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Claims to Saving Sellers Commissions

Blog by Amanda Blake | February 21st, 2011

I recently saw a tweet from a For Sale By Owner company that is claiming that they have saved their clients over $400,000 worth of commissions. Although this might sound impressive, I started analyzing the statement and came up with a few questions. Is comparing a house that is sold via For Sale By Owner and one that is sold by a real estate agent on the MLS® System really comparing apples to apples? Who verifies that the buyer actually came from that specific For Sale By Owner company? Here are my thoughts...

Is comparing a house that sold by owner and one that sold by a real estate agent on MLS® System really comparing apples to apples?

My answer: NO!

When I think about private sales on different products such as a vehicle, I think of my own buying habits and the reason I would decide to purchase a vehicle from an owner versus the dealership. My reason is simple. As a buyer purchasing a vehicle privately, I sometimes can get a better deal because I am not paying for commissions in the price. This doesn't mean that the seller is getting any more money in his pocket. It just means that as the buyer I get a better deal. So, if I apply that same theory to buyers shopping in the For Sale By Owner housing market, then wouldn't those buyers be expecting to get a better deal privately then if they were working with an agent? If so, then one would expect that although the For Sale By Owner seller is not paying any commissions, likely they are taking LESS OF A SALE PRICE then they would if they were listed on the MLS® System with a real estate agent. In the end, one would assume that the seller puts the same (or less) amount of money in their pocket. And let's not forget all the work the seller had to do with showings, paperwork, advertising, etc.

Who verifies that the buyer actually came from that specific For Sale By Owner company?

My answer: As far as I know, there is no independent verification!

I recently had some clients that I was working with on a purchase who invited me to their existing home to discuss the details of their purchase. There was a For Sale By Owner SOLD sign in their front yard. So, we were discussing their decision to sell privately. They only chose to sell privately given their in-depth understanding of real estate and because they wanted to be able to reduce their price for the amount of commission to attract a buyer. My clients also mentioned to me that the buyer didn't actually come from the For Sale By Owner company whose sign said SOLD in their front yard, the buyer actually came from a different For Sale By Owner website. A little false advertising if you ask me!

My Closing Thoughts

I am of the belief that when using statistical data to compare "savings" or even "commissions", the basis for that comparison should be comparing apples to apples. For instance, our company, Lime Green Realty, proudly advertises how many thousands of dollars we have saved sellers since June 2009. The Real Estate Council of Alberta requires that we disclose what we are comparing to when we make these types of claims. You will notice in our ads about saving commissions that we have a disclaimer that says "savings based on comparison to typical rate of 6% on the first $100,000 and 3% on the balance of sale price." This disclaimer clearly shows how our calculation was derived. Not only that, even more importantly, the basis of our comparison is the same as our competition. Our listings are listed by a real estate agent & are listed on the MLS® System. So when we make comparisons to saving sellers money, the basis is on a level playing field in all aspects. If it wasn't obvious from this article, I personally feel that For Sale By Owner companies claiming to save sellers thousands of dollars in commissions is generally misleading to consumers. "Educating & Advising = an Empowered Consumer" that is what Lime Green Realty is all about.