Should real estate agents host FSBO open houses?

Selling privately can be tempting for entrepreneurial sellers who believe it takes little effort to offload their rapidly appreciating home, and FSBO sales are perhaps even more tempting in these low inventory conditions, with homes flying off the market like hotcakes.

Even so, according to the National Association of Realtors’ (NAR) 2016 Profile of Home Buyers and Sellers, for sale by owner properties (FSBO) are at a record low, currently representing 8 percent of home sales.

In approaching this small — but inevitable — slice of the market, agents are sometimes presented with opportunities to get their foot in the door by attending FSBO open houses or hold marketing events for FSBOs if asked. But is it a good idea?

Some might argue that collaborating with FSBOs could lead to a listing agreement and is a chance to generate leads. Others say it unequivocally devalues the agent profession. Either way, industry professionals agree that you should listen to your broker and proceed with caution.

“Agents should avoid working with FSBO sellers without first discussing it with their broker and then entering into some kind of contractual service agreement with the FSBO seller,” said NAR general counsel Katie Johnson. “As a licensee, agents are required to abide by state license and disclosure laws at all times and providing any services without a contract can lead to liability for the agent and broker.”

The argument against working with FSBOs

Bill Lublin, chair of NAR’s Data Strategies Committee and CEO of Century 21 Advantage Gold in Pennsylvania, is strongly opposed to holding open houses for FSBOs: “When an agent holds an open house for a FSBO, they are betraying the trust that their seller clients have placed with them,” he said. “By doing a job for a non-client that they provide for a client, they devalue their services and undermine the benefit of their exclusive agency agreements with others.”

Working with FSBOs makes it seem as though you consider the value of your services and time to be “zero,” Lublin argues. It shows that you haven’t established a relationship worth having; you’ve demonstrated that you’ll work for free.

“And if you’ll work for free doing that, why should I pay you for doing anything else?” Lublin said. “I would rather a seller know that my time is valuable, that I spend my time working for my clients and that I don’t have superfluous spare time on the weekends to market their home for free.”

Work harder to try to get the listing, he advises. Working with a FSBO creates too much uncertainty.

“If you actually find a buyer at the open house, there is no surety that the buyer or seller will pay you as an agent.” Lublin said. “They could just decide to deal with each other, and you’re out in the cold. If you take the time to get such an agreement in writing from the seller, I would suggest you work a little harder and get a real listing contract from them.”

Broker, owner and agent adviser Michael Meier of New York-based Meier Real Estate prides himself on turning FSBOs into clients. He considers the conversion a form of art and writes extensively on the topic. The broker isn’t a fan of attending FSBO open houses to pitch to a seller though it is fine if they have a client in mind and are gathering inventory information.

“Agents who show up to an open house with this intention risk upsetting the owners because they thought you were previewing for a buyer when, in fact, you were just going on an uninvited listing pitch,” Meier said.

So, how would Meier respond to FSBOs asking him to hold an open house for them? He would say, “Sure, you can get an agent to babysit your home for two hours. Or you can hire me and get a competitive bidding environment and sell expeditiously for a high price. Let me put your interests before my own. Sign here on the dotted line.”

Meier also sees a difference between a full-service brokerage and a firm that allows clients to cherry-pick services in this scenario. “A brokerage firm that provides a la carte services might charge and do an open house, but it’s not with the intent of getting an exclusive full-service agreement at the end,” he said.

And getting a listing agreement signed isn’t the only opportunity motivating agents who host FSBO open houses — it’s also a chance for them to find new business, he says, which the FSBO seller may not realize.

If you are going to do it, do it right

However, the industry is divided on this topic. While many argue against hosting FSBO open houses, a number of professionals believe it is worth engaging with FSBOs and holding open houses for the purpose of finding a way to represent them.

For Pat Hiban, founder of real estate training site Rebus University and author of 6 Steps to 7 Figures – A Real Estate Professional’s Guide to Building Wealth and Creating Your Destiny, it’s a no-brainer.

Hiban believes agents have two reasons to do an open house: First, to get on the sellers’ good side, build rapport and lock themselves in as the agent of choice should the sellers change their mind. And second, to meet buyers at the open house who might give them business in the future.

He cautions those who “come from a mindset of scarcity,” whose first thought might be, “Why should I work for someone who is not willing to pay me?”

Compare it with holding an open house for another agent at your brokerage, he suggested. “That may not pay you either, and with another agent’s open house, you have no chance of getting the listing because it’s already listed with them. So I say, yes — do it,” he said.

Don Burns, vice president and managing broker at Berkshire Hathaway affiliate ReeceNichols Real Estate, based in the Kansas City metro area, said he would tell his 250-plus agents to go to the FSBO open house as an information-collecting exercise.

“If I had a potential buyer, I would want to know what it looked like,” he said.

As for holding an open house, Burns would not only say to go for it, but he recommends putting real effort into it — being generous about it since it’s your chance to showcase your way of presenting homes. He suggests talking about it on Facebook, doing a mailer in the area and even doing a brochure on the property. “I would bring the full complement of marketing materials to wow the FSBO,” Burns said.

Before investing the resources, however, an agent should at least negotiate a short-term listing agreement or exclusive rights to sell, he cautioned.

Burns said he would also suggest inviting the private sellers to some nearby listings so they could see what the competition looked like. Meanwhile, a less combative but potentially fruitful question to ask a FSBO early on would be: “Where are you guys moving?”

If they are moving up from a $400,000 home to a $700,000 home in the same area, that is an opportunity for any good agent, said Burns.

Keep in mind that the end game is simply to make a connection, he added.

From conversation to conversion

That initial conversation with a FSBO about an open house can open the barriers of communication, agrees Julie Nelson, chief success officer at The Nelson Project, Keller Williams Realty in Austin, Texas.

“If you feel like you might be having some decent communication with the seller and that they might consider hiring a Realtor, it’s not a bad approach,” Nelson said. Within that communication, be sure to find out why the private seller is motivated to take the FSBO route, she added.

“You should be asking the owner enough questions to get a feel for whether all they are trying to do is use some of your services for free or if they are starting to get frustrated and they are willing to let you try a little something and get people through the door,” she said.

Talking about the possibility of doing an open house for them is “an entrée into that conversation,” she added. And once you have started talking, you can communicate some startling facts to the FSBO sellers, which can get them thinking about their decision to fly solo.

Nelson suggests saying: “I completely understand that this is retirement income for you, but what concerns me is the buyer may be taking advantage of you. In Texas, a buyer has 34 outs in the contract.”

She also recommends asking FSBOs questions that they may not know the answer to, such as: “Have you pulled together a seller’s disclosure yet?” In Austin, she will ask if they have completed an energy audit for the property. In most cases, sellers are not familiar with this.

“You want them to start doubting that they know every single thing about the process. And there’s a way to say that that’s not manipulative,” she said. After planting a few seeds of doubt, Nelson follows with a nice script she’s created to close that initial conversation:

“Mr. and Mrs. Seller, since about 85 percent of buyers in this neighborhood are working with Realtors, all you are able to do by FSBO is save 3 percent, not 6 percent.

“If I could show you how to save 3 percent, would you consider hiring me? What if your takeaway was the same but you had representation? Legal representation. Doesn’t that make sense to consider if the dollars were about the same?”

The legalities of handling a FSBO open house

President and general counsel at eXp World Holdings (eXp Realty) Russ Cofano says that if you agree to hold a FSBO open house, you should not sign any agreements that could lead to complications. A 24-hour exclusive listing representation agreement, for instance, could lead to far more responsibilities pertaining to a seller who does not want agency, and it has the potential to become a messy dual-agency situation.

Cofano recommends a contract that pays you for the service of holding an open house to attract buyers: “Subject to what is allowed under state real estate agency laws, if you can cement payment without representing the seller, that’s the ideal,” he said.

“It’s a service type agreement that is clearly defined as to the job the agent is doing, which is attracting buyers for a limited time and with a limited scope for the open house.”

That kind of contract or agreement leaves the door open for you to represent a buyer who comes to the open house without representation. At the outset, agents should check state law regarding a contract agreement, said Cofano. He advises that agents confer with their broker first as well. They will often have a standard form for agents to use in this situation.

Email Gill South.