Does "By Owner" Mean Buyers Overpay?

By
Real Estate Agent with Howard Hanna Real Estate Services

 

 

With limited inventory, buyers and their agents are scrambling to find homes for sale.

Homes listed "by owner" are a tempting option, but are they really a great choice for home buyers?

 

BY OWNER - THE WHO AND WHY

To begin, the purpose of this post isn't to be negative about those who sell by owner. It is their right to do so and we respect that. I will, however, be honest about what it means to my buyer clients should they entertain buying a home listed by the owner.

Let's start with the basics:

Someone who tries to sell their home without using an agent is termed a "FSBO ( pronounced Fizbo ) - For Sale By Owner".  Instead of hiring an agent, the owners are representing themselves.

There are a few reasons why someone would want to sell by owner. The main reason is to save money. Another reason is that some folks are a little controlling and prefer to things themselves.

With the popularity of the internet, homes sold "by owner" get decent exposure on popular sites like Zillow. Therefore, it is not unusual for a buyer to see these homes while doing an on line search.  Therefore, we make a point to discuss these homes with our clients up front so they know what they are getting into.

A GOOD OPTION FOR BUYERS?

The problem is that most "by owners" are not overly motivated. Many are just testing the market and will only sell if they get their desired price, which is often higher than market value.  The buyers have very little leverage working with an unmotivated seller.

This situation leads to one where a buyer will likely have to overpay for a home.  Basically, if they fall in love with a home listed"by owner", they will have to pay  "retail" instead of "wholesale".

Another aspect of buying "by owner" is the process itself. Since most sellers lack experience selling a home, a complex transaction can get even more difficult. Buyers need to consider if it's worth overpaying and jumping through hoops for the right home.

THE FINAL WORD

Whether buying a home listed "by owner" is a good or bad option is up to the consumer to decide. Almost all of our clients who have purchased directly through the owner have admitted to overpaying. However, they justified doing so because they fell in love with the home.

In the end, I would tread cautiously with "by owners."  There is  certainly nothing wrong with looking at all your options, just make sure you have realistic expectations of the possible end result.

 

If you liked this post, please follow us on Active Rain. We always appreciate having new readers and more importantly, enjoy making new friends.

 

Here are some of our others posts that may interest you as well:

One Question That You Absolutely Must Ask Your Clients

5 Reasons Why Using A Local Agent Is Better

Cool Virtual Tool To Help Pick Out Paint Color

Is Social Media Killing Confidentiality?

Real Estate Agents Are Not Just Door Openers

 

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About The Authors:

Dan and Amy Schuman are agents with Howard Hanna, the area's largest real estate company. They live in Solon Ohio and specialize in Cleveland Luxury Homes, working with buyers relocating to Cleveland, and first-time buyers.

 

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Does "By Owner" Mean Buyers Overpay? is the property of The Schuman Team and may not be duplicated or used without their written consent. ©October 2013

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Winston Heverly 01/20/2014 10:24 PM
Topic:
Home Buying
Groups:
Realtors®
Ohio Active Rainers
Luxury Home Marketing
Cuyahoga County Ohio Real Estate
Advice for Buyers
Tags:
for sale by owner
by owner

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Rainmaker
522,018
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

My buyers found a fsbo they liked earlier this year...and had to have it.  I showed them the comps and told them I thought it was overpriced. They bought it anyway.   A few weeks ago a couple in my neighborhood stuck out the FSBO sign in the yard..I went to the open house and when I found out the price--I thought it was too low!  Didn't tell them that though.  Of course they asked me what I thought of the price..and I did not respond directly, danced around it!

Oct 26, 2013 12:02 PM #81
Rainmaker
152,299
Keith Strawn
www.ExploreBeaufortRealEstate.com (Ballenger Realty) - Beaufort, SC
www.ExploreBeaufortRealEstate.com

Everybody thinks they can write a book, sing, and sell real estate without the assistance of an agent. Excellent post.

Oct 26, 2013 02:14 PM #82
Rainmaker
82,161
Alyse "Aly" Sands
Village Real Estate Services - Nashville, TN

Thank you for this post.  It's the truth.  To #71 Janice, There is so much more involved than throwing it in the MLS and leaving it there.  I'd be offended if I didn't guess that she had a bad experience or just has no idea of what years of experience and knowledge can produce.  I'm not going to attempt to make my own steel cage nor will I form opinions about steel cages.  You're the expert in that.  

The thing is that a buyer may be dealing with a seller who doesn't know what they're doing at all is bad enough (the blind leading the blind).  Almost every transaction has some wrench thrown into it and experience tells me what to do to stop the problem before it gets out of hand.  The seller does not do Real Estate full time and learn from every transaction like we do.  What if the buyer is dealing with a seller who DOES know what they're doing?  These sellers aren't advised how important and lawful it is to be truthful on their Property Disclosure and sometimes the buyer can be highly taken advantage of.  How does a buyer know the ever changing market trends?  How do they know if the neighborhood suffered or spiked recently?  How did the seller come up with the price?  I know a seller who got his top price from an out of town FSBO and it did NOT appraise so when he got the next buyer's offer, he learned he had to find supporting comps and used higher priced sales in another similar neighborhood in the same zip code because there were no supporting comps in his own neighborhood.  He met with and supplied these to the appraiser.  The buyers bought the most expensive house in the subdivision. Zillow, for instance, has Zestimates suggesting market value.  The public doesn't know that this is not an apples to apples comparison, just a geographic area without consideration for age, condition, size or style of home.  

Some buyers and sellers want to DIY because they have the controlling personality type.  

Oct 27, 2013 07:39 AM #83
Rainer
285,346
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

this was obviously a good topic, thanks for the responses

Oct 27, 2013 11:02 AM #84
Rainmaker
370,463
Travis "the SOLD man" Parker; Associate Broker
iXL Real Estate-Wiregrasss\ - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

I haven't thought about the "testing the Market" aspect of a FSBO. Makes sense if they just want to try it for awhile before hiring someone.

Oct 27, 2013 11:29 AM #85
Rainer
143,795
Sylvia Jonathan
Coldwell Banker Platinum Properties - Irvine, CA
Broker Associate, SFR

In our area there are very few FSBOs, and the ones that try it usually list within weeks.

Oct 27, 2013 11:08 PM #86
Rainer
50,010
Jared Garfield
Rich Life Real Estate Team - Buford, GA
Invest With The Best For The Highest Returns!

For Sale By Owners are often overpriced for the reasons you mentioned, but they often are underpriced too not knowing the market values or having access to the information they need to make a good price decision.  Their homes sit on the market a lot longer not getting exposure, and eventually sell for much less, which is why being a FSBO doesn't make sense.

Oct 27, 2013 11:56 PM #87
Rainer
117,505
Bill Morrow
Keller Williams of Central PA - Mechanicsburg, PA
Bill Morrow, Associate Broker

All properties are FSBO's.  Who else can authorize the sale of a property other than the owner?  Now semantics aside, before I obtained my license and entered the profession, I too was an unrepresented seller.  In my mind setting dollars and cents aside, who knows the house better than the person that has lived in it for the last number of years? Who is better informed to meet the "buyer" at the front door and point out all of the positive aspects and why this house is the best one for anyone wishing to buy a new home for their family?  Certainly not some overdressed salesperson who is wearing shoes that have more reflection than my bathroom mirror, and has a book of "fluff" as to why they are the best in the world to sell my house.

Placing a property in the market regarding market valuation is important and licensees certainly have the tools at hand necessary to do that, however many do not have the tools available to finish the deal.  The first thing i do is find out what the selling homeowner likes most about their house and waht they will miss the most after they relocate.  These are the two keys to find a buyer that will be willing to invest in that property.

Oct 28, 2013 12:27 AM #88
Rainmaker
301,963
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

Thank you all for your comments. I'll try to get back to all of you who were kind enough to read our post and share your thoughts with us.

Christine - The success stories seem to happen when the buyers have a good agent by their side to help. Thanks you for being the first to comment, we really appreciate it.

Mike - Every market is different and glad to hear you have success with the FSBO's in your area.

Ginger - It certainly helps to have an agent.

Bliz - I've seen those situations happen as well. If a buyer wants a home that badly that they'll overpay, more power to them. My perspective is like that old saying " a fool and his money are soon parted."

Kelly - FSBO's are consistently not priced well as they don't have an agent guiding them, or they don't care and just want to price it based purely on what they want.

Praful - Agreed, a good listing prospect as many end up giving up after 60 days.

Laura - Cool to see you are a Feng Shui expert. Most FSBO's could properly use your help.

Ralph - Thanks for reading and your kind remarks.

Bob - Seems like the consensus, but we still need to be aware of them.

Christine - Thank you so much.

Debbie - I don't fault them for trying, but many buyers just seem so naive that I felt compelled to speak out. Hope all is well with you.

Gita - Sellers and buyers are always looking at getting a deal and I suppose some think the FSBO route is the way to go.

Ron - In a free marketplace, there seems to be a place for almost everyone, including the limited service brokers.

Gab - Great points, and you just gave me an idea for my next post. Hope all is well.

Chicago - It's certainly their right to do so.

Ed - The appraisal is key to making sure the buyer doesn't overpay and is especially critical in a transaction where there is no one representing the seller.

Nina - Appraisals not coming in at value is certainly not an isolated problem that only occurs with FSBO transactions. However, on a deal with 2 experienced agents on either side, this problem can addressed much easier, although it's still never easy.

Michael - Most FSBO's, at least in our market, will pay a buyer's agent. We end up doing more work than in a typical transaction though.

Scott - I guess some sellers feel they should give it a try and don't understand the complexities of a real estate transaction until they go through it first hand.

Ritchie - Well said.

Eve - I'm not mean spirited, but buyers sometimes get what they deserve. We had a buyer basically go through a FSBO purposely without us and ended up buying a home in a different school district than she wanted. It just happened that this one particular street fell into a neighboring school district and the buyer had to make her kids change schools. This is something we could have easily pointed and I don't feel bad.

Marc - I guess most of us here are a little biased, but we know the importance of representation more than most people.

Joe - I would certainly have no doubt you are a better negotiator and bring value to your clients.

Pamela - You bring up a great point in regards to the disclosures.

Bill - Sometimes buyers get desperate and emotion takes over.

Karen - Not having an agent is like trying to steer a boat without a rudder. This is even more true in the luxury market that you see every day.

Helen & Larry - No deal for sure.

Suzanne - Thank you so much for commenting. I wish every buyer would be aware of all the pitfalls of buying a FSBO.

Renee - Thank you so much. You are welcome to use it anytime:)

Oct 28, 2013 12:42 AM #89
Rainer
116,418
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

FSBO's have always been a part of the market and will continue.  They can be viable homes to sell as long as the seller wants to get the home sold.  Most FSBO's I encounter are over priced and the seller is not looking to sell for the appraised amount and is poorly informed about the process.  However, there are always some that will see the light and want to actually sell.  I stay away from the very over priced and the "I don't have to sell" types.  Don't over look these homes but know going in that it may be a challenge to get to closing.

Oct 28, 2013 03:08 AM #90
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I read your post and caught response # 71.  She makes some good points.  However, I also feel she lumps all agents together.  Some do a very poor job.  I know I market the living day lights out a a listing and work hard to get them sold.  But I do think the banks would like to cut us out.  I think as agents we bring a lot to the home shopping experience.  Customer Service is very important.

Oct 28, 2013 03:16 AM #91
Rainer
255,016
Geoff ONeill
John L. Scott Medford - Medford, OR

We'll always see this in a tight market.  Savvy buyers usually avoid them as they know the homes are overpriced.  It has been pointed out that most of the successful unrepresented sellers have sold to the neighbors or relatives. 

Oct 28, 2013 03:29 AM #92
Rainmaker
843,557
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Dan & Amy.  We have ehlped a few buyers negotiate a deal with FSBOs and then they usually get a fair deal.

Oct 28, 2013 06:34 AM #93
Rainmaker
301,963
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

Wayne and Jean - Most do give up after 30-60 days, so a good target for prospecting for some.

Jimmy - Thanks for the comments. Love your city, St. Augustine!

Carla - Very well said.

Charita - Appraisal protection is a good point, but just because a home appraises for, $375,000 for example, doesn't mean the home would sell for that amount if listed by an agent. We had a client pay this amount by owner and there is no way it would have sold over $350,000 in the open market. How the banker got it appraised that high is a mystery, but the seller made out very well and the buyer is happy, but admittedly overpaid a little bit. In the big picture, they got what they wanted and were ok paying a premium to get it. Nice to hear from you and hope all is well.

Sharon - Calling is a high risk transaction is a very good way to put it. Thanks for commenting.

Keith - Thank you for your kind remarks.

Gary - You can always second guess yourself but if you got a price you were happy with, then no reason to have regrets.

Eilean - Excellent advice and a great contribution to this discussion. If there is no agent involved, I think buyers have a much more difficult time detaching emotionally.

Dana - Presenting a home in a bad light is certainly one of many pitfalls of doing it yourself.

Peter - You hit on some great points, too many to address here but you gave me some ideas for another post.

Lenn - "just make an offer" would apply to a listed home as well. For some reason, many buyers seem unwilling to do just that, perhaps for fear that their offer won't be accepted. If not, they are no worse off than they started but some may not want to get emotionally attached to something they don't think they can have.

Matt - The discount brokers are still agents and give some guidance. I haven't worked with too many so don't have the experience to comment on them.

Dana - I suppose most buyers don't have resale in mind when buying and possibly overpaying for the FSBO.

Scott - Nice to hear a perspective from a home inspector. It doesn't surprise me that most FSBO's have the attitide that they won't make repairs. They are consistently frugal throughout the entire process and most likely in all aspects of their lives.

Jack - I used to prospect to FSBO's when I first got into the business. I don't give them much thought now though but would certainly contact one on behalf of a buyer client.

Trent - Will respectfully disagree on that based on experience. Overpaying is a relative term though because it could mean paying $100,000 too much or just $5000-15,000 more than they should have to. For example, on a $400,000 home, an appraiser could easily appraise it for anywhere between the $385,000 it should sell for on the open market to the $400,000 purchase price that the FSBO seller insists on getting. To some, paying $15,000 extra to get the home they want isn't a big deal, especially if timing and other factors are involved. 

Rich - There are a lot of pitfalls to buying FSBO and thank you for mentioning a few great ones.

Aaron -  A big difference between "upgrades" and plan old "maintenance". Whenever I get a printout sheet from a seller with a long list of maintenance items, I can't help but laugh ( not to them of course ).

Yvette - It can work but I think a very small percentage of people can pull it off successfully.

Brien - Great point. It is pure lunacy for a buyer to think a seller is going to pass on the savings to them.

Utah - A great topic, whether or not to go after that 3% if circumvented....

John - I like your way of thinking and to your point, if all parties are happy than great. I tell my buyers that I'd be happy to show them FSBO's and explain the pitfalls. I end by saying they may likely have to overpay on any home that has an unmotivated seller but if that makes them happy, than I'm happy.

Theresa - Perhaps these buyers were blinded by emotion and wouldn't listen to reason. The risks involved in buying a FSBO seems to be a theme of many comments.

Terry - Most sellers don't until they try for a little bit. I see nothing wrong with having them get it out of their system, that way, they can then list with an agent and have no regrets.

Tom - Probably a very smart thing for a seller to do.

Jon - There are certainly some success stories but likely more horror stories.

Sarah - I sold by owner as well before becoming an agent and feel the same way.

Graziella - Good points but sometimes the FSBO seller isn't ready to hear how they cannot do it themselves.

Michael - It is more work representing a buyer on a FSBO, something that those not in the business just don't understand.

John - I don't see that as being lazy, just your preferred way of doing business.

Edith - Seems to be a hot button for many. Thanks for commenting.

Oct 28, 2013 07:49 AM #94
Rainer
83,231
Amy Gutschow
RE/MAX - Sheboygan, WI
Professional Real Estate

All of the comments are a great addition to this GREAT article! I really enjoyed reading through them all!

Oct 28, 2013 08:28 AM #95
Rainer
42,199
Jill Penman
ONE SOTHEBY'S INTERNATIONAL REALTY - Coconut Grove, FL
Coconut Grove & Coral Gables Lifestyle Expert!

Hi Dan and Amy- Many buyers are unaware of the intricate differences of working with and without a real estate agent. Thanks for asking the question!

Oct 29, 2013 02:28 AM #96
Rainmaker
301,963
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

Teri - I agree that less FSBO's is better for buyers.

Lyn - "buyers beware" is an ideal statement regarding the FSBO market.

Myrl - Lack of representation is a great point of why by owners are risky.

Paul - Many buyers have the perception they will save 5% or so but that is not the reality.

Keith - Makes sense. Sometimes they deserve each other.

Bryan - Glad you see things in positive and things have worked out for you here.

John - Agreed, thanks for commenting.

Raymond - An interesting idea. Curious how many appreciate that enough to call you when they give up?

Marte - Thanks, healthy discussion is a great way to learn.

Janice - Thanks for taking the time to share your thoughts. Your comments are a little different than most, but I do appreciate hearing the side of the frustrated seller. I was on the mortgage side for 13 years before going into real estate and at that time, had little respect for agents and didn't think they did much. Now, 9 years later, I have a new found respect for what an agent does on a day to day basis. Sometimes it's very rewarding and there are certainly times when it is extremely stressful and frustrating. Sure, some agent subscribe to the 3 P's, Put up the sign, Put it in the MLS, and Pray! However, a good agent brings a lot to the table and will be able to clearly articulate their value to a seller. It's always too bad when consumers have bad experiences with an agent ( or agents ) as it damages the reputation of a lot of very hard working professionals. Thanks again for the comments and your contribution to the discussion.

Patrick - As a numbers guy, I appreciate you sharing those stats with us. Thanks for your comments.

Michelle - It definitely makes a huge difference when a buyer uses an agent when buying a FSBO.

Kimo - I suppose there will always be a place for by owners.

Linda - Fantastic comments! Thank you so much for adding to our lively discussion.

M.C. - Selling real estate certainly isn't as easy as some may think . Thank you so much for sharing your insightful thoughts, we really appreciate it.

Pat and Steve - Thanks

Michael - Thanks so much for reading and your comments.

Michael - Funny name for a dog.

David - Some FSBO's do present a challenge when they eventually list and I agree that these are not ideal sellers for us.

Mary - We all have our FSBO stories and thanks for sharing yours.

Keith - Thank you!

Aly - Most sellers don't have an idea of all the problems that could come up during a transaction. You are so right that experience is invaluable when navigating someone through what can be a very complicated transaction.

Ron - It is very interesting reading all the comments.

Travis - It does make sense but can be a waste of time for others.

Sylvia - It's interesting to hear about the different markets.

Jared - Here in Cleveland, we don't see a lot of underpriced FSBO's, likely due to the very conservative nature of people here. 

Bill - I like the idea of asking a seller the things they like about their home.

Oct 29, 2013 08:01 AM #97
Rainmaker
400,993
Marnie Matarese
DWELL REAL ESTATE - Sarasota, FL
Showing you the best of Sarasota!

The two homes in our neighborhood that have been sold "by owner" each have an interesting twist.  Once went for much more than any of the comps and the other was practically a steal.  So, when an experienced realtor is not involved, someone usually loses.

Oct 29, 2013 10:48 AM #98
Rainmaker
301,963
Dan and Amy Schuman
Howard Hanna Real Estate Services - Solon, OH
Luxury Home Specialists

Ric - Good advice, some FSOB's are willing to sell, you just have to screen a lot of them to find the ones that are.

Gene - Her points were well taken. I think as a group, we work very hard and do a ton for our clients. Now, there are those that do very little and make the rest of us look bad.

Geoff - Yes, savvy buyers avoid them, but a ton of inexperienced buyers don't know better.

Bob - Having an agent represent a FSBO buyer is a great idea.

Amy - Glad you enjoyed it and thank you for reading.

Jill - Most buyers have no clue how complicated a transaction can be.

Marnie - Agreed.

Oct 31, 2013 12:20 AM #99
Rainer
16,499
Appraisals By Michael N
Appraisals By Michael - Atlanta, GA
Your Local Home Appraiser

I don't think it necessarily means buyers "overpay", buyers "overpay" with a realtor. Working as an appraiser I find that buyers overpay when they don't do their homework. I always recommend buyers get an appraisal done if the homeowner hasn't because you can base your offer upon the estimated market value. It's harder to argue with the estimated value than it is with a seller or realtor who listed the house at whatever price. It's all up to the buyer whether or not they are going to overpay based on the decision they make. Know the market value of a home you're locked in on (not every home you come across) and make your offer on that.

Jan 21, 2014 01:18 AM #100
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