Sometimes selling For Sale By Owner is the best option (but consider these three factors).
A friend of mine recently asked me if it was crazy for a person to try to sell their own home. Knowing I was in real estate, I think he expected me to say that it indeed was, “very crazy” and that he should hire a realtor.
But I didn’t. In a few cases, selling your house yourself can be your best option.
The problem is that most people jump in without knowing their own situation. Consider this scenario: Imagine that you and your significant other just hit the big-time. Your job just gave you a $20,000 raise with great bennies in another state. The only thing that stands in the way between you and this fantasy is making sure you sell your home in metro Detroit at a high price—then you’ll really be set.
So you call up your long-time friend, John, who is a realtor and even sold you your current home. You think, “Great! John can help us sell the home.”
The next day, John rolls up to your house and gives you his pitch in your living room. It’s clear from his presentation that he’s well-prepared and put a lot of work into his analysis, but you’re shocked at his price recommendation: It’s $40,000 less than what you and your spouse thought your house was worth!
Surely, this home that you just spent the last five years forming fond memories is worth more. It’s a solid house too—a 1500 square foot brick ranch in a great neighborhood and close to downtown—you’re ready to make a killing. Mind you, you don’t have any data or research actually supporting why you think its worth more, other than you feel it.
Later that evening, you review the paperwork John left behind. You can’t believe that John will be charging a 6 percent commission and think that the whole kit and kaboodle will go to John (what you don’t know is that this commission is split with the buyer’s agent and only half will actually go to John). Nor do you understand that because John wants to do a great job, part of his half will get flushed done the toilet when he goes above and beyond by hiring professional photographers and throwing an open-house, all in his effort to market your place.
You’re also appalled to learn you’ll have pay $12,000 in commission costs, “$12,000! That seems like a lot for selling a house. How hard can it really be?” The real estate industry starts to seem like a total racket, so you decide to go it alone.
Selling your own house is called a for sale by owner or FSBO. A FSBO is a method of selling a property whereby an owner sells to a buyer without the use of a real estate agent. The main reason people decide to sell their house themselves is to avoid paying the typical 6 percent commission it costs to use a real estate agent. Unfortunately, according to Zillow Research, only 11 percent of people who set out on a FSBO are successful.
I think the FSBO success rate would be higher if people considered three factors before deciding whether or not going alone is a good idea. The first factor is looking at what type of person you are. You need to be able to set aside the fact that you’re selling your home, the place where you likely have a lot of memories and may have lived in for years.
People, wake up! You need to think of it as selling a house, you are not selling your home.
Second, you need to consider whether or not you already have a buyer—having a buyer makes a FSBO an appealing option.
Last, you need to recognize that selling a home requires a variety of skillsets that you won’t be able to learn overnight, so prepare for a veritable time-suck. What you thought you were saving by not paying a commission can quickly be eaten having to spend time learning new methods and skills you don’t already have. Do you plan on selling more houses in the future? If so, it may be more worth the time spent to build these skills. If not, consider bagging the idea.
Understand this, no buyer cares about the sentimental value you have in the house or sees it in light of your fond memories that you formed living there, period. Are you someone who’s going to be able to be able to form the emotional detachment necessary to sell your house? If not, it can cause a lot of problems. People who are attached to their house risk pricing too high when they first list. Rather than seeing their house as, well, just another house; they think its “special” and pump up the price. People who do this aren’t trying to be greedy, they’re just wearing emotional blinders.
This emotion can get in the way when buyers start giving you feedback on your place. Feedback is valuable because it lets you understand what features buyers are finding appealing as they tour your joint. With it, you can intelligently put money where it’s needed to spiff up your place in effort to get higher offers while avoiding sinking money in places you shouldn’t. Inevitably, some of this feedback will be negative. If your emotions can’t handle the heat, you might fly off the handle and ruin any possible negotiations. It sounds crazy, but I’ve seen it happen.
The effects of over-pricing your house are always bad. Putting a house up for sale is like most artists dropping an album: It gets a rush of attention quickly and then fades out just as fast. The first two to three weeks after you put your house on the market is crucial. If you price it right, the initial excitement can get you a great purchase price. Price it wrong and the property will languish unwanted. Pricing a house is both an art and a science. If you do it wrong off the bat, you can’t start over. Therefore, it’s very important to get that price on the mark to attract buyers.
Once the offers come in, you’ll be solely responsible for selecting a buyer and negotiating the price. You’ll need to know when an offer is too low and be willing to walk away. You’ll also need to negotiate any repair costs that arise in the inspection as well as title and closing costs with the buyer. None of these are impossible tasks, but you’ll need to remove emotion from the deal and know your price points.
The second and perhaps most important factor when considering whether to sell your house yourself is whether or not you already have a buyer. If so, this solves an obviously essential part of the house-selling process, finding that buyer. For example, say you have a family member who is a computer engineer who you know is moving to Dearborn to work for Ford and is highly-motivated to buy a house—this is a good candidate and is a good reason to try selling yourself.
Even still, sometimes this same family member might think because you’re of relations, they’re going to get a deal and try to low-ball you. In this case, having an agent to stand between you and the buyer can be beneficial, both to preserving your finances and your relationships.
If you’re lucky enough to already have a buyer lined-up, you won’t need to find one yourself, which is a big hurdle when doing a FSBO. In order to find a buyer, every house needs to be marketed. Most people doing a FSBO have never marketed a house before, or marketed anything as valuable as a house.
To market your own home, you need to get the attention of buyers, many of whom will be working with their own real estate agent. The process is slightly more complicated than just throwing it up on Craigslist (although you can use Craigslist). Keep in mind though, we’re not selling the old futon in your garage that you used in college, we’re selling a huge and valuable asset, so you’ll need some real marketing tools.
Zillow and Trulia can be used to market your home. Another website called FSBO.com that caters specifically to for sale by owners is also a resource.
For a fee (about $200 in Michigan), a real estate agent can list your home on their advertising portal, the Multiple Listing Service (MLS), which is a nationwide database used by real estate agents. A house not on the MLS is like a person without a profile on Facebook—no one will find you in this century.
Although the MLS costs you money, this domain is where the real buyers shop. These buyers are already pre-approved for a loan, either already have or are looking for a real estate agent, and are itching to buy before their pre-approval runs out.
MLS buyers are a lot more serious than buyers on non-MLS sources like Zillow or Trulia, who are, on average, not as motivated or as vetted. They are just as fickle as someone casually browsing online for shoes.
The last important factor is whether or not you want to spend the time to learn the process. And, don’t kid yourself, it will take a dump truck load of time. As I discussed when explaining flipping houses, anything in real estate that you’re trying to do yourself involves a lot of different skills that can take time to learn if you’re coming at it with no background.
Doing a FSBO requires you to do everything yourself. You’ll have to determine how much your house is worth. Do you have the time to figure out what your house is worth relative to the other houses in your neighborhood? Perhaps you’ll need to call and schedule an appraisal to really nail down a listing price.
Once you know what you’ll list your house at, you’ll need to take photos of the property. Do you have the time to hire or learn how to take high quality photos that will be attractive to prospective buyers? Or, will you snap a few dark, grainy photos with your IPhone and call it a day?
The last factor you should consider before selling your home yourself is the inevitable paperwork as the burden of paperwork falls on you. You’ll need to figure out things like how to write counter-offers and how to put together a purchase agreement once you’ve decided on a buyer. It is highly recommended that you pay an attorney a fee to review the contract (or have them do the contract entirely).
You’ll also need to arrange for a title company to transfer the title on the property from you to the buyer, arrange inspections, and work out closing cost agreements—much of it by yourself.
Is this sounding like a lot?
Selling a house is not rocket science but it can be a lot of work if you’ve never done it before. The cost to consider in a FSBO is your time. If selling your own home causes you to put in 100 hours and you value your time at $30 an hour, that’s $3,000. If putting your house up for $400 on MLS and hiring a photographer is $100, that’s $500 of marketing expenses right there. You’re already up to $3,500 dollars. John’s 6 percent commission is starting to look more reasonable.
Learning to sell a house is like cutting your own hair: If you really had the desire to cut your own hair and are willing to accept responsibility for doing it yourself, you could put forth some effort and figure it out. You’d get out of paying the barber $15 or so, yet is it worth it?
In this case, you’d be able to save $15 on every haircut you’d ever need for life (nice!). On the other hand, you may only sell one or two houses in your entire life. Whether or not the return on investment is there is a question that really depends on you.
If you look at the time and cost of your FSBO as an education in selling houses, it could be worth it, especially if you plan to sell more houses in the future. This may be because you move a lot, want to get into flipping houses, or maybe want to become a full-blown real estate agent yourself one day.
The short answer as to why you should use a real estate agent to sell your home is because—let’s face it—they do it all the time, thus saving you a lot of headaches. A good real estate agent will be able to guide you through all stages of the house-selling process. Many of the hurdles of the FSBO process that I discussed above can be avoided entirely with a real estate agent.
If you don’t have a buyer, the time, or desire to learn the business, a real estate agent is your best bet. You avoid the first major hurdle of a FSBO, the emotions involved. The real estate agent will look at your house objectively without any of the emotions that you might. They will know exactly what buyers are looking for and will be able to highlight the features that will sell.
The real estate agent will also be to recognize anything that may need to be fixed on your house to pass the home inspection that will come after you accept your offer. This is because they have seen many houses go through the inspection process and can identify many of the issues that you may overlook. Alternatively, they can tell you what may not need fixing, saving you time and money.
A real estate agent will have a full suite of tools available to market your home, including the MLS. You’ll be able to take advantage of the agent’s existing social network, online presence, and name recognition to act as your house-selling megaphone.
A real estate agent also knows people who can stage your home (put furniture in your house to make it look nice), which, if your home’s interior doesn’t already look like it came out of a magazine, it can really help market your home.
Additionally, doing a staging has the added benefit of decluttering your home by removing your existing furniture, which is helpful when you eventually move. The staging company will put in appealing furniture and amenities that bring out the character of the home.
Once staged, the agent can get a photographer to take some high-quality images to market your house online. Becoming increasingly common, the real estate agent can even get a drone pilot and high-resolution cameras to take inside and outside footage of your house and make it into an appealing virtual tours so that people can tour your house without even having to be there.
Your real estate agent will also help ease the hurdle of setting the listing price of your house. Most people need someone just to bring them back down to earth on the price. An agent will have a pulse on house prices in your area. They will be able to access housing data, look at comparable properties to your own, and come up with a recommendation as to what price you should list your house. Furthermore, he or she will be able to recommend a price point that will take advantage of the excitement when the “album drops,” making it more likely that you’ll get the best price while appealing to the widest range of buyers.
As the offers come in, a real estate agent will handle the negotiations with potential buyers. Keep in mind that selling a house is more complicated than selling cotton candy at the fair, so there’s always at least some negotiation.
Having a skilled negotiator is like having a star baseball player on your team. In the same way that Miguel Cabrera knows how to read all the different types of pitches as soon as they leave the pitchers’ hand and knock them out of the park, a good real estate agent will be able to recognize many things that you might miss yourself in a FSBO. They’ve seen it before!
So, when considering a FSBO, ask yourself the three factors I discussed: Are you emotionally able? Do you already have a buyer? Are you willing to learn new skills and invest the time required? A FSBO is probably not the right answer is many situations, yet they can be perfect in select cases.