Make Money When Buying a House and Save Money When Selling a House

Here are a couple new, interesting websites I received an email about last week. They are designed to save you money when you sell your house and make you money when you buy it. But before we get to them and what they offer, let's review the home selling and buying process.

When a home is sold, the realtors involved (buyer's and seller's realtors) earn a 6% commission on average for selling the home. That commission is paid for by the seller. Generally, the commission is split evenly between the listing agent and the selling agent. If the listing agent also sells the home, he keeps the entire 6%. So if your home sells for $200,000, you'll end up paying the realtors involved $12,000. That's a pretty big chunk of change, but theoretically it goes to pay for all the ads, MLS fees, and other work done by the realtor.

On the buying side, you don't have realtors fees as all of these are paid for by the seller (though some will argue that they are factored into the cost of the house, I'd say the house sells for what the market declares to be a fair price and the fees are then paid by the seller after the fact.) But that doesn't mean realtor fees don't factor into your buying efforts. For instance, if both you and the seller have agents, you'll pay $200,000 for the house above while the seller will get back $188,000 ($200k - $12k; yes, there are other fees, but I'm trying to keep this simple.) But if you find the seller or he finds you without any agents involved, he is now willing to take a lower price since he'll "save" $12,000 if you buy from him. So let's say you split the difference and you buy the house for $194,000. With no realtors, you save $6k on the home and he makes $6k more. It's a win-win situation!

The two sites I noted above are designed to help you eliminate the realtors' fees as much as possible so more money goes into your pocket. Here's how they do it:

• IggysHouse lets you list a home you want to sell on the MLS system in your area. Since this is something that's usually closed to people looking to sell their own homes and is a key to getting your house in front of agents in your area, this is a valuable service. The site also gets your house listed on Realtor.com (a major real estate website) and offers some other benefits as well. And all of this is FREE. You'll still need to do the other marketing for your home, but this is a big step to saving a bundle (at least 3% of the selling price of the home as you won't have an agent and maybe the whole 6% if you find a buyer without an agent). For details on how this works, visit their how we do it page.

• BuySideRealty basically acts as your agent -- though for a much cheaper rate than normal. The reason they can do this is that they offer fewer services than a regular agent (translation: you have to do much more of the work -- see their how it works page for details) But your reward for doing so is that they'll give you back 75% of the realtor fees they generate. So in the example above, they would have earned $6,000 in realtor fees from the seller and they would give you $4,500 back. Not bad at all for doing a bit more work yourself.

I see sites like these becoming more and more common as people look to eek out whatever equity is left in their homes. It could even work for us, IF we decide to sell our house when we buy the new one and IF we had the time to do much of the legwork ourselves (which we don't.)

I'm interested in your opinions -- what's your take on these sites and/or this do-it-yourself trend?

And for those of you who are skeptical out there, no, this is not a paid post for them. Though I wish it was! ;-)

Comments

[Kevin]

We have kicked around the idea of selling our home by owner with some help pricing and whatnot from my wife's aunt who is a realtor. I was worried about exposure to the public, but it seems like Iggyshouse will take care of a lot of that trouble. On the buy side, we would probably use the aunt to help with that, so she can earn some $$ on the deal.

[Sean]

I am always wary of “For Sale by Owner”. There are a lot of people who have an inflated view of what there house is worth.

“I mean who wouldn’t want to pay top dollar for our duck wall paper, and 4 foot fountain in the bathroom.”

[kitty]

I bought my last two homes "by owner" and I sold my previous condo by owner as well. The first of these two was a one bedroom condo, the second is a townhouse I live in now.

Granted, condos are easier since you can find out how much the condo units in a similar complex are selling for by just visiting a local real estate and asking.

Both times I ended up buying "by owner", I had a real estate agent show me around as well. In both cases I found a better and cheaper property sold "by owner". The condo units were in the same complex, and the units I ended up buying were in more convenient locations in the complex and in comparable or better conditions.

Interestingly, when I was still looking I saw another unit advertised "by owner". I went there, looked at it, and didn't like it. Within a few days a real estate agent called me about the same unit. I told that I'd seen it and that I can read "Pennysaver" too. This showed me that real estate agents don't just show you listed properties, but they actively go after owners selling on the own. So it really pays to look at what is available "by owner" or you'll end up buying exactly the same thing from an agent except for the owner may be less likely to go down in price.

When I sold the one bedroom (this was a few years after I had bought a townhouse, as I had been renting it out for a few years), the real estate market was 'hot'. Most properties were selling at or above asking price, sometimes there were bidding wars. There seemed to be no reason for me to go with real estate. I did visit a couple of real estate offices, said I was interested in this particular complex and asked about recent sales information. I used the final sale price of the last couple of units as guidance; should've asked for a few thousand more in hindsight as the market was going up and my complex was the most thought-after in town with nothing else available at the moment. I had a full asking price offer within a few days. Actually, the very first offer was above, but it fell through.

A few days after I had listed the unit, after I got a full asking price offer, but before I accepted it, a real estate agent called me and asked if she could bring a potential buyer. I asked about commission, and she told - 3%. I said, OK, this means the offer I get through you should be 3% higher than what I could get myself.

The agent brought an elderly couple. They seemed to be interested, but they tried not to look too enthusiastic. After waiting a day for them, I figured they are not interested and accepted the full asking price offer I had gotten on my own. Then the agent called me with the offer from this couple - 7% below my asking price. This was an all cash offer, but given the difference in price it didn't make a difference to me. I wasn't in a particular rush, since this difference was several times greater than my carrying costs for a couple of months. The first buyer was qualified and planned to give over 20% down - this was some rich family buying a place for their young son. I was a bit sorry for the elderly couple, as there was no way they could buy another condo for what they offered, but the agent should've explained to them that it was a seller's market. The next condo that appeared on the market was priced higher.

Sean - don't be wary. Look with real estate agent, look at what is available "by owner" and compare. Also keep in mind that a real estate agent reads "by owner" ads as well. You don't want to be brought into the same house that is sold "by owner" by a real estate agent as your asking price goes up without you knowing it. It might be OK in a buyer's market, but if we are ever in a seller market again, you'll be at a disadvantage. Even in a buyer's market, the owner is going to be more likelly to go down in price if you come without an agent.

[Rick]

I am all for these Internet tools that provide greater access for buyers and sellers. I think the 6% commission will soon fall to the wayside. There are tons of sites that help people trying to buy or sell a home. I frequently visit Zillow.com, a site that shows estimated values for most homes in the country. You have to be wary of those values, since they're frequently too high, but nevertheless, it's a great starting place. With Zillow you can also search for homes nearby that recently sold.

One note about BuySide Realty, which FMF discussed. It appears to only be available in six states: CA, FL, GA, IL, VA, and WA.