- The Washington Times - Wednesday, February 7, 2007

Winter is notoriously slow for real estate transactions. Buyers, sellers and real estate agents anticipate a pickup in the pace each spring. Now that the Washington-area residential market has shifted to a buyer’s market, real estate agents are scrambling to find creative ways to sell the increasing number of homes on the market.

During the seller’s market from mid-2000 to mid-2006, homes often were snapped up in a matter of days, and buyers offered competing contracts. Some homeowners opted to sell their homes themselves.

Now that buyers are in the driver’s seat, fewer homeowners are choosing to go the For Sale by Owner (FSBO) route, preferring to leave the marketing in this competitive area to real estate experts.

The sellers who opt for an FSBO sale now hope that saving the real estate commission paid to an agent can make up for selling at a lower price.

Intuitively, consumers would expect FSBO transactions to increase during a seller’s market, when it is easier to sell a property and then to decrease during a buyer’s market, when it can be a struggle to sell a home.

However, the 2006 National Association of Realtors (NAR) Profile of Home Buyers and Sellers shows that although 2006 was a record low year for FSBO transactions, representing just 12 percent of all home sales, the downward trend in FSBOs actually has been consistent since 1997, when they represented 18 percent of the market, regardless of market conditions.

In real numbers, FSBO sales in 1997 nationally were 786,800 homes; in 2006, FSBOs accounted for 770,600 home sales.

“The FSBO market share of only 12 percent of all real estate transactions nationally can be difficult to analyze directly,” says Walter Molony, a spokesman for NAR.

“Looking at this broadly over time, we think it is simply the increasing complexity in the transaction process that has decreased the number of homeowners selling their homes themselves,” he says. “Consumers want a professional to walk them through the process.”

NAR does not track FSBO statistics locally or regionally, but Colby Sambrotto, chief operating officer of ForSaleByOwner.com, says his company has seen an increase in FSBO customers nationally and in the Washington region.

“Our experience is just the opposite of what you might expect,” Mr. Sambrotto says. “It is definitely a difficult market for sellers, but we are doing very well.”

Mr. Sambrotto says that ForSaleByOwner.com had about 500 customers in the Washington area last month, compared with 280 in the area in January 2006.

Nationally, ForSaleByOwner.com had 26,000 listings in 2005, compared to 70,000 listings in 2006.

“We think that since sellers are being forced to reduce their asking prices and feeling the pain of that loss of value in their homes, they don’t want to pay a high real estate commission,” Mr. Sambrotto says. “Inventory is definitely high, and homes are staying on the market longer, so sometimes our clients will decide to use an agent after all. We refer our customers to a real estate agent if they want one.”

About 15 percent of ForSaleByOwner.com’s customers opt for a “hybrid” program that, for a flat fee, includes listing the program on both the ForSaleByOwner.com Web site and the local Multiple Listing Service (MLS).

NAR has been tracking FSBO transactions since 1981. NAR statistics show that the peak of the FSBO share of the market was in 1987, when FSBOs represented 20 percent of the market with 754,000 homes.

“Of the 12 percent of the market in 2006 that were FSBOs, 40 percent of them were actually not placed on the open market,” Mr. Molony says. “Those properties, called ‘closely held’ properties, which are transactions between family and friends, were up from 39 percent of FSBOs in 2005 and 32 percent in 2004.”

Mr. Molony points out that when you factor out the homes that are not placed on the market, true FSBO transactions represented just 7 percent of national real estate transactions.

“It’s a bit of curiosity to us that between 1981, when we started tracking FSBOs, and 1997, the FSBO portion of the market was tied closely to market cycles,” Mr. Molony says. “More people tried to sell their homes on their own in a hot market, and then the numbers would trend down when the market slowed down. But in 1997, that cyclical pattern stopped and FSBOs have slowly become a smaller portion of the market.”

Mr. Molony says the main reason for this change is the increase in the time involved and the complexity of real estate transactions.

“I also think the issue of security plays into this,” Mr. Molony says. “As an owner selling on your own, you have to deal directly with the public. Agents provide a screening process of the buyers.”

Steve Israel, a buyer’s agent and president of the Buyer’s Edge in Bethesda, a company that does not list property, says he would expect a decline in the number of FSBOs in this area.

“Obviously there should be fewer FSBOs now that the market has turned because now sellers need more market exposure than ever,” Mr. Israel says. “Sellers need the advertising ability of agents and their experience and marketing strategies.”

Mr. Israel is not a proponent of FSBOs, believing real estate agents are necessary for the protection of both the buyer and the seller.

“There can be an enormous liability for everyone involved when people who don’t understand the idiosyncrasies of the market try to represent themselves,” Mr. Israel says. “Honestly, having the seller get good advice is in the best interest of everybody.”

Mr. Israel says that even in the recent hot market, FSBOs were consistently selling for less than they would have if the owners had used an experienced agent.

“Sellers working without agents thought they were saving commission money, but they were really losing out because they had no idea how to handle multiple contract negotiations,” Mr. Israel says.

NAR’s survey showed that the median home price for sellers using an agent was $247,000 in 2006, 31.9 percent higher than the $187,200 median price for homes sold without an agent.

However, NAR says that FSBO sellers in this survey were more likely to be selling property in a small town or a rural area, which may account for some of the price difference. In addition, sellers working without an agent had an income of 7.2 percent less than sellers working with an agent, which presents the possibility that their homes may have been worth less than a typical home sold by an agent, according to NAR reports.

While 83 percent of home sellers nationally used a full-service real estate brokerage to sell their home, another 9 percent used “limited services” and another 8 percent used “minimal services” of an agent, such as just listing the property on the MLS, NAR reports.

NAR’s survey describes “limited services,” which include discount brokerages and transactions in which sellers take a more active role in the selling process by showing the home themselves or preparing the contract themselves.

“The NAR consumer satisfaction survey showed that 95 percent of consumers were satisfied with their full-service real estate agent, and 76 percent were satisfied with the limited services provided by an agent,” Mr. Molony says. “Consumers who opted for minimal service, though, were 50 percent satisfied and 50 percent dissatisfied with their service.”

Whether the number of FSBOs increases or decreases with the next shift in the real estate market will have to be determined when that shift occurs, but because the NAR statistics show a steady decline in the market share of FSBOs since 1997, it is likely that transactions involving real estate agents will continue to dominate the market.

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