Going it alone, selling FSBO or being an unrepresented seller of Silicon Valley real estate – some home sellers do it, most do not. The risks of selling “for sale by owner” include not selling at all and not selling for top dollar, among other things. Today let’s discuss “going it alone”. This article is chapter 1 from my book, Get the Best Deal When Selling Your Home in Silicon Valley, co authored with Ken Deshaies, a Realtor friend in Denver, CO (published 2004).
Many people who are considering selling their home are not sure how to begin the process. Do you try to sell your house yourself, or do you first enlist an agent? And if you do want to try to sell your house on your own, will word get out to that perfect buyer? The bottom line is that no matter which route you take to sell your home, you need to educate yourself as much as possible. In this area, where the economic stakes can be high, knowledge is power. By reading about the following two experiences, you will see what can sometimes happen in the sale of a home, and understand why it pays to become educated. Although the names have been changed, the following stories are real, and may help you decide whether selling your house yourself will really save you money.
Jack and Lorraine want to sell their home. Jack decides they should sell their home themselves; Lorraine reluctantly agrees. In the language of real estate, these people are referred to as FSBOs (For Sale by Owners). Jack believes their home is worth $500,000, and using a common 6 percent commission rate, he feels he can save $30,000 by selling the home himself.
Jack spends money on newspaper advertising and holds open houses every Sunday, and after six weeks a buyer is interested. Jack and Lorraine are offered $465,000, and decide to take it; it’s only $5,000 less thanthey would have received if they had paid a Realtor®. After four weeks the buyer cannot get loan approval and the deal falls through. Jack wants to keep the buyer’s deposit, but after the threat of a lawsuit he refunds it. Jack starts over again.
Ultimately, Jack sells the house for $455,000. After closing costs and expenses to market his house, but not counting time and aggravation, Jack nets $345,000 after paying off his $100,000 mortgage.
Unfortunately, the story doesn’t end here. About a year later, Jack and Lorraine were sued by the buyer because it appeared the home was in a flood-control
basin, and the required disclosure to the buyer had not been made. Had Jack paid the $30,000 commission to an agent, he ultimately could have saved himself from legal exposure, been protected in the failure of the first sale and marketed his house to a wider audience; he might even have sold it for the initial asking price of $500,000. So in the end, Jack lost much more than $30,000.
Bill and Sara also want to sell their home. Sara convinces Bill that they should work with a Realtor® and they choose Linda Lister. After Linda does comparisons of similar property sales in the area, she determines the home value at $480,000. She then makes recommendations on how to clean the house, rearrange the furniture to make it look more spacious and otherwise spruce it up with paint, wallpaper and landscaping. After spending $5,000, Linda feels the home could sell for $500,000, and lists it at $499,000.
Linda handles the advertising, places the house in the Multiple Listing Service, markets the property to other Realtors® in her office and at other Realtor® meetings and holds several open houses. (Today, we would also add a lot of online marketing!)
At an open house for other brokers (also known as a brokers’ open house) she is told of a serious buyer who would be a fit for Bill and Sara’s house. She follows up and obtains an offer of $485,000. Bill and Sara are on vacation when the offer comes in and handle the paperwork by phone and fax; Linda takes care of the required legal disclosures and, after some back-and-forth negotiation, the home sells for $495,000.
Because of Linda’s relationship with a mortgage lender, she is able to help the buyers obtain the loan they need, even though it could have been handled by the buyer’s Realtor®. Also, because of her relationship with the escrow company she is able to get reductions in the fees Bill and Sara have to pay.
After commissions, closing costs and paying their$100,000 mortgage, Bill and Sara receive $360,300, with no aggravation or legal troubles. As we said in the Introduction, a study conducted by the National Association of REALTORS® determined that people who sold their homes themselves received 21 percent less than comparable homes where the owner used the services of a Realtor®. Sellers who wanted to save paying an agent commission received less than they could have. Buyers have the peace of mind of knowing they purchased a home based on actual comparisons rather than the seller’s greed factor, plus all of the other services the Realtor® has to offer. Involving a Realtor® is a win for both the buyer and the seller.
Although these stories are not a guaranteed representation of the realities of selling your own home, what they do illustrate is that you must be educated. And often it pays to rely on an expert’s education and experience. If you do decide that you are prepared for the task ofselling your own home, here are some important suggestions:
(1) Take the time to educate yourself about
the process of real estate transactions.
Know how the process works from beginning
to end, and what contractual and legal
obligations you will be responsible for.
(2) Know what transactions must be performed
by outside professionals, such as
inspectors, title agents or attorneys.
(3) Pay to have your house professionally appraised
so that you price it correctly.
(4) Have your home professionally inspected
in advance so that you know what might
need to be repaired. Take care of the items
that you can afford to repair in advance.
(5) Establish a marketing budget and determine
the best ways to spend it.
(6) Look for a preapproved rather than a
prequalified buyer. There will be more on
this distinction in the chapter regarding
(7) As a personal safety measure, never show
your house alone.
Selling your house is not impossible, but it takes diligence, patience, diplomacy and a willingness to set aside your own biases about your home so that other people’s preferences can be understood and accommodated.
Knowing the Process
Before you decide to sell your own home, ask yourself these essential questions to ensure that you are knowledgeable about these important aspects of real estate sales:
– Do I know how to properly value my home?
– Do I have a marketing strategy to reach the greatest
number of potential buyers?
– Am I familiar with California’s legal requirements
for purchase contracts and real estate transfers?
– Am I familiar with the two major contracts in use
in our Silicon Valley area and the pluses and minuses
of each one for my situation? (If an agent
helps a buyer, they are unlikely to use a contract
out of a self-help book, and that might be the only
form with which you are familiar.)
– Do I know what expenses are customarily paid for
by buyers and sellers in my county?
– Can I ensure that the buyer is financially able to
purchase my home?
– Do I have the necessary contacts to handle the
closing transactions?3How are my negotiating skills?
– Am I prepared to carry back a note if an otherwise
qualified buyer does not have the necessary down
– Am I prepared to give up a partial commission to
an agent representing a buyer – or a full commission
to a transaction broker or facilitator?
The bottom line is that you must make sure that you are prepared to deal with this major transaction. You should have a plan in place and you should know who can help you with aspects that you can’t do alone. Just as money doesn’t grow on trees, houses don’t sell on their own. If you are selling your house yourself, you must be prepared to make a substantial investment of time. If you are not sure how to handle this complicated sales transaction, using a professional may save you a great deal of unnecessary complications and may still net you more money at the end of the day. Then if you really are prepared, no matter whether you have help or not, you should be able to successfully sell your home.