Sunday, April 11, 2021     Marion Goard     Financial Health House and Home Real Estate Market Buying and Selling

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Today's real estate market is one of the fastest-moving in recent memory. With record-low inventory in many market segments, we're seeing multiple offers (with bidding wars) for homes in the most sought-after neighbourhoods. The has led some sellers to question the need for an agent. After all, why spend money on a listing agent when it seems that you can stick a For Sale sign in the yard then watch a line form around the block?

Some buyers may also believe they'd be better off purchasing a property without an agent. For those seeking a competitive edge, proceeding without a buyer's agent may seem like a good way to stand out from the competition - and maybe even score a discount. Since the seller pays the buyer's agent commission, wouldn't a do-it-yourself purchase sweeten the offer?

We all like to save money. However, when it comes to your largest financial asset, forgoing professional representation may not always be in your best interest. Find out whether the benefits outweigh the risk (and considerable time and effort) of selling or buying a home on your own - so you can head to the closing table with confidence.

SELLING YOUR HOME WITHOUT AN AGENT

Most homeowners who choose to sell their home without any professional assistance opt for a traditional "For Sale By Owner" or a direct sale to an investor, such as an iBuyer, Here's what you can expect from either of these options.

For Sale By Owner (FSBO)

For sale by owner or FSBO (pronounced fizz-bo) offers sellers the opportunity to price their own home and handle their own transaction, showing the home and negotiating directly with the buyer or his or her real estate agent. While Canadian statistics on FSBO's are limited, according to data compiled by the US-based National Association of Realtors (NAR), approximately 8% of homes were sold by their owner in 2020.

In an active, low inventory real estate market, it may seem like a no-brainer to sell your home yourself. After all there are plenty of buyers out there and one of them is bound to be interested in your home. In addition, you'll save on the listing agent's commission and have more control over the way the home is priced and marketed.

One of the biggest problems FSBO's run into, however, is pricing the home appropriately. Without ongoing access to current information about comparable properties in your area, you could end up over pricing your home (causing it to languish on the market) or underpricing your home (leaving thousands of dollars on the table).

Even during last year's strong seller's market, the median sales price for FSBO's was 10% less than the median price of homes sold with the help of an real estate agent. And during a more balanced market, like the one we experienced in 2018, homes sold for 24% less than agent-represented properties. This suggests that, while you may think that you'll price  and market your home more effectively yourself, in fact you may end up losing far more than the amount you would pay for an agent's assistance.

Without the services of a real estate professional, it will be up to you to get people in the door. You'll need to gather information for the online listing and put together the kind of marketing that today's buyers expect to see. This includes bringing in a professional stager and photographer, writing the listing description, and designing marketing collateral like fliers and mailers - or hiring a writer and graphic designer to do so.

Once someone is interested,  you'll need to offer virtual showings and develop a COVID safety protocol. You'll then need to schedule an in-person showing (or in some cases, two or three) for each potential buyer. In addition, you'll be on your own when evaluating offers and determining their financial viability. You'll need to thoroughly understand all legal contracts and contingencies and discuss terms, including those regarding the home inspection and closing process.

While you're doing all this work, it's likely that you'll still need to pay the buyer's agent's commission. So be sure to weigh your potential savings against the significant risk and effort involved.

If you choose to work with a listing agent, you'll save significant time and effort while minimizing your personal risk and liability. And the increased profits realized through a more effective marketing and negotiation strategy could more than make up for the cost of your agent's commission.

iBuyer

iBuyers have been on the Canadian real estate scene since around 2018, providing sellers with the option of a direct purchase from a real estate company rather than a traditional direct-to-consumer sales process. iBuyer companies tout their convenience and speed, with a reliable streamlined process that may be attractive to some sellers.

The idea is that instead of listing the home on the open market, the homeowner completes and online form with the information about the property's location and features, then waits for an offer from the company. The iBuyer is looking for a home in good condition that's located in a good neighbourhood - one that's easy to flip and falls within the company's algorithm.

For sellers who are more focused on speed and convenience, an iBuyer may offer an attractive alternative to traditional real estate sales. That's because iBuyers evaluate a property quickly and make an upfront offer without requesting repairs or other accommodations.

However, sellers will pay for that convenience with, generally a far lower sale price than the market will provide as well as feed that can add up to as much or more than a traditional real estate agent's commission. According to a study conducted by MarketWatch, iBuyers netted, on average, 11% less than a traditional sale when both the lower price and fees are considered. Other studies found some iBuyers charging as much as 15% in fees and associated costs, far more than you'll pay for a real estate agent's commission.

In a hot market, this can mean leaving tens of thousands of dollars on the table since you won't be able to negotiate and you'll lose out on rising home prices caused by low inventory and increased demand. In addition, iBuyers are demonstrably less reliable during times of economic uncertainty, as evidenced by the halt of operations for most iBuyer platforms in early 2020. As a seller, the last thing you want is to start down the road of iBuying only to find that the corporate mandate is stopping your transaction in its tracks.

If you choose to work with a real estate agent, you can still explore iBuyers as an option. That way you can take advantage of the added convenience of a fast sale while still enjoying the protection and security of having a professional negotiating on your behalf.

BUYING YOUR HOME WITHOUT AN AGENT

According to the most recent statistics, 88% of home buyers use a real estate agent when conducting their home search. A buyer's agent is with you every step of the way through the home buying process. From finding the perfect home to submitting a winning offer to navigating the inspection and closing processes, most homebuyers find their experience and guidance invaluable. And the best part is that, because they are compensated through a commission paid by the homeowner at closing, most agents provide these services at no cost to you!

Still you may be considering negotiating your home purchase directly with the seller or listing agent, especially if you are accustomed to deal-making as part of your job. And if you are familiar with the neighbourhood where you are searching, you may feel that there is no reason to get a buyer's agent involved.

However, putting together a winning offer package can be challenging. This is especially true in a multiple-offer situation where you'll be competing against buyers whose offers are carefully crafted to maximize their appeal. And the homebuying process can get emotional. A trusted agent can help you avoid overpaying for a property or glossing over 'red flags' in your inspection. In addition, buyer agents offer a streamlined, professional process that listing agents may be more likely recommend to their clients. 

If you decide to forgo an agent, you'll have to write, submit, and negotiate a competitive offer all on your own. You'll also need to schedule an inspection and negotiate repairs. You'll be responsible for reviewing and preparing all necessary documents, and you will need to be in constant communication with the seller's agent and your lender, inspector, appraiser, title company, and other related parties along the way.

Or, you could choose to work with a buyer's agent whose commission is paid by the seller and costs you nothing out of pocket. In exchange, you'll obtain fiduciary-level guidance on one of the most important financial transactions of your life. If you decide to go it alone, you'll be playing fast and loose with what is, for most people, their most important and consequential financial decision.

SO, IS A REAL ESTATE AGENT RIGHT FOR YOU?

It is important for you to understand your options and think through your preferences when considering whether or not to work with a real estate professional. If you are experienced in real estate transactions and legal contracts, comfortable negotiating  under high-stakes circumstances, and have plenty of extra time on your hands, you may find that an iBuyer or FSBO works for you.

However, if, like most people, you value expert guidance and would like an experienced professional to manage the process, you will probably experience far more peace of mince and security in working with a reliable real estate agent or broker.

A real estate agent's comprehensive suite of services and expert negotiation skills can benefit buyers and sellers financially, as well. On average, sellers who utilize an agent walk away with more money than those who choose the FSBO or iBuyer route. And buyers pay nothing out of pocket for expert representation that can help them avoid expensive mistakes all along the way from contract to closing.

According to NAR's profile, the vast majority of buyer (91%) and seller (89%) are thrilled with their real estate professional's representation and would recommend them to others. That's why, in terms of rime, money, and expertise, most buyers and sellers find the assistance of a real estate agent essential and invaluable.

QUESTIONS ABOUT BUYING OR SELLING? WE HAVE ANSWERS

The best way to find out whether you need a real estate agent or broker is to speak with one. We're here to help and to offer the insights you need to make better-informed decisions. Let's talk about the value-added services we provide when we help you buy or sell in today's competitive real estate landscape.


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  Marion's knowledge of the neighbourhood and all aspects we should consider when buying a home, her understanding of our needs, her availability and patience, her willingness to revisit and concern of us making the right choice, her prompt answers to all our questions, her guidance through all things legal, together with her pleasant personality is a winning combination. She is a gem!

Peggy Shepherd , Burlington, ON

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