Combine a down economy and a slow real estate market, and
some people who are ready to sell their home start thinking about saving money
by doing it by themselves. There are
situations where that may be effective; and then there are situations where you
may simply be wasting your time and simply delaying the inevitable call to a
realtor. What situations lend themselves
to a "for sale by owner" (or FSBO) approach?
A good full service realtor can provide you with a range of
services. They can come in and evaluate
your home, give helpful suggestions on why a complete cleaning and a new coat
of white paint may increase your value, give suggestions on cleaning, repairing
and reducing clutter to make the home more attractive for sale. When your home is ready for sale, they suggest
an initial listing price and then list the home with the multiple listing
service, and so your home is then "on the market" to the real estate
community and their clients. A realtor will
provide additional marketing - brochures, open houses, working their contacts -
to get traffic through your home. They
will provide you with the various forms that you need to fill out - the
seller's disclosure, lead paint disclosure, and forms of agreements of sale and
inspection addenda. They will negotiate
with the prospective buyer's agent. They
may pre-qualify prospective buyers so that they only bring qualified candidates
to view your home. When an agreement of
sale is signed, they will put the buyer in touch with a title insurance company
and a mortgage lender. They will
troubleshoot any inspection, title and mortgage issues. They will help arrange for a settlement and
help guide you through settlement. And
they only get paid at the end - at the successful closing - where the seller's
agent and the buyer's agent will split what is typically a 6% commission. If you sell your home for $400,000, then the
commission that typically is paid in full from the seller's share of the
proceeds, is $24,000. The realtors in
theory all work for the Seller, and so it is the Seller that bears the full
responsibility to pay the commission.
When you are embarking on a FSBO, you need to anticipate and
provide for these types of tasks and services.
If you have a ready willing and able buyer lined up - if your child or
grandchild wants to buy your house, or Cousin Sophie's boy, or the friend of a
next door neighbor, and if you have agreed on a price, then you really don't
need the marketing services that the realtor provides. You simply need someone to help you through
the various stops that get you from a handshake through an agreement, and then
closing. You can get those services for far
less than the full 6% commission would cost you. A lawyer will provide the documents and
advice that you need at hourly rates.
The title company is a wonderful resource - once they are involved, they
take care of the title search, and gather all the documentation needed to clear
title for closing. They typically draft
the deed as well, and will run the closing and prepare the settlement sheet
that allocates the various costs and expenses.
The mortgage lender does all of the document preparation for the
transaction, and will in some cases send a representative to the closing to
explain the various documents. If you
remember from closings that you have attended, the buyer must go through the
stack of documents and sign them all; the seller simply sits there and waits
for the money to change hands. If you
have good professionals involved, then the realtor's primary contribution to
the transaction is the preparation and marketing. Once an agreement is signed, the other
professionals carry it to closing. The
buyer pays for title insurance. The
buyer pays for the mortgage and the loan documents. In a sale transaction, once the fish is in
the boat, the seller only needs to pay his or her attorney for the transaction
costs. You don't need the full services
that a realtor can provide, at the full commission.
If you do not have a ready, willing and able buyer, then you
need marketing. You may try word of
mouth or distributing home made brochures in your neighborhood, putting ads in
newspapers, holding your own open houses, but a FSBO will not be as likely to
attract traffic as a realtor's listing.
You are not in the multiple listing service used by all realtors. The realtors will not bring their clients to
your home - you are not offering to pay them and so it is not in their
interests to steer their clients in your direction. You may have the most wonderful house in the
world at a bargain price, but you need to make that fact known to as many
people as possible - and it is difficult to do without a realtor. In a red-hot market or neighborhood, you may
find that word of mouth will sell your house.
While it is nice to have the information on your listing in the hands of
hundreds of realtors and thousands of prospective buyers, you really only need
one buyer, and when you have the luxury of a seller's market, you may be able
to find a buyer without a massive marketing campaign.
The most recent entry into this field is of course online marketing
and selling. There are now online
services that will assist a seller in marketing their property, and reaching
the online audience in addition to whatever audience you reach with your own
marketing efforts. Time will tell
whether these online services will completely replace the network of realtors
as we know it today. The realtors had a
monopoly of sorts on the multiple listing service - it was their creation - to
make listings available to the whole community of realtors. But as with so many other areas of life, the
internet can bypass the middleman and make the information directly available
to the consumer who is looking for the information - complete with photos, or
video tours, background information on taxes and insurance and the neighborhood
and schools.
As more and more people get used to buying
online, more and more middlemen are cut out of the process. We may gain in efficiency and cost, but we
continue to lose the personal contact that came with having people from the
community, such as the local banker and realtor, involved in the process. That's the tradeoff that you face when you go
FSBO: you may save money under the right
circumstances, but you do not have the realtor to call with questions and
concerns. But of course other
professionals are available. Including
your friendly neighborhood attorney!
©2014 Douglas P. Humes
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