We bought a FSBO home in Waukee four years ago and had no problems whatsoever. Paying a seven percent commission to a realtor is a terrible waste of money if you can sell your house yourself.

The benefit I found to using a realtor when selling was getting through the inspection process. Without somebody who knows what they're doing, it can be a nightmare. The price part is relatively easy.

Thanks for the comments, guys. Regardless of the opinion, I appreciate people reading.
I always admit my bias and think using a Realtor is a smart move. Sometimes, things do go smoothly without an agent, but sometimes they don't.
My brother-in-law is a great example. A few years back he bought a FSBO and had no representation of his own. Long story short, it turns out he overpaid by about $75,000. He did not find that out until down the road when he went to sell. In David's case, I hope that does not happen.
I am not saying, a buyer cannot do their own research without an agent, but it is much tougher. Agents have access to all the data they need to really determine if a house is priced right or not.
Add to that, things like agents bringing the dangers of radon to the attention of buyers and sellers. I am sure many FSBO's know nothing of this, and therefore the buyer does not hear about it either.
But the main thing which is the greatest misconception is that selling on your own allows you to save money. Does it???
If it takes you many extra months to sell, I would argue you have cost yourself time, and time is money. What if you priced it wrong from the beginning and could have gotten $20,000 more, which would have covered the commission.
Statistics show that agent listed homes sell quicker and for more money than FSBO's. There is a lot more that goes into the equation than the simple math of, no agent = more money.

Hey Mark. I love the topic, but I have to disagree, at least in my case. My wife and I just sold our house on our own. We didn't even use FSBO. My wife did a great job staging, we took a lot of pictures and priced it right. We posted it on Craigslist and shared the post via Facebook and Twitter. We started getting contacted immediately and received an offer within four days from the first people that came to see it. They used an agent on their end, and I will confess it was nice not having to figure out all of the paperwork.

I've never went through the home-buying/selling process but from what I know about myself, I'd probably tend to steer toward Mark's rationale on this subject. I would be too worried I would miss something/screw something up/skip a huge, important step/pay too much or not make enough, etc. When I do things, I like them to be done right, which in itself would justify using a Realtor — at least to me.

B.A, congrats to you! 30% of FSBO's, roughly, succeed in selling so obviously it is possibly. You made the right moves it sounds like. Staging and photos are huge, as is using social media to market.
Confession here on my part, I bought the home I live in now from a FSBO! She was very active about the marketing however, and actually hand delivered a flyer to me at my office, which is what got me interested to begin with.
But with 70% or more failing to get the job done, clearly most of those people are not going about things the way you did.
And you were also smart allowing the buyer to be represented by their own agent!

Mark, Many of our contacts were from agents. Because we received the offer so quickly, we decided to work with it rather than hold out for offers without an agent. The peace of mind of not having to keep the house clean for months on end, deal with random showings, not knowing if and when we'd get that next offer, and having the flexibility to pounce when we saw the house we wanted to buy all tipped the scales towards paying the commission. Plus we really liked the buyers and their agent.

How does an agent get paid when buying and/or selling a home

I think your rationale is great -- for most people. We sold out house FSBO three years ago at the price we wanted on the first day we showed it. The realtor who was brokering the sale of the house we were purchasing did a walk through and suggested a price about 15% lower than what we sold it for. She was not local and said she couldn't find any comps, but when I started researching, I found four immediately and priced our house just a notch below. She did a great job selling us our new home, but was not familiar with the market where we were selling. She didn't know how many other homes were for sale in the same price range, nor the conditions of those homes.

We went into the FSBO with a definite end point -- if it hadn't sold in two weeks, we would have listed it (with an agent who knew our market better). We received two offers at our first open house.

As a funny, though, every couple of months I still get a call wanting a showing...

@AJ, Good question. In both cases the seller of the home pays the commission, which is generally 6 or 7% of the sales price of the home.
This commission is split 50/50 between the agent who represents the seller and the agent who represents the buyer.
If the seller's agent also represents the buyer (called dual agency), then that agent gets all the commission.
In a for sale by owner situation, if I am the agent with the buyer, I would generally call the owner and ask if I can show the home and if they are willing to pay me my side of the commission if I sell the home to that buyer. That means, the seller would pay me 3 or 3.5%
As an agent, we do not get paid anything at all until a home closes. Because of this, it is important that the seller of their own home agree to pay us for providing them with a buyer. It is generally win-win as they get their home sold and saved a little on commission, while also getting a professional involved in the process.
While I do not think selling your own home is a great idea for a number of reasons, if you are going to do it, at least be willing to pay an agent who brings you a buyer.

We bought our home from the previous owner and I feel like your opinion is inaccurate. I had no concerns that the paperwork was done properly, we hired a real estate lawyer to do it for us, at a much lower cost than commission. There was still a home inspection and we were able to pick the inspector. Finally, the bank required an appraisal to make sure that our loan and down payment were for a fair market value. All you have to do is make sure that you are an informed buy. Iowa City has a great assessors page and you can look at similar homes in the neighborhood and see what they sold for and when. We used that to gauge what a fair price was and that was confirmed by the bank's assessor.

Anya, thanks for reading. Unfortunately, the only way to know if you bought your home correctly as far as price is concerned, is when you sell it. Until then it is just speculation.
Because you were the buyer, I would have looked into using your own agent. The seller would have likely paid them for you.
Look at it this way. How many homes have you bought and sold in the past five years? I would guess, one or two. How many have I been involved in? It's in the hundreds. The point is, an agent brings a ton of value to the table in most cases because we have simply seen and done more real estate than anyone else not in this business. That experience helps our clients.
Somebody can buy a home without an agent and sell one without an agent. No doubt about that. That same person can also represent themselves in court without a lawyer. I don't consider either a good idea. I have just heard too many horror stories about problems that arise when an agent is not used.

Mark, buying or selling from a realtor doesn't help with future sales prices. That is dependent on the market at the time you sell it. 5 years ago the fair market price may have been $20K more than it is today, which we've seen in our area. Real estate is by it's nature speculative. While I don't disagree that for some people it may be best to buy or sell through a realtor I disagree with your phrasing because it overgeneralizes and states that you can't successfully sell your own home. Some people will be ripped off whether they use a realtor or not. Some people just don't take the time to educate themselves.

I think the stats back Mark up, Anya. In my reading, he wasn't saying you can never successfully sell your own home, but that statistics show most people are better off using a realtor than not. I used the same realtor to sell my home that I used to buy it, and I couldn't have been happier with them (it was a married couple). Of course people could be underserved by a realtor -- just as they can be by a doctor, a lawyer or accountant. I selected my realtor based on personal recommendations. And I think most realtors realize that if they don't do the best job possible for their clients, word will get out. But to your main point: Yes, people should certainly take the time to educate themselves. That's why I love Mark's blog!

Anya, You are correct in that the future market is an unknown quantity. If the market tanks in 5 years, technically everybody would have bought "wrong" so your point is valid.
Where a Realtor comes in is helping you get the very best possible deal. When I say deal, I am not speaking just of price. I am talking about negotiating for the best terms, seller concessions, inspection requests, including radon (did you check for that by the way when you bought???), pairing you with the right lender, understanding easements and covenants, and on and on. Often it is just a price issue, but there are lots of things involved.
On that radon thing, that is an example of a benefit to working with an agent. When two parties sell without agents, there is a good chance something like radon is never brought up. When you work with an agent it has to be. My most recent buyers had never heard of it before they met me. Long story short, Iowa has a ton of it and it can kill you so it is a good thing to check for. Many people without agents will never know about something like that.

We, like some of the posters on this blog, have bought a FSBO home (ours was in W'loo) and had 0 problems. On the other hand, we were transfered to Fla and bought a house thru a rltr and, in that case, we were 100% satisfied. Later, a move to Iowa resulted in a less-than-satisfactory experience ( this one was also thru a realtor ). We would still lean toward going thru a realtor but we would be more picky on the agent we pick. On the other hand, we have our eye on some homes in the area and if they ever come up for sale ( by owner ), we will bid. Having a basic knowledge of the area, and the market, also helps to make sure you are doing things right. I also agree with the one comment that 7% is pretty stiff. Think about i t- a $200,000 home sale would cost the seller $14,000. If the sale occurs pretty quickly from the listing date, one would think $14K is way too much. But, if it drags out for weeks and weeks, and still sells for $200K, $14K commission sounds more reasonable. If you have to discount the sale form the $200K, then it is tough to stomach the 7% plus whatever you had to give up to sell the house. Again, the choice of realtor is a huge factor.. Not only for selling your house, but for follow up after the sale ( which might include helping to find a new home, if you are staying in the area ). Now..... $14K sounds about right, if the same realtor was able to locate a home that meets your needs after you sell your existing home.

@Kurt, you had an interesting comment and I can't help but wonder if it is a common sentiment. In a nutshell, you were saying that paying a 7% commission after your agent sells your home right away seems high, but after a longer period of time it seems justified. This seems backwards to me. In my opinion you WANT your home to sell right away, and an agent that marketed and priced your home appropriately with you from the start, deserves to walk away with the big commission. On the other hand, if your agent takes crappy photos, puts no flyers out front, writes a horrible marketing campaign and basically is a bad agent and your home does not sell for 5 months, that agent deserves more than the one who sold it in one week? I reread your comment and that seems to be the gist of it. I am just curious where you are coming from with that thought process. If it is a common one, that is another myth I will attempt to debunk.

I've never done the FSBO thing, but I can totally understand why people would and i have to say I disagree with a lot of your assumptions about what people may or may not think about working with a FSBO vs. the traditional real estate machine.

Having dealt with real estate "professionals" as a renter, as a buyer times two and also as a seller, their behavior leaves much to be desired. I can see why people would rather save the 7% commission and deal with the misery themselves. Oh wait....you still have to deal with it and pay(like misuse of the lockbox, incompetence of buyer's agent, etc.).

I can also say that I thought our selling agent wanted the transaction to go through as quickly as possible, at the expense of perhaps giving us some advice, and not disclosing that the earnest money presented to us was not the customary amount.

Mark. I've heard people suggest negotiating the realtor fee to get closer to the price you want. Are there times when negotiating the fee is appropriate for realtors?

@Avril,
I can never explain why some other agents do what they do. I can only speak for myself and my reputation speaks for itself. The testimonials I have on my site are real. I am the most recommended Realtor locally on Trulia.com. I was recently the runner up in the Cityview "Best Realtor" for 2012, and I give all of my clients a 1 in 10 chance at $5,000. Not sure who you have been working with, but if you want to work with someone who does it the right way, somebody who has the respect of his clients, call me next time.

@B.A. as a general rule of thumb, be careful, because you get what you pay for. An agent who is always willing to discount, may not be the best agent for the job. The best are worth the most money.
But, to address your question, that is done at times. There has been a number of times when a deal is close to being made but both sides are still apart. In that case, the two realtors may agree to split the difference to get the deal done, but they are under no obligation to do so.
As a rule of thumb, when it comes to real estate agents remember this, they, just like you are working to support a family. Yes, it can seem like we make a lot at times, but most agents do not. The national average for realtors is in the $20,000 range. Also, if your boss asked you to do your job at a discount, would you want to? It is a strange industry where people expect us to work for less, but the same people would most likely be unwilling to work for less if they were asked to.
Not saying we won't discount, I just want people to really be aware of what it is they are asking for.