The dangers of buying direct from a "friend" or Seller to save the Agent's Commission

Real Estate Agent with Best Connections Realty

Original content by Ben Giordano

I received a call yesterday from a prospect who wanted to list his condo for sale. After asking all my questions I proceeded to do the research but could not find a trace of his transaction in the MLS.

I called him back to find out how he bought it in 2006. He proceeded to explain that him and his wife enjoyed walking by the beach and "befriended" the seller. Long story short, he bought from the seller direct (no wonder this was never listed) at an outrageous price then proceeded to dump an extra $110,000 in renovations for a total of just over $470,000.

Based on my market analysis, the property was worth at best $350,000. When I gave him my analysis he was upset and would not budge on requiring $400,000 as a minimum sale price.

I could have done what most agents in my market do: take the listing at an inflated price and let the market and/or the seller's personal circumstances beat him down over time. Instead, I chose to do the right thing and honestly explained to him that I did not want him to be upset with me 6 months from now when his unit was still listed without a contract at his price...

Many buyers believe that the For Sale By Owners/FSBOs are just good but cheap folks who are trying to save the real estate commission. The reality is that most are overpriced properties that would not sell through the MLS at these inflated prices for a number of multiple reasons that may include:

- Sellers owe too much (Not your problem as a buyer)

- Sellers must net a certain amount to be happy or to move or pay the bank... (Again not your problem)

- Sellers have spent a lot of money renovating (Not your problem either)

- Sellers want to save the commission (if they are going to save it, then you should save it too). If the same house sold for $500,000 but had a 6% commission on it. Then you should at least save 50% of the commission and only pay $485,000 if you buy direct from the seller as a FSBO...

Lesson to be learned for the buyers out there who are thinking about saving themselves a commission that is typically paid by the seller: you are only helping the seller and doing a disservice to yourself by not having an agent represent you... At a minimum and if you must buy direct from your "friend", order an appraisal and make sure you tell the appraiser that the purchase is direct from the seller without real estate commission being paid (Appraisers are supposed to adjust for commission if it is not paid on a sale)...


Ben Giordano, MBA, MILHM, CDPE, REOS, Realtor

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Comments (2)

Glen Fisher
National Property Inspections of Southern New Jersey, LLC - Oaklyn, NJ

Hi Scott.  I am sure there are similar situations all across the country.  I never much cared for FSBO sales.  There are always one or more parties involved that are clueless.

In your situation, my question is was an attorney retained that should have demanded an appraisal?

Feb 09, 2010 09:52 PM
Glenn Roberts
Retired - Seattle, WA

So,  value in not always the price a wiling buyer would pay. Sometime sellers sell for too little too, and further discount for half or all of the commission too. FSBOing is not a money saving adventure for half the parties involved. 

Feb 09, 2010 09:56 PM