Selling a home is a major deal. It's the single largest asset many people have, and a sale usually involves a real estate agent. But some sellers go it alone and take the "for sale by owner" or FSBO route, where they sell without using an agent. Although cutting out the middleman does have advantages, there are also risks that sellers (and buyers) should be aware of.
While real estate commissions have been declining -- and some recent research suggests that the average rate could soon drop below 5 percent -- they can still amount to a lot of money. On a $400,000 home, a 5 percent commission would come to $20,000. With that kind of dough at stake, there are big potential savings for sellers who are committed, talented, and patient enough for a FSBO (pronounced fizz-bo) transaction.
Considering selling a home to a friend or relative? A FSBO transaction can benefit both parties significantly, because neither side has to cover real estate agents' fees. Sellers who want to offer a family member a good deal can afford to be more generous if they're not losing a cut to an agent.
Sellers who are not in a big hurry and just want to get the right price from a well-qualified buyer may enjoy doing the sale themselves. Real estate agents understandably want to sell as quickly as possible, which may not be a good fit for sellers who want to take their time.
While real estate agents can use their experience to advertise a home's selling points in language typically found on the Multiple Listing Service, better known as MLS, they don't have the experience of living there. Articulate and creative owners may be able to do a better job describing their homes' unique value and charm.
Anyone who has ever sold a home using a real estate agent can likely relate to the experience of getting a call on a Saturday morning and being told to quickly get dressed and leave so the agent can do a showing. Sellers handling their own sale don't need to be so accommodating and can be more selective about when they want to do showings.
Honestly, this could also be a con, depending on how much the seller enjoys doing research. To be effective in answering questions from potential buyers, sellers need to know more than just the recent comparable home sale prices in the area. They are also likely to be asked about the quality of local schools, crime and safety statistics, and amenities such as parks and community centers.
Home sales aren't like retail sales, where there's a fixed price and a buyer just hands over some money. This is a negotiation, which is great for someone who is used to -- and successful at -- negotiating. But someone who is not may come out on the losing end of a buyer's demand to make changes to the house -- or, in a more optimistic scenario, fail to exploit a bidding war between multiple potential buyers.
Selling a house is generally not a fun hobby. There's a lot of work involved -- that's why real estate agents typically get paid so much. Sellers who start by asking themselves, "How hard could it possibly be?" are probably not taking the task seriously enough. A home sale should be approached with diligence, professionalism, and dedication. That may not be hard at first, but the demands of selling the house will soon start to compete with your day job. If you already have a demanding career, this could be more than you can reasonably take on.
Depending on the time of year, available housing stock, local demand, and a host of other factors (most of which are beyond the seller's control), selling a home may require patience. Without the counsel of an experienced real estate agent, it can be tempting to dramatically drop the price in the hope of a quick sale. And that could more than wipe out any gains from opting for a FSBO transaction.
Both sellers and buyers are often overwhelmed by the size and importance of the transaction when a home changes hands. When real estate agents are involved in the negotiation, both sides get the benefit of a third party who isn't emotionally invested in the outcome. For sellers who can't maintain some emotional distance from the selling process, the FSBO route may not be the right choice.
Buyers often include "subjects" in their offers (such as making the sale subject to financing or subject to selling their own house), and it's important for sellers to make sure they understand and limit the scope of these conditions. For example, a smart seller doesn't allow a house to be tied up for too long while waiting for a buyer to satisfy the conditions of an offer.
Sellers need to pay an independent professional to do a full home inspection report. Otherwise they open themselves up to accusations that they haven't disclosed all the problems with a property (and face a lawsuit if problems are later discovered by buyers). They also may need to spend on advertising, landscaping, staging, and photography if they're not proficient themselves. Other costs include appraisal fees, attorney fees, and services from title and escrow companies. Do the math to see how this compares with the commission that would go to an agent.
Pricing a home is as much an art as a science. There are lots of factors that determine a reasonable list price. They include similar recent sale prices in the area, the current valuation by the county or the city, and the amount of housing stock available. Real estate agents know all that information; sellers doing a FSBO transaction have to seek it out. Websites such as Zillow can be helpful, but their pricing is only a guideline.
Owners selling to a friend or relative need to be clear about the expectations on all sides at the outset. If buyers expect to "get a deal" out of buying from someone they know, that will likely affect the price. If the sale is due to the death of a relative, everyone in the family may want a say in the deal -- and that could be stressful and difficult.
Typically, real estate agents manage the risk of letting people into the seller's home. They ensure that potential buyers are generally qualified and not seeing the home for unsavory reasons, such as "casing it" for a theft. Sellers doing their own sales should take similar precautions (outlined in an excellent guide from Zillow).
Some buyers might make lowball offers because they know the seller is saving money by doing a FSBO transaction -- and they may want in on some of the savings. Some may also perceive the seller's choice to do a FSBO deal as a sign of desperation that they can exploit. An agent may be able to get a better price for the property.