We get the frustration most homeowners have with paying others to do the seemingly simple job of selling their property. This thought is normal in most homeowners’ minds. Many homeowners even attempt to sell the home themselves. After all, who knows the home better than themselves?
In the real estate world, this is call a “For Sale By Owner” listing, also known as a FSBO. Legally, property owners can sell their own home without an agent. In reality, it’s a bit more complicated due to regulations and liabilities but that doesn’t mean it can’t be done.
According to the National Association of Realtors (NAR), which has a vested interest in having home sales handled by professional Realtors, the number of FSBOs in the U.S. has fallen to an all-time low since NAR began surveying the tracking sales with an Agent or FSBO in 1981.
In 2015, the number of FSBO’s fell to just 8% of the 5.25 million real estate sales last year, down from 9% the past three years and the lowest since it began the survey. That’s a significant number who are taking the risk in deciding and acting on all of the factors involved in the real estate transaction. Before deciding whether to do it alone or partner with a professional you have to assess your needs.
Selling a home requires more disclosures and legal requirements than ever before. Managing the appraisal process, inspections and buyer qualifications has become more complicated. New laws that were passed have increased the hurdles in a tough credit market, adding to the already intricate transaction process.
The real question is why would you sell a property without a professional?
Consider a friend of mine; lets call him Jack for this conversation. Jack and I were close friends but hadn’t seen each other in a few months due to our hectic lives. One day we decided to meet up for happy hour to catch up. Over a few drinks jack began to tell me his story about the last few months of his life.
Jack told me that he sold his house a few months ago. He went on about his decision to sell his house without a broker.
He told me that he snapped a few pictures, posted them online and fielded a few of calls. Even though most of the calls were just other agents, he did find a buyer for his property. He received over $1.2 million from this buyer and it closed within 30 days. He bragged a bit about making nearly $200,000 for the deal after paying his mortgage off.
At first I was taken back and a bit confused on why he didn’t call me to sell the property. I let him know time and time again that hiring me would put more money in his pocket but the idea of “paying” a large commission didn’t sit well with him.
That’s fine; my advice in the past was never an obligation just honest advice. I went home after this discussion a bit upset and decided to look into the property. After looking into the property records, I noticed that the buyer that Jack had sold the home to had recently sold it again, just a few weeks after he bought it.
In fact, the new sales price was over $1.5 million.
This meant that the buyer that purchased it from Jack made nearly $300,000 within a few months. And since the condition of the property looked the same, it also meant that Jack left nearly $300,000 on the table, more than twice his initial profit.
Unfortunately, I run into these stories all the time. You’re probably wondering how a deal like that could happen. Didn’t he check the value of the property online and look at the comparable sales?
Yes, he said he did a large amount of research online before the sale and felt he was getting a good deal since no broker commissions where involved. The reality is that he didn’t have the experience and professional skills to maximize the value.
Below are a few questions you should ask yourself before selling FSBO:
Do you have a solid understanding of technology?
In today’s day and age buyers expect to be able to quickly communicate. This includes getting your property in front of the right people at the right time.
Luckily, technology makes this easier than ever before but many homeowners and agents don’t realize how to properly take advantage of these tools.
Friction kills sales and the younger, affluent consumers expect instant gratification. If you expect to complete your transaction using faxes and mail only, you are in for a hard time.
Can you identify and manage multiple personality types?
Selling a home is more than just price and condition; the sales aspect takes incredible skill that guides a buyer into taking action. In order to control a buyer’s perception, you need to understand how to interact and persuade with different personalities.
Do you have the time?
Selling a home takes time. Staging the property requires a full deep cleaning, decluttering and professional graphic design work. Include the editing of videos, management of advertising and then scheduling showings, the time adds up.
Do you understand the law?
Real Estate Law can be incredibly complex. It can also lead to extremely expensive litigations, failed transactions and in some cases trouble with the government. A licensed and insured real estate broker can prevent this in the majority of cases.
If you decided to sell your property without a broker, it would be best to hire a real estate attorney to review the documentation on your behalf. Keep in mind the fact that real estate attorney’s can help with the paperwork but most likely won’t be able to guide you on items like marketing or building compliance.
Read all contracts carefully. In the eyes of the law, when you sign a document, whether online or with a pen, it is assumed that you read and understood the document.
Considering doing your transaction without professional representation?
Then you must first understand what is involved with that decision.
- Do I know the value of my home in today's market?
- Am I ready to work with a buyer's agent?
- Will I take charge of sales and marketing responsibilities?
- Can I bear criticism of my home?
- Am I willing to screen potential buyers?
- Will I follow up with leads aggressively?
Negatives of Selling without an Agent
We think there are a few reasons why a homeowner should not consider selling a home without professional representation.
Be prepared to Negotiate with Multiple Parties
Here are just a few parties that you must be prepared to professionally negotiate with:
- Bargain buyers
- Real estate investors
- Buyer’s real estate broker
- The home inspector
- The bankers
- The appraisers
- The escrow officers
- The title officers
- General contractors
- City hall
We will learn more about negotiating in later parts of this book.
Legalities and Regulations
The United States has more lawsuits than any country in the world.
Selling a property without an expert to help guide you is a complicated and potentially risky process due to the ever-increasing regulatory mechanisms of Local, State and Federal government consumer protection laws.
The rate of filed litigations in the United States are the highest in the world while the main stream media features stories like the $2.86 million McDonald’s coffee spill, Pokémon class action suits and $246 billion tobacco settlements. The constant exposure to unusual cases helps to skew the public’s perception of the legal system, which adds to amount of litigations filed.
Yet, most litigation involves nothing like the disputes above. Besides a small percentage of exceptionally bizarre cases, most lawsuits filed include ordinary disputes from broken contracts.
10 Most Common Real Estate Litigation Claims
- Failing to disclose a property defect
- Breach of duty
- Representing clients in unfamiliar territory
- Giving legal advice
- Misleading clients
- Breach of contract
- Failing to keep your client’s data safe
- Failing to recommend inspections
- Bodily injury
Errors and omission insurance covers liabilities for errors, mistakes or negligence in the usual listing and selling activities of a real estate brokerage. In the United States, state and local laws generally require having liability insurance for licensed real estate brokers but the laws do vary state by state.
Choosing the correct asking price is one of the most critical parts of selling your home. It must be positioned correctly to attract the most qualified buyers in the market.
This requires a look at what similar homes are currently selling for in order to estimate the market value of your property. What you need to understand first is that the market sets the value. This is determined by the highest price a buyer is willing to pay for the property.
This information is put together in a report called a Comparative Market Analysis (CMA). This may also be referred to as the “Broker Price Opinion.”
Understanding the micro-market is incredibly important for the value of your property. This understanding takes a careful examination of the data, similar properties and current economic trends. The secret way to compare your house to others in the market and estimate the price is to look at a professional comparative market analysis.
What is a Comparative Market Analysis?
A Comparative Market Analysis (CMA) is a data analysis report of the current and past real estate market within a few miles from the given property. A licensed real estate broker can prepare a professional CMA at no-cost or you can hire a professional appraiser for a more in-depth analysis
It’s customary for a real estate broker to offer their services and a free market analysis. It’s also common for homeowners to do extensive research on the Internet to gather the information needed for an estimated home valuation. A CMA gives you the information on similar sold, pending sale and currently available properties nearby.
A market analysis gives you information about houses similar to yours in size, amenities, location and bedrooms that are either active on the market, currently under contract, expired or sold within six months.
Information Contained within a Market Analysis:
- Sales Prices
- Building Square Footage
- Lot Square Footage
- Average Price per Square Foot
- Days on the Market
- Original List Price
- School Districts
- Bonus Rooms
- Walkability Score
- Year Built
A good CMA can tell you what homes like yours are selling for, how long the comparable homes are sitting on the market and what their sale prices were compared to the list prices (the difference between what people actually received for the property compared to what they asked).
It’s also important to pay attention to the prices of pending rather than closed sales. The reason to do so is because they’re the most recent transactions and currently in escrow. Pending transaction likely close within 60 days and could be sold transactions applicable to a appraisal during your sale.
Also, reviewing any expired listings will give you a sense of why some houses sold and why others did not. Notice the differences in price per square foot, list price in comparison to sold homes and what the images and copywriting were like to avoid making the same mistakes.
Create Your Own Comparative Market Analysis
Whether you’re selling your home without an agent, or simply want to do some research on your own, here are some ways to get comparative pricing information.
Find homes in your areas that have sold within the past six months. Restrict the search to within 1 mile of your home, expanding that radius only if you can’t find comparable homes, also called comps, close by.
You will need at least three comps and can find them on real estate websites such as zillow.com and realtor.com. The comps should be homes that are close to the same age and size of your home.
Then search for comps that are currently listed for sale or in escrow (pending, looking for backup.) Again, you need at least three comps for each if possible.
Tip: Print the comparable sales information so you can refer to it later.
Choose one home among your comparable that is definitely worth more than your home. Perhaps it has amenities that yours doesn’t, such as a gourmet kitchen or a view. This comp will be your ceiling; your home is definitely not worth more than this one.
Now choose a home that is similar in size and location but worth less than yours. Perhaps it is located on a busy street or backs up to one and yours doesn’t. Compare the age and size of the sold homes to yours. A smaller home and an older home will generally be worth less than yours.
View the exterior of the sold homes and the neighborhoods in which they are located. Homes on busy streets or homes that back up to busy streets generally have lower values than those that don’t. Homes with views are worth more than those without. Make notes on the printout of each home describing anything location-related that might affect the value of the homes.
Check to see if the homes have been remodeled or updated as that could bring their value up a bit. If the homes are newer than yours they will be worth a bit more. Read the descriptions of the homes to see how they stack up against your property.
You may need to view the listed homes in person to see if there is a reason for a drastically different price. Some agents fail to list all features of a home in their descriptions.
Now you have a price range and your home value falls between these two. This will give you a good idea of the value compared to actual sold properties.
Next, let’s take a look at the active comps. These are homes that are similar to yours and currently listed for sale.
Compare the estimated value that you have determined for your home against these comps. If the comps are priced significantly higher or lower than yours, you will need to investigate a little deeper. Perhaps the market has changed or you have missed something when estimating the value of your home. Look at how long the homes for sale have been on the market. The longer a home sits on the market, the better the indication that the home is overpriced.
Also calculate and look at the key market indicators that we discussed earlier in this chapter. Compare the average price per square foot and price-to-rent ratio of both your property and the comparable properties.
After this information is analyzed you will have a clearer understanding of the current market and will be able to estimate the fair market value for your property.
Real Estate Market Analysis Resources
To simplify the valuation process, there are websites that provide a free comparative market analysis at the click of a button. You will be able to review the list of sold homes and factor that into your analysis or you can contact a real estate agent and ask them to construct a report for you.
Although these tools can give you reasonably accurate data in regards to recent sales, it does not take into effect the current condition of your property. We highly recommend having at least one professional real estate broker visit your property to give you a broker price opinion.
An additional consideration is to have a licensed appraiser perform an appraisal on the current value of your home. Mind you, this is based on a limited set of factors and doesn’t necessarily factor in the other variables you need to consider (i.e. the absorption rate, how long other comparable properties have been on the market, which homes have recently sold). Furthermore, appraisers will cost you money.
We offer a free service for you to receive a market analysis for your property on a bi-weekly or monthly basis. This generates a report that is sent directly to your email that shows the price average and average days on the market. With our report and additional information you have gathered, you should be able to calculate a value closer to what an appraiser or real estate agent would give you.Go to wearerealty.com/value and input your home address.