be to pay very little for them.

7. “No real estate agent will show your home if it’s a FSBO.”

Agents sometimes use this line to convert FSBOs into listings, but if you want to see what they really think, go to Craigslist.org and type “FSBO” as a search term. You’ll find that lots of FSBO sellers are licensed real estate agents selling their own homes (California law requires owner/agents to disclose that fact in their ads). Do you think agents would sell their own homes FSBO if they really believed that other agents wouldn’t show them?

The truth is that buyers’ agents are happy to show FSBO homes if they’re priced competitively and if the buyer’s agent’s commission is at least 2.5%. For one thing, it’s a violation of the Realtor Code of Ethics and California law for agents to steer buyers away from any listing. For another, agents--even unethical lawbreaking ones--have a strong incentive to show FSBO properties to their clients. If an agent refused to show a FSBO home, the buyers could easily find it on their own and contact the sellers directly. If they made an offer, the agent would likely get cut out of the deal completely. To prevent that from happening, buyers’ agents are quite eager to show their clients any FSBO homes they might want to buy. Showing the home--however briefly--allows agents to claim all or part of the commission if the deal goes through.

Here’s a rule of thumb: The easier it is for buyers to find your home on their own, the more their agents will want to show it. Advertise on Craigslist, Zillow, and our FSBO websites, use lots of signs, keep your flyer box full, and host regular open houses.

8.  "Do you have a CLUE report available?"

This pitch is taken from an industry article on how to convert FSBOs. 

A CLUE (Comprehensive Loss Underwriting Exchange) report helps buyers find out if a property is going to be hard to insure.  A seller might make this report available to buyers if the home is in a high-risk area that's prone to, say, flooding or wildfires. I'd be willing to wager that most agents in urban areas have never ordered or even seen a CLUE report.

But the purpose of the question isn't to learn about the insurability of the home--it's to convince you that you're in way over your head. 

Don't fall for this.  Once you get an offer, you can--if you want--get help with the paperwork for a small fraction of what a traditional agent would charge.

9. “Let me pre-qualify your buyers for you.”

Mortgage brokers sometimes offer to pre-qualify any buyers who wish to make offers, so you won’t waste time with people who can’t afford it.

Don’t let them. First of all, it’s unreasonable in a slow market to expect buyers to get pre-qualified before they can make an offer. Many buyers won’t stand for it. Second, pre-qualification requires buyers to reveal their wealth and income. No shrewd bargainer will want to reveal that information to someone on your team. Third, most mortgage brokers are also licensed to buy and sell real estate. What’s to prevent the broker from offering to show your home to callers in order to capture the buyer’s agent’s commission? Fourth, a pre-qual letter won’t protect you from unqualified buyers, since a buyer can lie about assets and income when getting pre-qualified. If you're worried about unqualified buyers, just ask them to append a pre-approval letter to their offer. 

Finally, if the broker is giving you a kickback of any kind (e.g., free signs), both you and the broker may be violating federal law. The Real Estate Settlement Procedures Act (RESPA) “prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan.”

10.  "If you like, I'd be happy to help you host open houses."

If you're offering a commission to buyers' agents, be aware that if an agent is hosting your open house for you, he or she will likely have a strong claim on some or all of that commission.  Don't fall for this trick.

11.  "Come to my free FSBO seminar.  It may answer some of your questions."

This website, for example, recommends that agents host free FSBO seminars and sell books entitled Guerrilla Tactics for Selling Your Home. Save the Commission! And Make an Extra $50,000 to $100,000. 

The $50,000 to $100,000 in expected savings is, of course, unrealistic for the vast majority of FSBO sellers, but the author says this:

So how do you keep listing agents from calling or visiting? It helps to include a polite phrase like “No listing agents, please” in your ads. If your property is on the MLS, also put “Listed on the MLS” in your online ads. It’s a violation of the Realtor Code of Ethics for agents to solicit sellers who are already represented, even if that representation is limited to a flat-fee MLS listing. Concealing your address or phone number -- or including crabby messages in your ads (e.g., “No agents!!”) -- will more likely deter buyers than agents. Calls from agents may be annoying, but they do help you gauge the effectiveness of your ads. If you’re not getting lots of calls, you probably need to increase your exposure.