For sale by owner (FSBOs): Providing info is the best approach.

Real Estate Agent

In today's tough economy, homeowners who have lost equity in their homes as a result of declining values may feel the only way to salvage what is left of their equity is to sell the home themselves and pocket what they would otherwise pay in commission.

As real estate agents, we meet those who are considering selling "by owner" frequently.  In my experience, providing them helpful information is more effective than arguing against going FSBO.  Most often, if they try selling by owner, they begin to experience exactly what I have told them and wind up calling me.  Here are some thoughts you might like to share with them. 

1.   Selling by owner is a good option if you have a buyer in mind. If you know someone interested in buying your home, selling by owner is an excellent option. Hire an attorney or a Realtor (in states where it is legal to do so) and ask them to draw up the paperwork at a reduced fee. Know exactly what you are paying for, however.

Will they be handling all the details to get the sale to the closing table? Will they be working for you, for the buyer or both. If it is both, have they disclosed they will be exercising dual agency in writing and received permission from both buyer and seller to perform in a dual agency role? In some states, Realtors can act simply as a "transaction coordinator," will no allegiance or fiduciary duty to either buyer or seller.

2.  Be sure what is written in your purchase agreement is what you agreed to.

The most frequent complaint I hear from those who have been involved in a FSBO transaction is that one party or the other didn't live up to the terms of the buy/sell agreement. Many times, their disagreement ends up in court.

In fact, some years ago, it was estimated that more than 50% of all real estate lawsuits in Michigan involved FSBO transactions. That statistic is staggering when you consider that FSBO sales account for only about 10% of all real estate  sales. They are 5 times more likely to wind up in court!

Why? There are two main reasons: 1) Buyers and sellers don't put everything they agreed to in writing and 2) Buyers and sellers don't know what "real estate" is and what "personal property" is

In many states, "verbal agreements" regarding real estate will not hold up in court.  Remember this cliché; "If it isn't in writing, it doesn't exist."

What is personal property and what is real estate? As a rule of thumb, anything permanently affixed to the property is real estate; anything you can pick up and carry away - even with a hand truck - without detaching is personal property.

Don't assume the refrigerator and stove are staying with the home - put it in writing! Don't assume it is okay to take that mirror screwed into the wall because it is a family heirloom passed down from your Great Aunt Helen - put it in writing.

3.  Have your purchase agreement reviewed by a professional. If you do not need the marketing capabilities of a Realtor, hire an attorney to review your purchase agreement. Remember, most Realtors are not attorneys and even those who are tend to be cautious about putting on their attorney hats when they are being paid a fee that is less than they could lose if someone sues them.

4.  Don't cut corners to save money or discomfort.  Too often, FSBO buyers are making nicey-nice with the seller and don't want to suggest distrust, so they accept the representations the seller has made about the property's condition, boundaries, ownership or environmental questions. Conversely, sellers accept the buyer's representations about their ability to buy. Spend the time and money and risk your discomfort to verify what you are being told.

For example, a seller may tell a buyer that the property line is "over there, where I have it mowed," only to discover (after paying $5,000 to install a fence) that the line is actually 20 feet closer than that. Get a survey before closing on the sale and understand exactly where the property lines are, whether there are public or private easements, and if any part of the property's "improvements" (house, garage, driveway, pole barn, fence, etc.) are on your neighbor's property or vice versa.

Likewise, Sellers have right to require a statement of the buyer's ability to close, in the form of a prequalification letter from a lender and/or a "verification of funds" letter from their bank.

5.  Protect your safety. Open houses - whether held by Realtors or homeowners - are one of the ways that criminals get drugs, guns and valuables. When I schedule an open house, I tell the homeowners to remove jewelry, firearms and all prescription drugs from the house. If I hold an open house in a large home or I expect a lot of buyers to show up, will often bring another person to act as a second pair of eyes.

Safety is especially important to FSBOs! When a home is listed on the Multiple Listing Service, a Realtor will typically be there with the buyer during the showing. FSBOs, however, are left on their own. They don't know the buyer who is calling for an appointment to walk through their home. They don't know whether they are financially qualified to buy the home, just out "window shopping" or if they have nefarious intent.

Never, never, never show your home alone. Always have someone else there, preferably more than just one person. Criminals prefer to commit crimes when nobody sees them.

Never, never, never show your home to a "buyer" who knocks on your door and wants to see your home immediately. Be street smart. Anyone who is serious about seeing your home will understand making an appointment. If you lose a buyer because you won't show your house when they knock on your door, they probably weren't a real buyer to begin with.

Before you make the decision to sell by owner, evaluate the market in which you will compete.

6. Selling by owner is most successful in a seller's market, not a buyer's market. When there are 5 or 10 real estate broker signs in yards in your neighborhood and lots of serious buyers are coming into your neighborhood to do "drive-bys" or go to open houses, your "by owner" sign will get more exposure. When there are relatively few buyers out there and they are more interested in foreclosure properties and distress sales, selling by owner tends to expose your home only to those looking for an extreme bargain.

7. By-owner sellers tend to get low-ball offers. Because they get limited exposure in a buyer's market, offers on FSBO properties tend to attract deep-discount offers.

There is another factor which contributes to FSBOs getting low offers, however.  Unless the home is in an exceptionally high-demand area in a seller's market, FSBOS will not typically get more than one offer at a time ... if that. The seller is left with two choices - "yes" or "no." The buyer, on the other hand, has numerous choices - all of the houses in your neighborhood, or the next neighborhood, or the nearby town. Which of you is in the stronger negotiating position?

Historically, FSBO buyers are looking for a bargain. Their mindset is this: "No matter what price tag says, I will offer 5, 6 or 7% less because I know the seller is saving the commission."

So, let's pretend your home should sell for, roughly, $100,000. You calculate you are saving 6% commission (for example), so you price it to split the commission savings with the buyer - $97,000. That's a win/win, right? The buyer pays $3,000 less than if you had it listed with a Realtor and you get $3,000 more than if you had to pay a 6% commission.

But when the offers you get from FSBO buyers are for $90,000 or $91,000 (the sales price minus 6%), FSBO sellers counter at full price or sometimes raise the asking price to compensate for buyers' low-balling. Usually, the FSBO buyer moves on because getting a bargain is more important than buying a home to them.

8. 80% of all FSBOs eventually list with a Realtor. That's right. Only 10% of FSBOs sell. Another 10% quit and decide not to sell at all.  The other 80% list with a Realtor.

Unfortunately, even though they hire the marketing capabilities of a Realtor, market exposure may have already hurt the chances the home will get a good offer, especially if the seller and Realtor add the commission to the FSBO price.  A home is only worth what a financially-capable buyer or buyers is/are willing to pay, and buyers have a pretty good idea nowadays what they can buy for their money.

9. Understand the risks and potential rewards of FSBO selling. If you beat the odds, you could save a lot of money. If your home is in exceptional condition with outstanding curb appeal, in a high-demand neighborhood, you could get two or more buyers competing for it and see offers at or above your asking price. In today's buyer's market it is rare but it can still happen.

The question you must ask yourself is whether you feel 1) qualified to market the home successfully, 2) able to negotiate for yourself effectively, 3) knowledgeable enough to prepare a contract which accurately reflects what you and the buyer  have agreed to, and 4) safe enough to invite people you don't know into your home.


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  1. Donna Malone 06/29/2011 06:32 AM
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Donna Malone
Waterfront, Luxury, Family, Affordable, Cottage, Deals - Bridgewater, NS
Homes and Property for Sale Nova Scotia

Hi Don, I was looking for some info on listing FSBO's and found your blog. I think you have included some very good information here. I reblogged it because I think it is still very relevant.

Jun 29, 2011 06:34 AM #1
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Don Phelan

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