If you’re like most property buyers, you’ve spent some time looking on Zillow for a property that you want to purchase. With that search, you’ve probably run across homes that are for sale by their owner. For Sale by Owner homes, or FSBOs as they are referred to as in the real estate industry, are simply a type of transaction in which the buyer of a home decides that they’re going to sell their home on their own.
I recently had a buyer client ask me about viewing homes that were for sale by owner. This is the type of question that strikes fear in the hearts of many realtors. They immediately begin thinking about the worst-case scenario in which they’re going to be cut out of the deal and receive no commission for their work. However, her question didn’t phase me. Why? Because I knew when she asked that there weren’t going to be any FSBO properties in the greater San Francisco Bay area.
When I say that there are no for sale by owner properties, I of course don’t mean that there is zero. Obviously, anyone who wants to can put a For Sale sign in their yard and list their property on Zillow. However, after years of experience in this area, I know that it’s incredibly uncommon.
Why are there no FSBO properties in the Bay Area? I believe I have the answer to that question, but first, let’s look at the numbers.
Every year, the National Association of Realtors publishes a study that shows the statistics that they have gathered from all the transactions that were completed in the previous year. This report can also be broken down by regions of the United States. After looking at the numbers published by NAR and through speaking to industry connections that I have created throughout the country, I believe that I have a good idea of why our area isn’t conducive to for sale by owner properties.
According to the National Association of Realtors, only 8% of homes that were sold in 2020 were sold by owner. That means that 92% of the real estate transactions that took place in 2020 were facilitated by a licensed real estate agent.
As I said earlier, this report can be broken down by region. According to the study, only 5% of homes in the western region, which is where California is, were for sale by owner transactions. Additionally, based on my own experience helping buyers and sellers in the Bay Area, I believe that number is even lower in our area.
After speaking to some industry professionals from around the country, I found that the percentage of sellers who sell their own home varies by area. In fact, some areas reportedly have FSBO percentages as high as 10%!
Finally, another study indicated that 51% of for sale by owner transactions were completed between a buyer and someone that they already knew. Often, people will sell their home to a friend, family member, or a neighbor. Since they have already put the transaction in place, they don’t bring a realtor into the deal.
Understanding the numbers is key to knowing why for sale by owner transactions are so rare in the Bay Area. Ultimately, I believe that this goes back to the fact that people in our area are simply smarter than people in other parts of the country. That may sound egotistical, but it’s really not.
The people who are buying and selling homes in the Bay Area are typically more educated, professional individuals who understand the worth of bringing in another educated professional to help them buy or sell a home. In some cases, this decrease in price is because sellers are trying to give someone who they know a good deal. However, in other cases, this decrease in price is because homeowners don’t typically know the best way to sell a home.
When you pay a real estate agent a commission for selling a home, you’re not just paying them to complete the paperwork. Instead, you're paying for the marketing tools and expertise that your agent has at his or her disposal. This marketing is the most important aspect of generating interest in your property, usually resulting in a bidding war in which multiple buyers start making offers on your property.
The general idea behind sellers trying to sell on their own is that they don’t want to be responsible for paying a seller’s agent a commission. Unfortunately, the money they save is rarely worth it in the long run. The most popular areas for FSBOs are areas in which homes are cheaper. It’s not uncommon to find For Sale By Owner signs in yards where homes are selling for $300,000 or less, but the median sell price in California is around $1.5 million. Saving $50,000 in commission fees is hardly worth selling your home for $100,000 less than the market says it’s worth.
Another study from the National Association of Realtors indicated that 90% of buyers use a realtor. Unfortunately, sellers who are selling their own home often shy away from working with buyers who have an agent because they don’t want to be responsible for commission. This means that they have taken 90% of prospective buyers out of their pool. This also leads to a decrease in competition between buyers, and lower sell prices for a property.
Why are there no FSBOs in the Bay Area? Because people here understand the worth of paying a professional to help them navigate the biggest transaction of their lives. Working with a licensed real estate agent gives you access to professional marketing, which produces more prospective buyers, greater competition, and a higher price for your home.