Unrepresented Sellers: Flip Those FSBOs
Unrepresented Sellers: Flip Those FSBOs
Watch TV game shows, and it’s hard not to wonder what goes on in the minds of contestants: Why isn’t he giving the obvious answer? Why doesn’t she take the money and run?
When the game is trying to capture FSBO business, it actually pays to spend time trying to get into the prospect’s head. FSBOs aren’t all cut from the same cloth. They have different motivations for wanting to sell without an agent. How you respond to their beliefs about the value of real estate agents and the cost of representation can have a direct impact on your bottom line.
“I make understanding why they’re going without representation a big part of how I approach them,” says John Maloof, sales associate with Century 21 Grande in Harwood Heights, Ill.
Look for clues about whether money, control, or another factor drives an owner’s desire to remain unrepresented. For example, owners who price high may just be testing the market. They may not want to sign a listing agreement because they’re not really motivated to sell. On the other hand, if the owners are pricing low to sell quickly, money is likely the concern because they don’t want to further deplete an already low price.
Money is probably less of a factor for sellers who’ve sold homes on their own before; they likely enjoy retaining control and may believe that representation isn’t necessary. And sellers who complain about the bad job the last salesperson did are probably worried less about spending money than they are about getting their money’s worth.
Once you know the why, you can tailor your marketing and listing presentation accordingly.
It’s the Money
A majority of unrepresented sellers (51 percent in 2006) chooses the FSBO route to avoid paying a commission, according to NAR data. Practitioners put the number even higher—some say 80 percent or more. “It’s always about the money, no matter what they say,” says Howard Gottlieb, associate broker of Keller Williams Real Estate in Langhorne, Pa.
To identify whether money is the sellers’ primary motivating factor, ask if they’d be willing to pay a commission if a practitioner brought them a buyer, suggests Maloof.
“If you ask them this, it eventually leads to what their motivation is,” he says. Many FSBOs will respond to Maloof’s question with something like, “The reason I’m going FSBO is because I don’t want to pay a commission.” Or they might say, “I don’t mind paying the commission; it’s the bad representation the last time I used a salesperson that bothers me.”
To show sellers that they’re being penny-wise but dollar-foolish by focusing on the commission, Maloof says he relies on 2005 NAR data showing that homes sold by practitioners fetch 16 percent more than those sold by FSBOs. The 2006 data shows an even greater difference for those who start out with an agent (see “FSBOs earn less on home sale,” page 32).
“FSBOs often end up showing a home to such a small universe of buyers that they don’t realize how much more they could get if they exposed the property to all the interested buyers out there,” he says.
Showing FSBOs the higher price they could realize with representation is especially important for sellers who are upside down on their mortgage and fear that having a salesperson involved in the transaction will mean coming to the closing table with their checkbook.
“These sellers don’t think it’s worth it for them to add in the cost of a commission until you show them how much more money they can get,” says Bruce Hackel, GRI, an associate with RE/MAX South Suburban in Flossmoor, Ill.
In many cases, friends or neighbors who had a successful experience going it alone persuade sellers to go without representation. “Their neighbors say, ‘We got $10,000 more as a FSBO than the house down the street,’ so they think they should do it, too,” says Chad Dion, a sales associate with RE/MAX Preferred in South Burlington, Vt. “What the neighbors don’t realize is [their] house might have actually sold for $25,000 more with the proper representation. Many sellers just don’t put a lot of value on the market knowledge we bring to the transaction.”
Qualified practitioners know the subtle pricing adjustments based on condition, neighborhood, comparables, and other market factors that can alter a home’s appeal to buyers, says Dion.
To attract money-sensitive sellers, Dean Nikodemski, GRI, broker-owner of Carolinas Real Estate in Charlotte, N.C., offers a graduated commission rate. The rate is based on the listing price, but the scale is lower than what he typically charges a non-FSBO customer.
“Once they see how much it would cost them to pay any cooperating broker who brings them a buyer, it becomes clear they’re not paying that much more to get professional representation on the listing side,” he says.
It’s About Trust and Control
Although money matters to every seller, keeping control of the transaction is another major reason sellers go the FSBO route. According to NAR data for 2006, about one in 10 FSBOs either wants to avoid contact with salespeople or feels dissatisfaction with a practitioner who couldn’t sell a home.
“After a bad experience, they want to know what’s going on,” says Dion.
Converting these disgruntled sellers means identifying the cause of their dissatisfaction, then showing how you can give them the help they need.
Maloof recently converted an unrepresented seller whose previous listing agent had failed to sell the home. He started by demonstrating where the first agent went wrong. Using a copy of the old MLS listing, Maloof walked the sellers through the previous salesperson’s mistakes, thereby demonstrating that he could manage the listing competently.
“The listing was described as a 2-bedroom when in fact it was a 3-bedroom; it included only one photo; and the cooperating commission was very low. I had the listing right there in my hand as we talked and I asked the owners if they knew any of this, and they said no,” said Maloof.
The mistake on the number of bedrooms was particularly damaging because buyers looking for a 3-bedroom home wouldn’t even see the couple’s house in an online search.
Disgruntled owners such as this are often easier to work with than sellers who are solely motivated by a desire to stay hands-on no matter what.
“Those who want to stay hands-on are very high-maintenance clients,” says Dion. “You’ll have a very tough couple of months if you end up listing their property. I won’t even work with them at this point, but it took me 10 years to learn that.”
Nikodemski lets control-oriented FSBOs know they can ask questions of him or other professionals with whom he maintains a relationship (including an attorney and a lender) for free. Of course, if sellers decide to use any of their services, the professionals charge a fee.
After their initial distrust, buyers gradually see Nikodemski as an ally rather than just another practitioner trying to get them to sign a listing agreement. Even if a particular owner remains unrepresented, the positive feelings this consultative approach creates may lead to referrals.
It’s About Already Having a Buyer
Perhaps the hardest type of FSBO to convert is the one who already has a buyer—or thinks so. In 2006, 22 percent of FSBOs successfully sold to a friend, neighbor, or family member. Another 12 percent had been contacted by an unsolicited buyer.Hard doesn’t mean impossible. Many FSBOs who think they’re all set to go learn the hard way that an expression of interest does not a transaction make.
“Nine times out of 10, their ‘friend’ doesn’t purchase the home,” says Jason L. Penrose, CRS®, GRI, an associate broker with Melcher Agency Real Estate in Phoenix. “Then these sellers are left trying to market their properties alone.”
“Sellers have an unrealistic expectation about how people behave,” agrees Hackel. “People say they’ll look at the house but don’t show up. Or they make promises and never call back.”
For this group of FSBOs, focus your presentation on the money they’re leaving on the table by not exposing the property to market forces. “If you’re selling to your neighbor, usually you’re selling too cheap,” says Maloof.
You also want to alert them to the risks of selling to someone with whom they have a relationship.
“I advise them that having me as part of the process helps limit the chances of the transaction going sour and putting them at risk of a lawsuit and a damaged relationship if their buyer is dissatisfied later,” says Penrose.
Even if the transaction seems likely to close, you can offer your expertise in handling the hundreds of details needed to get to closing. NAR’s 2006 survey found that handling paperwork was one of the two biggest concerns for unrepresented sellers.
“It can be scary for sellers working alone when their buyer is seeking 100 percent financing and wants closing costs funded from the transaction,” says Hackel. “We see that all the time, but they don’t.”
For these already-connected sellers, Penrose offers a pricing structure that’s lower than the one he typically negotiates. He also offers to work without a long-term listing agreement. “They can fire me at any time if they’re not happy,” he says. This easy exit strategy provides a comfort level for uncertain owners, he says.
Whatever their motivation for going it alone, unrepresented sellers who choose to make the switch and work with a real estate professional can win in the end with a quicker, easier transaction and a likely increase in what they realize from the sale. Your task is to find the most persuasive approach to help them to recognize your value.
4 Ways to Find FSBOs
Before you can convert them, you have to find them.
- Look for a sign — or two. About 40 percent of FSBO sellers rely on a sign as their principal marketing tool. Drive different routes through your market area to look for FSBO signs.
- Subscribe to a service. Services such as FSBO Hotsheet (www.fsbohotsheet.com), which combs through newspaper and magazine FSBO ads, generate daily lists of leads.
- Generate your own lead lists. Read open house and For Sale listings in newspaper classifieds.
- Check out FSBO Web sites. Owners.com and similar sites can help you pinpoint prospective new clients. Legal hint: Check FSBOs against the federal do-not-call list before you make a cold call. You can download five area codes for free at https://telemarketing.donotcall.gov.
FSBOs' Main Concerns
Handling paperwork and preparing the home for sale are two of the biggest concerns for FSBOs, whether they know their buyer upfront or not. Among those who don’t know their buyer, generating interest is a top concern.
|Didn’t know their buyer||Knew their buyer|
|Selling in time desired||17%||13%|
|Finding time to manage details||8%||10%|
|Helping buyer find financing||2%||8%|
|Data from the NAR Profile of Home Buyers and Sellers, 2006 edition, NAR Research|