Selling Articles

How Much Can You Make Selling Your Home?

Everyone is always referring to how much you will save by not using a real estate agent - have you ever considered how much you can make?

Everytime I discuss For Sale By Owner, FSBO, FizBo, or as we like to call it here, Self Service Real Estate^SM, someone always says, "you'll save a ton of money not using a real estate agent." Ok, I suppose this is true, but it's not quite what I think of when I hear savings.

For me, when I hear savings, I think of a shirt that is 30% off in the department store. I need a shirt, so I buy the one on sale knowing that I'm not going to pay the full retail price and save money. Some people paid full price for the shirt before the sale, but I saved, it was 30% off.

Now, I could have decided to buy a different shirt altogether. One that wasn't on sale, and pay full price. The result would still be the same, I'd have a shirt, but no savings. I would have paid full price.

So, if we were to sell our home, we could either use a real estate agent or not. Two distinct alternatives for completing the same transaction - where's the savings? The two methods are different. Ok, so the result is the same, the house will be sold, but the types of service are different.

Now consider for a moment that we do decide to use a real estate agent to sell our home. A full service agent would charge a commission between 5 - 7%. However, we may decide to use a discount agent who charges less, 4% commission. Ok, now here we would save, the discount agent will give us the same service for less. However, we're smart homeowners, we want to do it ourselves.

Yes, I know many of you are thinking, "you're not going to be paying an agent, thus you are saving." But why even consider a real estate agent, people were bartering and trading property years before real estate agents ever existed. So, let's not even consider the agent in the equation regarding savings.

Let's look at real estate at what it truely is, an investment not a commodity. With any type of investment the question typically is how much did you make? Well let's look at our investment return given the two alternatives for selling our property, with an agent versus without.

In 2000, the average sales price for a single-family home was $176,200. Let's assume we purchased our home in 1998 for $159,100 (the average price in 1998) and sold it in 2000 for the average. The real estate agent's commission would be $10,500. If we were first-time buyers in 1998 we probably didn't have much of a down payment, maybe 10% ($16,000).

For simplicity, the equity in our home at the date of sale was $33,100 ($176,200 - $159,100 + $16,000), because typically the mortgage payments go straight to interest not equity in the first couple of years. As of the sale, after the agent got the commission, our final take was $22,600, a 41% return on our investment of $16,000 - not bad. However, we could have done significantly better without an agent.

If we ditched the agent, spent $500 marketing the property, our final take would have been $32,600, a 104% return on our investment - oh baby! Where else can you get that type of return on your investment?

Alright, let's keep in mind that 1998 and 1999 were good years for the economy and particularly for the real estate market. Well, now that the economy has fallen back a bit, and the home sales volume and average sales price have decreased, let's alter the previous example and illustrate a different scenario.

Using similar numbers, let's assume we purchased our home in 2000 for $176,200 and end up selling it in 2002 for $185,000. The commission to the real estate agent would be $11,100, our 10% down payment was $18,000, and the total equity in the property at the time of sale would be $26,800 ($185,000 - $176,200 + $18,000). Once the agent receives the commissions, our final return will be $15,700 - hey, yellow flag on the play - we lost money. A negative 13% return on our investment of $18,000!

Sometimes we must sell property out of necessity, such as relocation. Thus, selling at a loss may be inevitable, or is it - there's hope. If we spend $500 in marketing the property and sell it without an agent, we would be walking away with $26,300, using the same example. A 46% return on our $18,000 investment - better than the stock market average return, score!

Remember, real estate is an investment, so it isn't really a question of how much you save, but rather how much you make doing it yourself. Maximize your profits, ditch the agent!