Three Reasons Not to Use a Real Estate Agent When You Sell
While this financial adviser doesn’t recommend taking that route, he does see scenarios where it could make sense for you.
I’ll start by saying that I have had five real estate transactions in my life. I used a Realtor every time. However, I have had several clients go the DIY route, both with and against my advice, and lean on me to fill some of the roles the agent would typically have. While I rarely recommend that clients take this route, here are three scenarios where I would lean toward DIY.
1. You have a teardown.
This takes knowing you have a teardown. If you have the smallest house on the block, odds are it won’t be there for long. Having recently helped a client navigate this route, even here there can be land mines. I spent lots of time talking to agent and builder friends to make sure I knew how to price the home and how to negotiate the terms. The financial and tax side, I am very adept at.
If you have those resources at your fingertips, the builders will pay more without an agent, for obvious reasons. Once you know where you want to price it, you can reach out directly to the builders with your price. The bigger they are, the more likely they have an end buyer for your land.
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2. You have a known buyer.
This is definitely a more common scenario for a rental property where the tenant is buying the home. However, I have seen it come up more recently with Baby Boomers selling their homes to their Millennial kids who have been priced out of the market. In this scenario, or any in which you already have a buyer and an agreed-upon price, I would not use an agent.
You will have to hire a real estate attorney to make sure the transaction is handled properly. There are also tax considerations when selling a home below market value. However, the hourly cost to sort out those issues will be much lower than the commission you’d pay an agent.
3. The cost of selling makes a difference in your plan.
I get it. You’d like to sell your home for $1.5 million but will have to dish out a $75,000 commission at closing. There’s a reason I put this situation last. I have seen too many scenarios where folks chose the DIY or, in real estate language, FSBO route and lost much more than the 5% commission. Take the ex-client who listed their home at $1.3 million and very clearly took their own pictures on their very old iPhone. That home sold almost a year later — at $950,000.
Now, there are scenarios where saving on the cost of selling is a good enough reason to sell on your own. Take the situation where the equity is very tight. You need to sell your home for $(fill in the blank) to make the next chapter of your life work financially. If the home doesn’t sell at that net price, you won’t make the move. I don’t think you want to show up at the closing writing a check because a commission put you in the red.
If it’s not already clear, I view the DIY as risky, especially if your equity represents a significant portion of your assets. Additionally, this is not something you want to try and then switch to a Realtor if it doesn’t work out. Seeing a stale listing with multiple price cuts sets off alarms and is likely to turn off a significant portion of your prospective buyers.
My last sale included a negotiated leaseback, documentation to ensure we didn’t have to pay capital gains taxes and an uncomfortable amount of money moving in and out of accounts. Rely on your financial planner (and your financial plan) to quarterback this portion of the process.
See my related article, Six Reasons to Use a Real Estate Agent When You Sell.
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