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Preparation
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. ADVANTAGESPay 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 5% 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
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:
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
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). 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. 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.
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