Selling a Home Yourself vs. Using a Realtor: Which is Wiser?

John Brackett is flying solo into the souring Massachusetts housing market, looking for savings by cutting out real estate commissions.

Earlier this month, Brackett and his sister put up a “For Sale By Owner” sign outside the empty house in Newton, Mass., where their mother lived.

With home prices falling in many once-hot housing markets in the U.S., many sellers like Brackett are looking at the real estate agent’s commission as a place to boost their returns.

“The biggest thing is the great size of the commission,” Brackett said of his decision to shun realtors and go it alone.

Just a few doors down, a larger house has switched real estate agents and slashed the asking price from $670,000 to just under $500,000.

“The market is very bad, very bad. It’s a buyers’ market and they’re being picky and choosy. Prices are going down and when you take the commission off it’s so much lower,” he said.

Real estate agents typically take 6 percent in fees, or about $24,000 on the more than $400,000 Brackett hopes to get for his mother’s house.

“The best we had someone tell us was 4 3/4 percent,” he said, or $19,000 on a $400,000 house.

U.S. home prices have taken a turn for the worse this year, after a record run for the previous five years. U.S. median home prices fell in August for the first time since 1995 while the pool of unsold homes was the highest since 1993, according to the National Association of Realtors (NAR).

Houses that would have drawn many bids and sold swiftly 12 months ago, sometimes above the asking price, are now lingering unsold. Buyers can offer less with little fear of being trumped by a more aggressive bid. Sellers are sometimes too stubborn to realize the shifting housing market dynamics.

Shunning realtors and their commissions may be tempting for those who do realize what they’re up against. But realtors and some analysts say a weak market is exactly the wrong time to do it. You need a realtor, they say, to negotiate the best deal.

“In a down market, you don’t have anyone wanting to buy your house,” said David Lereah, chief economist of the National Association of Realtors. “You need a realtor to get the network of buyers to come and see it… They may be saving money by not paying a commission, but they may end up getting a much lower price for their house.”

Also, pricing a home is probably the most difficult task for the seller, especially in a shifting market. The chance for mispricing may be a reason for the flip-flopping in some neighborhoods. Some owners switch back and forth from selling on their own to using brokers, depending on how long the property sits unsold.

But Colby Sambrotto, chief operating officer of ForSaleByOwner.com, which charges sellers $89-899 a month to list homes, said a weakening market has actually been good for his business.

“As evidence we look to cities like the Michigan housing market, which has been a buyers’ market for the last four to five years, and that’s always been a very strong market for us. We felt that as the rest of the regions of the country transition over to buyers’ markets we would do well, and we are doing very well,” he said.

Indeed, traditional home loan rates and home equity loan rates both remain low, and demand may be picking upo soon. Christine and Michael Hill in Provo, Utah, say their market is just catching up after lagging during the five-year housing boom. After their neighbors sold using ForSaleByOwner.com, the Hills listed for one month at $90 — less than the $165 they had spent on a 30-day newspaper advertisement.

They added a link to their personal website as well, detailing selling points and displaying nine photos featuring backyard mountain vistas. This month they sold their home in about two weeks for $255,000.

“There’s a certain price I needed. We did it just for the money, to save commission,” Michael Hill says.

“We figured that if it didn’t sell between 30-45 days we were going ahead and listing with a realtor, because they kept saying we can get a higher price. But we wound up selling it on our own.”