As FSBO listings grow, so does debate

Published: July 26, 1997

By Neal Gendler; Staff Writer   

When Craig and Gloria DeBerg found their house in Edina too snug for their growing family, they decided to sell. And, like a small but significant number of owners, they decided to sell it themselves.

For Sale By Owner - its FSBO initials pronounced "FIZZ-bo" in the real-estate industry - isn't a new idea, but the marketing of DeBerg's house and a growing number of others includes a new twist: The house appears in the computer inventory of the Regional Multiple Listing Service (RMLS), where more than 8,000 Twin Cities-area Realtors can see it.

The DeBergs decided to list their home themselves to save money and for convenience, Gloria DeBerg said. They wanted more room than they have in their stone-clad, 1 3/4-story home in Edina's Country Club district, but they weren't in a hurry to sell.

"We haven't bought a house yet, so we wanted to try to unencumber ourselves of this house and make as much money as we could," she said. In addition, they could better control the time of showings while their three children were home for the summer.

They've had plenty of showings, she said, especially since Greg Lawrence of the For Sale By Owner Shoppe put their home in the RMLS inventory about three weeks after they rented one of his signs for their lawn and placed a newspaper ad through him.

She said they decided to pay for Lawrence's MLS access because they wanted "the traffic the brokers would bring in." They were concerned that some agents might avoid showing a FSBO home without an RMLS listing saying that the buyers would pay a sales commission.

As a result of the RMLS entry, "a lot of brokers doing relocation put us on their itinerary," she said. The pace has been steady, and the DeBergs have increased the commission they are willing to pay from 3 percent of the sales price to 4 percent - higher than the 3.15 percent typically paid to the agent who brings a buyer.

But if no good offer comes soon, she said, they may exchange their FSBO sign for one from a real-estate broker.

That's a fairly normal route, say several industry sources, who have observed over the years that people often discover that selling a home is more work than they expected.

But being able to list a FSBO home among the RMLS listings might alter the familiar pattern. The positive side of this development is that people selling their own homes can gain market-wide exposure, a benefit to them and to buyers who otherwise might not learn of a home they'd like to buy. Its another sign of change in an industry that now allows anyone with Internet access to browse real-estate data banks and shop for homes using sophisticated search and mapping systems.

The negative side is one that many in the industry are reluctant to discuss, fearing antitrust complaints, but it seems to come down to two main points:

- Do people listing their own homes understand that if they sign a "nonagent" agreement to obtain the RMLS listing they are not represented by the broker?

- Do people selling homes themselves understand the process well enough to make it work, or will they try to get the buyer's agent to do the work normally done by agents for both sides?

It's not easy

People may decide to sell their own homes in an effort to avoid paying sales commissions, but the savings may not be as great as anticipated. If the buyer has an agent, he or she will expect the buyers agent's usual share of the sales commission.

In addition, selling on their own might be a lot more work then the sellers expect.

"Some people are under the mistaken impression that the only value the listing agent has is to place the home in the MLS," said George Karvel, distinguished chair in real estate at the University of St. Thomas. But not so. "It's like anything: You get what you pay for."

But it is possible to sell one's own home without using an agent; Karvel has done it, although he says he wouldn't do so again because he doesn't want the work. The growth of consumer protections and financing options has increased the complexity of the process, but the main ingredients still may be knowledge, time and patience. People who think they want to save at least the listing broker's share of commission have to decide if the savings are worth the effort.

There are enough people who answer that affirmatively to fuel competition in the FSBO-assistance business. Lawrence started the For Sale By Owner Shoppe in 1989 and says it differs from other such companies that have related businesses in real estate or mortgages.

But Lawrence still does more than stick signs in lawns and put homes on the MLS. Like some of his competitors, he has a menu of services that includes supplying a market analysis to help the seller determine price, placing ads and providing lock boxes - many of the jobs a full-service agent will provide - but he doesn't show houses or negotiate deals.

Some want options

Dave Gallus and Bill Mackey provide varying amounts of service to sellers, depending on the fee. Gallus is president, broker and, with his wife, Cathy, owner of Independent Brokers Realty, a reduced-commission realty that allows sellers to choose those services for which they wish to pay. He also owns Seller's MLS, which puts FSBO houses into the MLS.

Mackey owns Southwest Realty Network, a reduced-commission brokerage, and a subsidiary called For Sale By Owner Inc.

Seller's MLS began in January in answer to the problem of "people who didn't have enough equity in their homes even to pay a 5 percent commission," Dave Gallus said. The concept "has been very successful on the East Coast," he said.

"We see this as a future trend in real estate," he said. "We figured that rather than sit by and let other people do it, we would be in the forefront."

Gallus said another motivation was "to enhance business for Independent Brokers, because there are a certain number of people who will tire of [trying FSBOs], and we have converted several already. But it's a lot easier to pay out a real-estate commission after you've tried to do it yourself."

Gallus, who charges $89 a month for an MLS listing, said this has been a good year for such attempts. However, "if we go into a down market, you'll see a lot fewer FSBOs."

Mackey started a publication called For Sale By Owner in 1983. It advertised only FSBOs, but many of his clients wanted real-estate advice, too.

"I found a niche of people who didn't want full service, and didn't want to pay for full service, but they didn't want to be totally on their own," he said. Consequently, he offers several plans with varying service and fees.

"I would say at least 35 percent of our customers choose to go on the MLS," Lawrence said. "We have over 75 homes at any given time on MLS." He said it's most common for FSBO customers to start without MLS access and then add it for $99 a month.

While many sellers don't need MLS, he said, "those who are more challenged in terms of location or condition of the home, or style of the home, or timing, perceive that if they go on MLS they can make it a faster process, and I think they're correct.

"Our success rate for the customers who are on MLS is a little bit higher than those who chose not to, so it is improving their odds," he said. "The reason is very simple: They're opening themselves up to this huge market of buyers who are being represented by Realtors."

Some are skeptical

Some of those Realtors are unenthusiastic about this development, which is allowed under MLS rules. "The position of the Regional MLS on this is that as long as brokers comply with our rules and regulations, their business practices are their own affair," said Brian Larson, RMLS general manager.

"I'm totally opposed to it, and I think it's unfortunate that people have found a way around a very, very effective system that has been employed for years and turned our industry into a very effective profession," said Ralph Burnet, chairman of Burnet Financial Group, parent of Burnet Realty.

Burnet is critical of brokers who place FSBO listings. "They're not brokers, in my estimation," he said. "They're doing nothing for the consumer in my estimation . . . they're basically getting a fee per month for just an insertion."

Ron Peltier, president of Edina Realty Home Services, also is critical, saying brokers who do this are just "a clearinghouse to list a piece of property." The motivation is that it's very profitable, he said.

"There's no secret to the fact that real estate has relatively low margins after the cost of sales-associate commissions, and in this case the broker charges a monthly fee for nothing more than a simple insertion into MLS. . . . On a per-transaction basis, on many cases that individual could net as much as a typical real-estate broker nets on a typical transaction."

Peltier and other industry leaders say the practice can be unfair to buyers' agents, who may end up doing more than their fair share of work.

"They're doing the work that normally the listing agent would be responsible for," he said. "They're not contracting to do it, but they have a contract with the buyer to make sure that the transaction comes to closure, so it's kind of left in their hands."

Burnet said there's no concerted effort to stop the practice, but, he added, "we will be addressing it." Peltier said, "The MLS is paid for by its membership and we think there should be some minimum standards of practice and performance, and at this time we really don't have any." As a result, he said, consumers may be confused "about what they're getting or not getting."

Increases exposure

Lawrence and others say there shouldn't be confusion because they plainly list the services they are providing and supply information to their customers on what's needed to bring the deal to a conclusion.

"We do answer questions, and if the agents need help reaching the owner, we'll help," Lawrence said. "We're very flexible; we want to make this work for the real-estate community."

Mackey said he assists his customers "in all of the things necessary for a smooth real-estate transaction, and if they want to be on the MLS, I put them in there, but I don't just stick them in there and disappear." His brochure says that the plan including MLS offers most services except showings and negotiating.

Gallus said he hasn't had a problem with customers expecting more service than they've bought.

"We think the seller is more sophisticated today than ever, and becoming more sophisticated as time goes on," Gallus said. "Many people out there are fully capable of selling their own house." He doesn't provide how-to literature: "If they want our expertise, it's on the menu." That menu includes signs, ad discounts, negotiating, lock boxes, market analysis, handling appointments and information boxes. He encourages his FSBO clients to hire attorneys.

"People underestimate the power of the MLS exposure," Mackey said. "Most people worry about the purchase agreement and the closing, when in fact that's not the problem. The problem is to find a buyer - not deeds, transferring title, title insurance and financing. The true definition of a real-estate broker is someone who matches a buyer and a seller."

An MLS listing is the quickest way to get exposure, he said, which is more important than salesmanship or industry knowledge.

"And there's big difference between a FSBO in Linden Hills and in Savage," he said. "In Linden Hills you'll get 100 people through in a weekend and in Savage you'll get 10. The higher the demand for the area the easier it is to sell your own home and the less you need the MLS . . .

"What you can't argue is the over-all concept of an owner selling their own home." Although many Realtors certainly do argue about it, Mackey insists that no one is better equipped than the owner to show a home, because "no agent knows it as well. What the owner cannot do is put the home into the MLS without an agent."

Lawrence views the FSBO listings in MLS as a benefit to agents, not a threat.

"I've talked to a lot of Realtors about it," he said. "Some have screamed at me that we're stealing listings from them. But we think we're doing them a favor because we're exposing their buyers to all these houses, and the Realtors are aware [the sellers] are willing to pay the commission. In my opinion, it opens an avenue to Realtors that was not available before."