To FSBO or Not to FSBO: Brass Tacks on DIY'ing Your Home Sale
By Zachary Rouse, Real Estate Broker in Oregon 503.381.0552
In an increasingly DIY world in which technology has brought us full-circle back to the pioneer days of doing everything your darned self - this time with an app - there is an accordingly serious uptick in people selling their homes For Sale By Owner.
What does this mean? For Sale By Owner means that you have decided, for one reason or another (mostly one reason), to sell your real property without enlisting the services of a real estate agent. In today's world, you can throw a stone, or a baseball at a fair, and a Realtor will get wet for you. That's good news and bad. For one, Realtors cost money. Most agents charge between 5 and 7 percent of your sale price to sell your home for you. If your house is a $300k property, you're looking at $18,000 in commissions. But there's also competition for your business. So you can find a hungry broker who will take names for you.
Now, to be fair, we split this 18 grand. Your listing agent gets 50%, and the agent who brings the buyer for your home gets 50%. Then, we each split that half with our brokerage and with all of the various expense-intensive fees we have to pay just to operate a small business in America. People tend to think that Realtors are all rich. And if your network is huge and you've been working ten or more years, your phone does just ring. But the pitfalls are so treacherous and numerous that a very high percentage of our sales fail on us midstream, leaving us hungry and broke!
To combat this problem, a lot of agents amass tons of listings so that if a few fail, they still get a check and get to stay married. The issue with this tactic is that some brokers just don't have time to answer their phone when you ring them up. They're running from meeting to meeting, juggling a hundred pages of paperwork, or battling it out with social media to make yours and everyone else's property look like the Taj.
Some of the things you get for your $18,000 are:
Exposure – You are visible to thousands of real buyers all the time. So much so that the interior of your home is viewable by simply Googling your address! I'll bet you wish you'd cleaned that mirror in the hall, huh... We put your house on the stock market of real estate, the MLS or Multiple Listing Service. This is where the buyers are. Buyers, unfortunately, are not on Craigles. When you go to craigslist looking for a car or a camera, are you looking to pay market value for that item? Heck, no! You know, and so does everyone else, that craigslist is an online garage sale. You are looking for that desperate sad sack who can't make rent, and is selling his five thousand dollar car for two. Then you low-ball him at seventeen hundred and get it half the time! The same is true of real estate.
Representation – You are not left to your own devices when a used car salesman of an agent tries to pull a fast one on you. This happens all the time. Realtors have tricks that they pull to lower the price on the Seller, from extending the inspection period to make things look really dire, to last minute addenda that all but cancel out the already agreed upon specifics of your deal. Agents endure hundreds of hours of boring classes so that we can be prepared to represent you properly and accurately.
Higher Sale Price – It is a statistical fact that over ninety percent of all FSBO homes end up listed with an agent eventually. There are a few reasons for this, but the takeaway is that in 2012, listed homes in the US sold on average for $41,000 more than FSBO sales. Do the math on that one. “Forty-one thousand minus eighteen thousand equals...”
Paperwork – Ummm... yeah, there's the paperwork. We are inundated, even in today's world, with hundreds of pieces of paper for a real estate transaction. Most DIY-ers turned clients cite the daunting nature of the paperwork as the biggest single reason they gave up. We have to keep records for six years in Oregon, and as a result, we print everything out, even our emails with you and the other agent. Some agents don't answer the phone because they're afraid of not having something in writing! We spend half of our time covering our rumps, and the other half working to get your house sold.
GLAMMA.
Insurance – We carry E&O insurance, or Errors and Omissions. You don't. So when you don't tell me that you have $20k in judgment liens on your property and can't actually close our transaction, we don't all get sued for damages by our buyer, who is money into this deal with inspections, earnest money, upgrades already done, and more.
If you are going to FSBO it, as the stubborn and intelligent are prone to do, then there are some things you need to know to pull it off with the other nine percent of success stories. Below is a list of stuff you will need to make this thing happen for yourself. Get real, real fast, and learn the paperwork.
Bullet Points for FSBO Success
- Exposure – MLS is where the buyers are, and they are represented by agents. Get on the MLS... There are limited rep agents who will charge you a flat fee to list on MLS, and do no work for you otherwise. Usually around $500. Get That Network
- Paperwork – Make sure you know the paperwork backward and forward. Know how to write a real estate contract in your state, and know how to write addenda properly and clearly. If it ain't in writing, it ain't soNote: Listed properties sold for $41k more than FSBO homes in 2012 Less than ten percent of all homes sold are FSBO deals
- Staging – Home must be immaculate... no more than three items on any surface...make sure that a buyer can envision themselves in your home
- Photos – Hire a professional photographer to make your home look like the Taj
- Repairs – Have a whole-home inspection done, and do all repairs that will be red flags to buyers PRIOR to putting on market...adding square footage to your living room will not increase value. Rather, focus on bathrooms, kitchen, and expansion of bedroom capacity. For instance, if you have a three bedroom, one bathroom house, and room for a second bath next to laundry, do it. This will increase your home value. “A half bath may add up to 10.5 percent to a home’s value, while a full bath can tack on an additional 20 percent.” - realestate.com.... Likewise, kitchen improvements will always add value. Bathroom improvements just overtook kitchen work for adding value, in 2012-2013
- Pricing – Price low... Law of pricing: You will nearly invariably make more money pricing your home below market value than if you price high. Properties priced high just sit there. In this market, if you don't have action right away, you are priced too high. That is Rule 1. Rule 2: Memories do not equate to higher value. Christmas 1987 when Uncle Charlie ate too much ham and fell on Meemah on his way to the can may be the highlight of the last thirty years. It translates to SQUAT in market value. The market will bring what it will bring... Your Buyer is buying their future memories. Not your past.
Reinventing the wheel is fun, if you have endless time and resources to figure out what decades of market activity have defined as rules. But if you're like me, and the vast majority of home sellers in this country, for whom every dollar is directly tied to your standard of living in future retirement, then do yourself a favor and do it right. If you decide to go it alone, it is doable. Make sure you are prepared for what it will really be, not what your friend who did it thirty years ago said it will be like. You can succeed, especially if you know your buyer already. A lot of successful FSBO's involve people who know each other, and who can work out the drama together as it comes along. And there will be drama.
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