Risks and Rewards of Do-It-Yourself Selling
Reprinted from The Washington Times
By Ellen Paris
Special to the Washington Times
As the area’s real estate market has rebounded, an increasing number of homeowners are marketing and selling their homes themselves. “For sale by owner,” or FSBO homes, as they are called in the real estate community, have both fans and foes.
Maggie Delgallo, an exclusive buyer broker at Home Buyer’s Guardian Metro Realty in Reston and Sterling, says she thinks the time is ripe for FSBOs. “The market’s wonderful because there are so many buyers and so little inventory. I always research the FSBO market for my clients.”
Neal and Carolyn Newman of Alexandria just sold their three-bedroom Cape-style home themselves – in just one month – and they could not be happier. “We decided to try and sell it without a real estate broker because we thought we could generate more buyer interest ourselves. And instead of paying a commission, we could contribute that savings to the buyer,” Mr. Newman says.
The couple also wanted to control access to their home. They have two children and a dog and did not want people filing through the house any old time. They held several Sunday open houses and would show the property only on Sundays.
The Newmans placed an ad in the For Sale By Owner Services magazine, which is published every three weeks and lists FSBOs in Northern Virginia. In addition to the ad, they put up a lawn sign and a box with marketing fliers. The flier listed the house’s various features, such as a “new eat-in custom kitchen,” and then focused on pricing and how a buyer would save money by buying directly from the seller.
Attached was a list of, neighborhood homes that had recently sold and their sales prices. The average sale was $143,000; the Newmans were asking $134,500. Their strategy worked. An average of three calls came in each day from the magazine ad, and at least seven people came to each open house. They spent $325 on their FSBO ad and about $50 on materials for their lawn signs, which Mr. Newman made himself.
They are now looking to buy their next home from an acquaintance and do not plan to use a real estate agent.
They hope that at settlement – when the property passes from seller to buyer – things will go smoothly, that all the necessary contractual documents will be in order and that various state and federal disclosures, disclaimers, rules and regulations will be met. That’s the trickiest part of doing a successful FSBO – complying with all the legal requirements.
Alexandria attorney Beau Brincefield has done many FSBO transactions in which neither buyer nor seller had representation. “If both buyer and seller are underrepresented by either a real estate agent or an attorney, I think they are headed for trouble,” he says.
“It would take an unusual buyer and seller to be able to negotiate and take care of all the documents and the issues they would need to resolve. There is so much federal and state regulation of home selling these days that I think it is more difficult than ever for a seller to sell his own house.”
The main motivation for most private sellers is to save the estate agent’s commission, typically 6 percent of the sales price. In a seller’s market, like many parts of the Washington area are currently enjoying, it has become easier to sell without an agent. But are you really saving the commission?
“The seller always thinks that by selling it themselves they won’t have to pay a commission, but consumers in this area are smart, and they deduct that commission from the asking price,” says Toby Rhodes, broker and owner of Coldwell Banker Realty Pros. He owns five offices in Montgomery County and two in the District.
One common mistake sellers make is pricing their house on a “needs based pricing” instead of “market-based.”
Also, many buyers are represented today by buyer agents, and in order to maximize your home’s potential sale, you may end up having to “cooperate” with that agent and pay him or her a commission for having brought the buyer to your property. You may wind up saving some portion of the Commission, but then the buyer has professional representation and counsel while you, as the seller, do not. This creates an uneven playing field – sometimes a minefield – littered with potential legal dangers.
Price is right
Pricing a FSBO correctly is crucial to a successful transaction. Before setting a sales price, Ray Brown, co-author of the best seller “Home Buying for Dummies,” advises sellers to “check all the comparable sales in the neighborhood in the past six months. Make sure to compare size, age, condition and location. See what else is on the market now.”
One common mistake sellers make when pricing their homes, Mr. Brown says, is they price them on a “needs-based pricing” instead of market based pricing. “Sellers tend to price thinking, ‘I need to get this because I paid this,’ or ‘I need to get this much because I redid the kitchen,’ or “I need to get this price so I can get my next house. But what they don’t understand is it doesn’t matter when you’re selling, and none of it means anything to a buyer.”
Mr. Brown also points out that selling a house consumes time. “Real estate agents spend lots of time representing a property. If you’re doing a FSBO and have a job, when are you going to show the property? A showing that you think will take only 15 minutes can easily turn into an hour. So you have to ask yourself how much value your time has.”
Regarding the legal aspects of a transaction, Mr. Brown agrees with Mr. Brincefield. “It doesn’t matter what you sell it for, it’s what you get to keep that matters, and if you don’t know the disclosure laws and don’t disclose something and get sued after the sale, there goes all the money you saved on commissions,” Mr. Brown says.
The National Association of Realtors’ Home Buying and Selling Process Survey looked at FSBOs in July. In 10,000 transactions nationwide, about 15 percent of sellers sold on their own. The two biggest problem areas for sellers were holding open houses and arranging for appraisers and the other real estate professionals needed to complete the transaction. The survey cites “unrealistic pricing” as the “most common problem in FSBO sales. ”
Casey Margenau of Re/Max Distinctive Real Estate in McLean explains the damage the wrong price can do to a property. “If a home is overpriced and stays on the market too long, buyers stay away. And then you have to sometimes underprice it to sell it,” he says.
None of this bothers Mirza Baig, who recently decided to sell his 3,700-square-foot Mount Vernon-area home himself. He has owned it for three years and is asking $479,000. After holding an open house that 10 people attended, Mr. Baig has decided he’s “committed to selling it … no matter how long it takes. ”
If all goes well, even real estate professionals would agree, you can save money. On the other hand, “if a deal goes smoothly and easily, then it doesn’t seem like you need a real estate agent,” Mr. Margenau says. “It’s only when things go haywire that you do.”
Reprinted from The Washington Times, Friday, December 25, 1998.