Publication Date: Friday Feb 12, 1999

Going it alone in the housing market

'Dear Neighbor. My wife and I are currently living in College Terrace in Palo Alto and are in need of a larger house. . . . We would like to know if you are interested in selling your house, bypassing the burden you would have to put yourself through when listing and showing your house to the public masses." So read part of a letter sent to local residents last month by one Palo Alto couple hoping to get a head start in the housing market.

As finding affordable housing in the area becomes increasingly like looking for a needle in a haystack, Coldwell Banker real estate agent Pam Hammer has seen an increase in letters of this type.

"I think people for the last two years have been so desperate, they've been doing anything and everything," she explained.

Buyers may choose to bypass an agent in the hope of finding a house in a specific neighborhood, perhaps at a bargain price. The main problem they face is that they don't have access to the Multiple Listing Service, which shows all properties for sale by members of the local association of Realtors. Buyers without an agent rely more or less on luck: Driving past a "For Sale" sign, seeing a private advertisement in the local newspaper or hearing about a property through word of mouth. That's why some choose to take a more direct approach, such as writing a letter or even placing a "wanted" advertisement in a local newspaper or grocery store.

Celeste Henzel, also of Coldwell Banker, is not convinced that letter writing is a productive method, as she is aware of only one successful transaction resulting from such a campaign during the last 10 years. She also stresses that buyers are taking a risk by going ahead without an agent: The buyer's agent normally asks the seller for certain documents, which a private buyer may be unaware of. As it is the seller, and not the buyer, who normally pays the commission on the transaction, the buyer has nothing to lose financially by using an agent.

And independent buyers may be facing an uphill struggle. A buyer without an agent is probably looking for a seller without an agent, and these are fairly few and far between in the current tight market.

At first glance, this seems a little odd. Almost a quarter of homes that changed hands in Palo Alto last year sold for between $500,000 and $600,000: With agent commission as high as 6 percent, these sellers stood to save around $30,000 by going it alone.

Or did they? Hammer explains that by using an agent, sellers get their property listed on the local Multiple Listing Service, and are therefore exposed to a large number of prospective buyers. Although they may save the agent commission, independent sellers are limiting the number of prospective buyers who will bid for their homes.

"Why wouldn't you want to market your house and see if you can get a better offer?" she asked.

Henzel agrees. "In this market there is so much to be gained by full exposure," she said. "When you don't have a competitive environment, it doesn't really put pressure on buyers."

Of course, just because you receive multiple offers on your home doesn't necessarily mean that you will get more than you wanted. Of the more than 500 homes sold in Palo Alto last year through the listing service, it is true that almost half were bought for above the list price, some receiving up to 30 percent more. But another 15 percent sold at their advertised price, with the remainder actually going for an average of 3 percent less than the asking price.

However, it's not just the prospect of receiving less money that should make potential private sellers wary. Like independent buyers, independent sellers have to wade through reams of paperwork without the help of a professional. Bob Gerlach of Alain Pinel Realtors believes that it is this daunting prospect that puts most people off selling their own homes.

"The paperwork is an absolute nightmare today," he said. "It is a book of paper. I would be very concerned if I was a seller that I didn't forget anything."

Coldwell Banker's John Lazar agrees, and says that many private sellers have to hire an attorney to ensure they don't make mistakes. He also points out that non-professionals don't know how to set the price of a home, nor how to market it successfully. "They don't realize what they have to do or what they have to disclose."

But for buyers and sellers who are not put off by the prospect of making a deal without an agent, there are some resources at hand. In particular, Internet surfers can find a growing number of sites advertising homes for sale by owner. For example, Owners.com is a San Francisco-based company aiming "to empower consumers to buy and sell residential real estate on their own." Its Web site allows sellers to list their properties online, and offers checklists for both buyers and sellers.

And there are some real estate agents who will take a compromise position. Palo Alto-based Fox Real Estate offers a "menu" of services for sellers, allowing them to choose the extent of the help they need. For example, sellers who decide to show their homes themselves receive a 2 percent discount on the commission. The company also chooses to share the 3 percent commission it receives as buyer's agent with individuals who find their own new home but use Fox to negotiate the deal.

"We found that people prefer to have the option," explained Fox agent Glenn Mendell. "They know what they want and how to do it, but they may need some help." 

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