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.