It’s easy to find general guidance on how to approach selling a house without involving (or paying) a real estate agent. It’s the standard list: cleanout and cleanup the property, inside and out; replace any outdated interior decoration, including paint, with something currently in vogue; replace or refinish worn out carpet and other flooring; replace old fixtures with shiny new fixtures; do some basic landscaping maintenance, paint or wash the exterior. All good advice.
But what about the big decisions? The kitchen that was built when Nixon was in the White House may need replacing if you’re going to get top dollar for the house. But is the $25,000 – $30,000 investment in a kitchen rehab going to increase the sale price by enough make it worth the expense and trouble? Maybe and maybe not.
This is one simple example of the many tradeoffs which every owner faces when considering selling their house without representation (For Sale By Owner – FSBO). Making those hard decisions, what to fix or improve and how much to spend, (or even knowing the options) will not be found in the general online “How to…” material.
And what about the most consequential decision? Whether and how to attempt to sell your house. What’s the probability of success? If successful, will the gain offset the cost?
This piece outlines the different FSBO pathways. Why successful FSBO sales are rare and how to improve your odds. How to determine whether the FSBO option is a good fit. And how to deal with different categories of buyers.
Of primary importance, it provides access to a free analytical model comparing the consequences, using your unique information, of the currently available house sale methods.
FSBO SALE OPTIONS
There are a few options to selling a house without representation:
- Traditional going-it-alone;
- Listing help, then flying solo; and
- Cash sale to an investor.
Look at specific issues associated with each of these, then walk through the general guidance on how to prepare.
Traditional and Listing-Only Help
With easy access to marketing venues and availability of the required forms and self-help materials, selling one’s own house should be the default option. Right?
It all depends.
Currently, less than about 10% of pure FSBO (no agent participation) sales succeed. This low success rate has barely changed in many years, in spite of the relatively recent availability of Multiple Listing Service (MLS) data and the ability of any owner to place an ad on the Internet for the sale of their house.
The following is a brief explanation of why the success rate of FSBO sales remains in the 10% range and the implications for an owner considering selling a property without agent representation. That explanation of the factors holding back FSBO sales is followed by a comparison of FSBO selling approaches and suggestions for improving an owner’s chance of a successful sale.
In the spirit of full disclosure, I am a licensed real estate broker. Most of my client representation has been on the buyer side. That said, I believe that I am presenting an unbiased explanation and useful suggestions to improving the owner’s the chances of closing the sale.
Getting proper exposure is the critical first step toward getting a successful FSBO sale (or any sale). Advertise your property where almost all of the buyers are looking. About 90% of prospective home buyers begin and conduct their search on the Internet.
These home buyers do not search for “FSBO” houses. They search by geographic area; county or city being dominant. I recently did a Google search for “buy house in Raleigh NC” and nowhere on the first four pages of returned search results was a website offering FSBO houses in Raleigh NC.
Buyers generally find a web site where they feel comfortable and stay through completion of the search process. That preferred source of properties currently on the market is either a national-scale site or a local MLS site. Of these, only two – Zillow and Trulia – provide FSBO houses on equal footing with MLS listings.
The point of this is:
- The only way to get significant buyer traffic for your FSBO property is to place it on a national scale MLS listings provider such as Zillow or Trulia.
- These MLS-focused sites are where the buyers begin and usually stay for the duration of their search. They see this as the entire available inventory. They generally will not search other sites once they settle somewhere, as all web sites present the same inventory for their purposes; with the differences limited to style and functionality.
Buyer Agent Representation
The near monopoly on the market posed by MLS almost assures that when a prospective buyer gets serious with their purchase plan and finds one or more properties to evaluate, those properties will have agent representation (listed on the MLS).
When the prospective buyer, who is searching MLS data, pulls the trigger and contacts a local agent, they are contacting a licensed real estate agent. The agent will agree to represent the buyer under the terms of a Buyer Agency Agreement. One of those terms defines the conditions under which the agent gets paid. A common approach specified in the MLS listing agreement is to specify that the seller pays the buyer agent commission/fee. It also specifies that, if the buyer purchases a non-MLS listed house and the seller refuses to pay the agreed upon amount, the buyer will make up the difference. Thus providing a disincentive for the buyer to engage in the purchase of a non-MLS house.
For pure statistical, as well as psychological reasons, the probability that a prospective buyer at the threshold of their search and acquisition process would choose to begin with a FSBO offering is extremely low.
Technically, a buyer can conduct a search without entering into a Buyer Agency Agreement. However, in practice, it is difficult to implement. Without the luxury of solid statistics, I can only say that the majority of buyer agents steer away from non-committal “looky-loos.”
Increase the Likelihood of a Successful Sale
Advertise your house on Zillow/Trulia as a “For Sale by Owner.” This will guarantee that it will be seen by the full population of prospective buyers.
Being seen is only the start. In order to garner full consideration, provide a clear statement of your commitment to work with buyer agents. This sends a signal that you will pay the buyer’s agent commission. Place the statement across the picture of the house so that it cannot be missed.
Agent commissions are negotiable. Use your negotiating skills to find a mutually agreeable commission rate (or other payment structure).
Another tactic to reducing the owner’s cost of sale is to list the house on the local MLS, under an agreement with a listing agent to provide minimal service, if any, beyond the listing process. This is a routinely used option in many localities. Note however that some MLS associations have strict rules which govern this type of listing activity.
Also note, that by listing on the MLS, you are required to pay the buyer agent commission specified in the listing agreement (which you establish).
HOW TO DETERMINE IF THE FSBO APPROACH IS A VIABLE OPTION
This short piece is only intended to provide basic information on how the real estate business works, as it relates to selling a house without agency representation. There are many variables which define the owner’s specific situation, both quantitative and qualitative, which must be combined and evaluated to determine whether the owner should pursue selling their house without agent involvement. Although that detailed analysis is beyond the scope of this discussion, a more complete evaluation of all available options can be conducted using the Park REI House Sale Options Analysis.
PREPARATION FOR SALE
Learn the basics of real estate transactions in your state
The essential forms and agreement templates, in addition to general guidance are provided in the FSBO Support Package.
Find a Real Estate Attorney
Having the proper forms and agreements is only the start. Working with a real estate attorney is essential.
The objective is to get the largest amount of money possible for your property after all costs are paid.
To do so requires that you find highest saleable price and the inflection point where spending another dollar to get there will not increase the size of the check you receive at closing.
Suggest starting with an “As-Is” price. Don’t fix anything.
Then estimate a reasonable price after cleanup and minor work. For houses in very good or better condition, this is the same as the “As-Is” price.
Then determine if there is any point in investing serious money to reach for that gold ring, if home sale prices in your neighborhood support such a bold move.
Home Sale Comparable Estimates
Zillow provides substantial information on sold property. Be careful to select houses in similar settings and with similar characteristics as a basis for your comparable prices. Also, watch the sale date. Don’t go look too many months, unless necessary to establish a sample of sold properties.
Pay attention to the condition of the house in order to plan for the type of repairs which may be necessary to achieve that price.
Be honest about market value (As-Is, mid-market, and high end) and the cost to compete in those markets.
How Much to Spend on Repairs
How much to spend on repair and renovation (R&R) to potentially increase the value of a property in preparation for sale is an early and difficult decision for many owners.
It all comes down to:
- Will the cost of repairs exceed the value added?
- Do you have the experience, time, and money to complete the repairs?
The quick answer to these is a function of many variables:
- the market trajectory of your community and neighborhood;
- the characteristics of your property relative to the property values of the neighborhood and larger community;
- your capability and experience with the tasks involved with making repairs to the property;
- your financial depth;
- intangibles which define your life and affect this decision, which cannot be quantified; and
- your timeline.
That said, let’s look at how to determine what can be done to cost-effectively increase a property’s market value.
DO THESE BEFORE PROCEEDING
Below is an outline of how to begin to get the information you need to determine what can be done to your property with some expectation of a positive return on your investment.
Answer these questions
- Are you up for the challenge. How does it fit with your personal life, employment situational and other commitments?
- Do you have the necessary capital to make repairs?
- What is your timeframe? Is getting your money nine months from today too late?
- Is anyone going to be living in the house during the repair/renovation process? If so, this is a game-changer. Be realistic about the impacts to those directly affected.
- Are you going to do the work yourself or hire it done, or some combination?
- Do you live near the subject property?
Still Interested in Making Repairs and Renovations?
If your circumstances and finances permit making repairs and improvements, then begin the process by working through the process outlined below.
- Obtain an estimate of the property’s current value (as is) from a qualified source (e.g., real estate professional) who knows the local community.
- Work with these professionals to prepare a detailed and realistic list of work necessary to make your house ready for market at a reasonable target price or across a range of options and expected values.
- Obtain an estimates of the cost to achieve your target prices from qualified sources, e.g., local contractors. These estimates must be based upon a realistic assessment of the work in the local market.
Market your Property
If you have gone this far, you certainly will want to effectively market your property.
Suggest hiring a professional real estate photographer to take quality pictures.
The property description in the advertising should be thorough, but without hype.
By listing as FSBO on Zillow you are ensured excellent exposure.
Contact Options and Responsiveness
Provide every option for making contact.
Respond to all inquiries as quickly as possible. Can’t stress that enough.
Qualify All Buyer Prospects
Collect basic qualification information as a prerequisite to showing the property. Develop a checklist and implement. Keep records of inquiries and showings.
CASH SALE – INVESTOR
Another category of sale where the seller may choose to proceed without representation is the direct cash sale. The most prevalent buyers in this situation are local investors and large-scale busines entities. The large-scale business entity has achieved it’s own nomenclature; iBuyer. Current iBuyer’s include Zillow, OpenDoor, and Park REI.
The owner considering an expedient, simple, and cheap sale is behooved to seriously consider marketing their property to this class of buyers. Some considerations pertinent to this class of buyers are worth mentioning.
Investor buyers (Investors) can close the deal quickly and simply. However, there is a price to pay for this convenience (in real estate world, there is no free lunch).
The Investor Buyer will provide all forms
Investors will provide all of the forms and agreements. It’s all done for you. They will fill in the blanks you just need to sign. You cannot modify any part of the agreements or forms.
In order to protect your interest, you should have your real estate attorney review all forms and agreements before signing.
If this is not allowed, terminate the discussion and escort the Investor to the door.
No Need to Make Repairs
It is critically important for owners to understand when considering selling to an Investor that the Investor would rather buy your house and make repairs after they take ownership.
It is to the owner’s disadvantage to make repairs before the Investor has determined their repair price.
Wholesaling – Selling the Purchase Contract
Local investors in many states use a practice known as wholesaling to put a property under contract using very little of their own money (Earnest Money) and then resell (the term is “assign”) the contract. The ability of the buyer to sell the contract must be explicitly allowed in the contract and agreed upon in writing by the seller.
This practice is not allowed in many states and in others only allowed if the buyer has a state-issued real estate license.
This is provided as another example of why the owner/seller needs to have an attorney review all documents associated with the property sale.
To no one’s surprise, the size of the check at the close of the sale, and how quickly can the owner get it, are of primary importance in making a decision on how to sell a property.
The Investor buyer, whether independent local or national scale corporate entity, is buying the property in order to make money, generally as quickly as possible. In order to meet their profit goals, these buyers must purchase at the lowest possible price.
The owner must balance all of the factors affecting their interest in quickly selling the property at a generally significantly lower price, compared to ramping up and enduring a run at getting a higher price on the open retail market, in their decision on whether this option is in their best interest.
HOW TO DETERMINE IF THE FSBO APPROACH IS A VIABLE OPTION
This short piece was only intended to provide basic information on how the real estate sale business works, as it relates to selling a house without agency representation. There are many variables which define the owner’s specific situation, both quantitative and qualitative, which must be combined and evaluated to determine whether the owner should pursue selling their house without agent involvement. Although that complete analysis is beyond the scope of this discussion, a more complete evaluation of all available options can be constructed using the Park REI House Sale Options Analysis.
HOUSE SALE OPTIONS ANALYSIS
In making any significant decision, the place to begin is by conducting a comprehensive analysis of your situation and desired outcomes.
The Park REI House Sale Options Analysis (Model) integrates qualitative and quantitative information which define an owner’s situation, through an analysis of both the economic consequences and other implications of several house sale options. Model results provide a comparison of the economic consequences in the context of other nonquantifiable factors providing a perspective on each option.
If you are trying to figure out what is the best way to sell your house, the place to start is with the House Sale Options Analysis.
The Model results are only a portion of what we provide. With the Model, Park REI provides access to experienced staff with whom you can discuss results.
Run the Model today and get on your right track for selling your house.