Close to 1,000,000 homes are sold every year on "For Sale By Owner" basis, saving buyers and sellers an average of $10,000 in commission costs.  It’s not as difficult as one may think to sell or buy a home without the use of a real estate agent.  With a little research and common sense anyone can do it. 

Ask yourself:

·      Do I want to pay little or no commission?

·      Do I want to be able to realize more of the Equity in my home?

·       Do I want to sell my house faster?
Do I want to set the selling price?
Do I want to be in complete control of the Sales Contract?

The following is straight forward “For Sale By Owner” (FSBO) guide that will answer many of the questions you may have as you get started.

ADVANTAGES

Pay Little or No Commissions

Let’s say you are using an agent to list and sell your house for $200,000.  Typical real estate agent/broker commissions are between 5% to 7% of the selling price. That’s a resulting commission somewhere between $10,000 and $14,000. If you sell your home FSBO that expense stays in your pocket.  $14,000 can pay for some of your childs education, or pay off a car, or pay off a credit card.

Equity: You Work Hard to Build It, Why Give It Away

Equity is the value of your home minus what you owe on your mortgage.  For example, If Joe’s home is worth $200,000 and Joe still owes $170,000, then Joe’s equity is $30,000. 

All homeowners should be aware of the Rule of 50/20.  For most mortgages, after making payments for 15 years on a 30 Year mortgage you will have only paid off around 20% of your principle.  In other words, after paying for 50% of the term of your 30 Year mortgage, you will have only paid off 20% of what you owe on your home.  That’s the Rule of 50/20.  In the early years your mortgage payments are front-loaded with HUGE interest payments.  Only a small amount each month goes towards your principle.  Therefore it takes a long time to build decent equity in your home.  Most homeowners only stay in a home for around 7 years…that’s very little time to build equity. 

Agent/broker commissions come out of your equity.  Using the above example, if Joe’s Equity is $30,000 and he pays 7% commissions ($14,000) to an agent/broker, Joe will lose close to 50% of his equity just to have someone sell his house for him. 

If Joe sold his home FSBO he saves this expense and protects his equity. 

FSBO Might Sell Your House Faster

The most commonly heard phrase in the real estate business is “Location, location, location.”  But there is one characteristic in real estate that can beat location it is “Price, price, price.”  

Let’s say Joe needs to sell his house quickly.  One way Joe can sell his home faster is by setting the price below market value.  If he is selling his home FSBO he can set the price of his home lower than market value and still retain more equity than if he used an agent/broker and sold the home for a higher price.  Buyers search for homes by location and price. 

Let’s stick with the example from above with Joe, his $200,000 home, and his equity of $30,000.  Let’s say Joe uses an agent/broker to sell his home.  Joe is not stupid.  He has come up with a logical answer to help protect his equity and have an agent/broker sell his home at the same time.  Just jack up the asking price and sell the home for $215,000.  Do the math.  If successful, Joe will pay out $15,000 in commissions but he will retain about $30,000 of his equity.  That is a wonderful idea, but the reality is that Joe has probably inflated the asking price of his house well beyond the market value.  In other words the house will likely be on the market for a long time and, in order to sell, Joe will likely be forced to lower the asking price to somewhere close to $200,000.  At this point Joe has already agreed to work with an agent/broker, so he is right back where he started.  

Control of the Sale

If Joe sells his house FSBO he has complete control of the sale.  He can set his price, choose his escrow company, show his house to perspective buyers when and how he wants to, write up his own sales contract.  In effect, Joe can have total control of the sale. 

Prepare Your Home

Pre-Sale Inspections

The first step you need to take is to have a professional home inspection.  Knowing the condition of your home is critical for any "honest" seller.  A pre-sale inspection alerts you to any repairs that may need to be done by you before trying to sell your home, or alert you to areas of your home that will come into question from perspective buyers.  The buyer is typically obligated to contract an inspection before making a formal offer.   

Most states have clear laws making it mandatory to disclose known defects that could affect the value or salability of your home. A Property Disclosure Statement is a basic form that discloses the general condition of the home as well as seismic hazards, geological hazards, environmental hazards (lead paint, asbestos, radon gas), termite damage, etc.

A general home inspection will let you know well in advance what the buyer may attempt to negotiate, and it will help you spot items inside and outside that need your attention in your effort to make your home as marketable as possible in a competitive market.

A pre-sale inspection gives you confidence as the seller, and can be a positive sales tool to reassure prospective buyers of the home's condition.

Home Improvements

Use common sense when making the improvements to your home.  For possible expensive repairs use the Golden Rule: If you can't get the investment back don't make the repair, BUT be ready to negotiate a lower price for the house to compensate the buyer having to make the repair at a later date.  To get your home in the best possible shape it may take a little painting, landscaping,  cleaning and small repairs. Make sure the house is very clean when buyers ar ecoming to visit.  Scented candles or fresh baked cookies always goes over well and makes a home smell great.  A huge improvement in the look and feel of your property can be accomplished with minimal cost and effort.

Setting the Price

Pricing your home properly is possibly the most important thing you can do to sell it quickly and easily. Overpricing is one of the most frequent reasons by owner sellers fail. In fact, many times when a by owner seller gives up and lists their house with a real estate agent, the house sells because the agent convinces the seller to reduce the price.

Since you will not have a real estate agent involved to provide this "reality check" for you, you must perform the check yourself. Be realistic and do your homework. Keep in mind one of the reasons buyers are interested in by owner properties is because they think they will share in the savings of the real estate commission. If you are not offering to share any of the savings, it is possible that buyers will simply move on to traditionally listed properties. Pricing a house is one of the areas in by owner selling where spending a little money up front to get the necessary information is very helpful.

There are many tools and methods to help you price your home:

·                                 The common means of valuing real estate for all appraisers, lenders and real estate agents is to base the value on comparables, also called comps. The best comps are similar homes that have sold in the immediate area within the past six months. Once you receive the comps, you will have to assess the relative quality of the location, condition and features of your house as compared to the comps. 

·         Have a "desk appraisal" done which indicates a range of value. A desk appraisal means the appraiser will not visit your home, but rather will pull comparables from closed sales (they may well have more recent comps available than you can obtain from any source) and assign a range of value. Where you price your home within the range is up to you. The cost of this option is about $60, and you will have a formal document with which to justify your price to prospective buyers. Appraisers can be located through the Yellow Pages in your area.

·         

      Another alternative is to ask a real estate agent in your area to do a Comparative Market Analysis (CMA) for you. You probably receive cards in the mail from real estate agents who cover your neighborhood or know of agents in the area. Obviously, you should tell the agent that you intend to sell the house by owner, before they put in any time on your behalf. The agent will then make the decision whether to help you or not. Most agents will help because they want your listing eventually. Undoubtedly, an agent will try to talk you out of selling yourself. Listen to all the information and then make up your own mind.

Once you’ve got a range of value or an independent appraisal of the property, you will still have to arrive at an asking price. Unless you are in a very fast market (houses sell within 30-45 days), you should assume that you will get an offer for less than your asking price. Generally speaking, most houses sell within 10% of a reasonable asking price. Set your price at the high end of the reasonable range if your house is in excellent condition compared to other houses for sale in your area, and if the market is fast. Set your price at the lower end of the reasonable range if your house needs work, doesn’t show as well as it could, or if the market is slow.

PREPARE SELLERS DISCLOSURE

In many states sellers are required to disclose known defects about the property. Even if not required by law, it is always good policy to disclose known defects. Some states, most notably California, require the seller to provide environmental disclosure. As a seller, it is your responsibility to understand legal requirements for your jurisdiction. We suggest you hire a real estate attorney who can help you meet your legal requirements and negotiate your purchase agreement when the time comes.

Areas of Disclosure for Which You May Be Responsible

1.                               Earthquake Fault Zone
A seller must disclose that a property is located within an Earthquake Fault Zone if the maps or information contained in the maps are reasonably available; i.e., available at county offices (Public Resources Code Section 2621.9).

2.                               Seismic Hazard Zone
A seller must disclose that a property is located within a Seismic Hazard Zone if the maps or information contained in the maps are reasonably available; i.e., available at county offices.

3.                               State Fire Responsibility Area
A seller must disclose that a property is located within a State Fire Responsibility Area if seller has actual knowledge or when a map is provided to county assessor.

4.                               Mello-Roos Community Facilities District
If property is within a Mello-Roos Community Facilities District (CFD), seller must make a good faith effort to obtain and deliver disclosure notice to the buyer from the levying agency.

Flood Hazard Area
Federal law requires federally regulated lending institutions making any loan secured by real estate to notify the purchaser (or obtain satisfactory assurances that the seller has notified the purchaser), in writing that the property for sale is located within a Flood Hazard Area. Although federal law only requires lenders to make this disclosure, common law principles of disclosure may impose a duty on the seller to make this disclosure as well.

FSBO Easy