Think twice before selling privately

Think twice before selling privately
Sure you may save money, but do you have the ability?
By Garry Marr, The Financial PostApril 14, 2010
On the surface it seems like a no-brainer: Sell your home privately and save thousands on the commission you would pay to a real estate agent.

The average house sale price in Canada was $331,171 in the first two months of this year. Based on that, if you save the 5% commission-- a rough average -- that's $16,558 in your pocket.

No so fast. The first thing you have to ask yourself is whether you have the time and the ability to acquire the knowledge you're going to need to sell your home, even in this red-hot market.

Michelle Tittley, 33, who works in an administrative role in the House of Commons, sold her home in Ottawa's east end this month -- in about 48 hours.

It's the third home she's sold privately in the last five years.

"I do my research and I keep an eye on the market," says Ms. Tittley, who thinks the key to selling privately is understanding market conditions.

She doesn't dismiss the real estate establishment. For her last sale, she invited three agents to her house -- all knowing her plan to sell privately -- and asked them what it was worth. All three figured they'd get a shot at the listing if she couldn't sell privately.

"I got prices ranging from $265,000 to $295,000. I did my own research, looked for other houses in the area and listed it for $285,000. I got over-asking for it," she says.

One of the first issues she faced was whether to offer a commission to agents who brought clients to her home. Some in the for-sale-by-owner (FSBO) community suggest you could face a boycott from potential buyers with agents if you don't pay their commission, in the range of 2.5% of the usual 5% rate on the sale price.

Ms. Tittley decided to offer 1% commission to buying agents when she advertised on Grape Vine Home Marketing Consultants, which operates one of the top FSBO Web sites in eastern Ontario. She sold to a buyer whose agent demanded 2.5% when her clients were out of earshot. "She told me the 2.5% was not negotiable," says Ms. Tittley.

So did she come out ahead not using an agent?

The agent-led buyers came in over the asking price at $288,950. Minus the commission, that netted her just over $281,000 after paying for the listing on Grape Vine. She would have paid a larger commission fee listing with an agent on the real estate industry's Multiple Listing Service system, but she'll never know if she would gotten better offers. She doesn't think so.

"I don't like to say agents don't work for their money, but they're working for the buyer, so why should I pay them?" says Ms. Tittley, who admits it was easy to sell in this real estate market. "It took me two-and-a-half months to sell my first house five years ago. I had open houses every weekend."

Phil Soper, chief executive of Brookfield Real Estate Services, which operates the Royal LePage brand, argues a transaction done through traditional realtors comes with a certain amount of security.

"The principle downside [to selling privately] is you are moving outside the complete web of regulations put in place by the provincial and federal governments to protect consumers," he says. "It's like buying pharmaceuticals offshore -- sure they might work."

One private-sale issue rarely discussed is that the buyer almost always expects a discount because he or she knows you are saving on commission.

Craig Osborne, president of Grape Vine, agrees private selling is not for everybody. "There is a bit of a time factor and you need to have the confidence to be able to negotiate," says Mr. Osborne, who charges $245 for a basic listing on the Web site, up to $795, which includes signs, a photographer, even access to a registered real estate agent.

Jeff Usher is the realtor Mr. Osborne sends people to if that's what they want. He gets no commission, but will help with pricing a property, tips on how to handle a sale and generally be available for any advice.

Mr. Usher's model is likely to become more popular as the real estate industry, under pressure from The Competition Bureau, changes its rules to allow consumers to opt for a package that has an agent post their property on the MLS and not do much else.

"The landscape in real estate is changing drastically," says Mr. Usher, who maintains in today's hot market you don't need the MLS or a realtor to sell a property.

True enough, but when the market cools and houses sit unsold for a few weeks, more than a few would-be private sellers will be calling their local realtor and deciding that paying commission -- hopefully, it will have come down from 5% -- will be money well-spent.

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gmarr@nationalpost.com

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