Sellers Selling FSBO
The For Sale By Owner Process – Challenges and Consequences
Trying to sell your own home can seem quite sensible. Some of you may be thinking about it or you are here because you are in the middle of the process. Saving commission is an attractive outcome, however the following should shed some light on other factors in real estate that will concern you, as a seller, once you have your listing up.
Acknowledge what you are actually saving:
The first of the For Sale By Owner pitfalls to avoid is to miscalculate the cost savings. Selling a home for top dollar is expensive, but still far less than the increased price you will sell for if things are done properly. Suffering the illusion that there will not be any costs at all will set you up for disaster, and result in a very low sales price.
Let’s look at the cost savings in detail so that the maximum amount can be saved without sacrificing sales price due to a poor marketing job. The common fee to sell a home through a Realtor is 5%. On a $400,000 home, that equates to $20,000. Approximately half of that (2.5%, or $10,000) is paid to the listing agent, and half (2.5% or $10,000) is paid to the buyer’s agent. When calculating your cost savings it is very important to understand the difference in roles of the listing agent and buyer’s agent. You might save the Listing agent’s portion of the commission by selling yourself, not the Buyer agent’s portion. 90% of buyers purchase their home through a buyer’s agent. You must not ignore this 90% of the buying pool as it will result in a selling price far less than the buyer’s agent commission. If you don’t offer the standard buyer agent commission you are wise to reduce the price by at least the same percentage, which won’t result in a smaller net sales price, but might create a bit more activity as it will at first appear to priced be “below market” by prospective buyers. However, please understand that by rejecting buyers who may be represented by an agent, or by offering less than the standard rate to the buyer agent you will be severely hurting your chances of finding an interested buyer. As a profession it is true that we have rules against discriminating against listings that do not offer a certain commission, and at the Trending Property Shop we show our buyer clients everything that might be a fit for them, however realistically speaking we know that many agents react negatively to being paid less. So, it is important to see that you are only saving the listing side of the commission, and at the Trending Property Shop we provide a ‘beyond-full-service’ experience but we don’t charge the standard rate. Understanding that it is the listing agent’s commission that you will be saving by going it alone, it is important that the home still gets marketed to achieve the same exposure or better. There are three keys to a large number of prospective buyers: pricing your home correctly, marketing you home appropriately, and avoiding the common pitfalls that result in your home suffering long “market time stigma”.
In order to price your home correctly in the absence of a good agent, it’s best to engage the services of an appraiser. Make sure to include this in your FSBO marketing costs calculations. The single biggest decision that you will make will be listing price. Take into consideration the current market for homes, the market for mortgages, how long it’s been since your property last sold or was held out for sale, your buyer profile, and of course the “comps.” If the market is really on the rise, you can create a perception of urgency as you list slightly higher than the comps, and get away with it. If the market is on a decline, you may want to consider spending a lot of time prepping the property and then pricing it below the comps.. You will need to take into consideration the pricing strategies of the competition (the other homes on the market). It isn’t enough to get an agent to visit the home to price it for you – typically you will have let the agent believe that they may be called to actually list the home. So are they pricing it realistically or are they trying to impress you with a high number? Even if you get a great appraisal from an agent you will have no way to really keep an eye on the market week to week. You won’t know what homes are conditionally sold, you won’t know when a home disappears from the MLS whether it sold or the listing expired. You might put the blinders on and really focus on your neighbourhood, but buyers won’t. A good agent will have a sense of what is going on in surrounding neighbourhoods and how that might be affecting your listing. If the price is too high, it may not show up within your buyer’s search criteria, or may be shown last by a buyer’s agent as a “low priority,” or could be ignored completely.
Remember, even if you ‘get lucky’ and an above-market offer comes in, the sale will seldom go through because if the home does not appraise for that number the Buyer’s lender will not approve the mortgage.
Next, without the assistance of a good Realtor, you may want to strongly consider including a home inspection in your marketing costs. This will point out many of the items that buyers will notice and want addressed. These items are often cheap fixes, and it is far less expensive to address them now then to allow buyers to make an issue of the issues or ask for concessions if the items are discovered later by their inspector. 90% of the discoveries will be things that you have just gotten used to. Even if you see an issue that doesn’t seem like a big deal you have to look at it as something that will turn off a percentage of buyers that decide to find a home that doesn’t have ‘that thing.’ You may ask yourself: “Well who needs buyers like that anyway?” You do, actually. There are limits to what you should do, there is money that when spent you won’t get back but you have to be prepared to pamper spoiled buyers. That is the real difficulty – Is the buyer wasting your time? Or are they just putting on a bit of a show before the negotiation? When does the negotiation start? When you are working alone as a seller you don’t want to look weak, and often that scares buyers away or makes them think that they might get a better bargain elsewhere – but when you have an agent the process is a bit easier. Your agent can do anything to invite the buyer to make an offer “give me a number, we’ll work something out, you’ll be happy” words buyers want to hear. When things get serious and the offer is on paper the real negotiation starts and you can be strong without looking two-faced or deceptive. Without the agent’s involvement it really is hard to see how you will do what needs to be done, and say what needs to be said, in order to get an offer out of a buyer looking for the best deal possible – while at the same time setting yourself up to negotiate aggressively when the buyer actually does commit.
The number one reason to address as many of the issues as possible is to make sure that any conditional deal you do get actually goes through. Some buyers get cold feet and they are just looking for an excuse. And then: 1) Regardless of why it fell apart, the market is suspicious as to “why”. Even having to explain why the previous buyer walked (even if it was based on their financing) takes away from talking about how wonderful the home is and how everyone wants it. There will also be a segment of buyers who just assume that there is something wrong with the home without giving you an opportunity to explain. 2) Your initial momentum and market interest has dwindled and you suffer from “market time stigma.” 3) You may be out lawyer fees. Agents take care of failed deals for free, lawyers don’t.
Your first order of business is to get the property photo-ready. Tip: Buyers fall in love with the design, and the furniture of your home more than the actual “stats”. I know it sounds crazy, because the furniture doesn’t come with it, but its true. If a home is cluttered, or feels “cozy”, or “modern”, or “expensive” its often because of the furniture, paint, and treatments. It’s very smart to engage the help of a home stager or designer. They are inexpensive, for just a few hours of consultation time, and they will be able to give you direction on small improvements, that will make a huge impact as to how buyers feel about the property. Rearranging furniture, removing certain items, painting a feature wall, or keeping attention off of a deficiency will result in a significant bump in desirability. Now that you have your home looking good, don’t take pictures of it with your cell phone. A professional photographer who specializes in real estate will not only capture the best features of the house, but will get the lighting just right, make it appear more spacious, and create “personality” and “interest.” You can engage the services of a photographer but if you need pictures taken at different times of the day (best sunlight) or if you need seasonal pictures you will pay extra..
That is where things end for most FSBO listings – next the popular route is to find the cheapest way possible onto the MLS. These day’s that means $800-$1000 up front. Have you ever purchased a lottery ticket for $800 that gives you a 33% chance of saving $10000 (average) in commission fees? In our last arguably ‘hot’ market season, Summer 2012, those were your chances. At this point the market is far more balanced and the odds would have gone down, especially if you are selling a property worth over $500,000 or any condo. You will also want to pre-pay for a service that includes signs.
Assuming that you are on the mls, have signs and pictures you will now have the same marketing strategy in place as the ‘do nothing’ lazy agents that you might have worked with in the past and which may have prompted you to go the FSBO route this time. It begs the question as to why you might want to emulate a weak sales effort, perhaps because you have not experienced better service.
Buy a lockbox for buyer agent visits – a great opportunity for you to have showings where you are not home. You may think that it is a good idea for you to be there to answer questions or to point out what you have improved, it isn’t. Agents tell sellers to remove personal pictures from walls, so that the buyer has an easier time picturing themselves owning and living in the home. When you are there the buyer is going to feel like a guest, showings will be shorter, the buyer won’t have the freedom to comment and at the end of the day your home will not stand out in their memory.
You have to look like you have committed to selling:
Most for sale by owner listings are just sellers taking a shot at it before listing with an agent. They figure there is nothing to lose by taking the chance, then if they are unsuccessful at selling their home on their own then it is on to plan B. So they give it a try. They put a sign up in the yard, nothing happens, or they get a few curious neighbors, but no offers. They decide to hold an open house by putting an Open House sign up in the yard, but no one shows up. Then they decide to research how to effectively market their open house. The next weekend they do a proper open house, by using social networking, talking to the neighbors, posting on kijiji, printing and distributing flyers, purchasing at least open house signs and placing them strategically on the day of. They have a fairly successful open house, but people looking and no one putting something on paper is not a success. They often meet the ‘hypothetical negotiator’ who verbally wants to negotiate a great price but never intends to actually buy.
Most serious Buyers don’t primarily use FSBO sites to find properties. They go straight to the MLS, or let their realtor do the searching. In their mind the services of a buyer agent are “free” because the sellers are paying the fees – and it seems to make sense because it is a big purchase so why go it alone?. The select few buyers that exclusively use FSBO sites are looking to “capture” the savings from the absence of real estate agents – so they walk in the home, subtract 5%, and then want a deal on top of that even if you have already priced under market.
However, you will get the attention of listing agents, For Sale By Owner sites are frequently searched by Realtors for “leads.” They know that 82% of homeowners that list their home FSBO end up listing their home with a realtor. Most Realtors won’t come out and say it, but they want to list your home. They know that 1) this is a real turnoff to homeowners, because they have already made the decision to try to sell it on their own, and 2) indicating that they won’t get Top Dollar or that it’s a bad idea just puts the homeowner on the defensive. They instead will be sensitive and allow you to warm up to them by simply calling, wishing you luck, and asking if you are offering a buyer’s commission, and if they can come check out the property. Once in front of you, the dialogue will first be casual conversation to get to know you and your needs. At some point they will take the opportunity to make their pitch and offer to list the home for you. We certainly are not bashing this practice. There has been no dishonesty in this unless the only reason what so ever for their visit is to do a listing pitch. Realtors in fact do need to know what inventory is out there, including FSBO’s. They should be checking out these homes before showing a client, and confirming what the terms and conditions are surrounding the buyer’s agent’s commission prior to introducing the property to a client. That being said, when this happens repeatedly it frustrates sellers, and next thing you know it is impossible to know whether giving agents your time as a seller will lead to a sale or a sales pitch.
By this time you may have received a little feedback but again it is impossible to know on your end what should be changed or if it is better to ignore the feedback as something some buyer simply said as an excuse not to buy. Most sellers brush most constructive feedback off because it concerns stuff that is easy to fix (loose railings, a wall that needs to be repainted). The mistake is assuming that the buyer is at your home because they want your home, they are shopping and a defect you have may be a defect that someone else doesn’t have. The feedback you’ll be getting will be coming from agents so it is a good idea to take it seriously – most buyers will not offend you with criticism that you really need to hear.
Market Time Stigma:
Eventually you may learn a very costly lesson about Market Time Stigma. Market Time Stigma is the phenomenon that a home’s “market value” actually decreases as a home sits on the market unsold. This happens because humans take queues from other humans in the marketplace. There is a perception by buyers that a home for some reason is not wanted by other people, which decreases its value in their mind as well. Or they perceive that there must be something wrong with it, or that it is overpriced. The fact of the matter is that the homeowner might have done EVERYTHING that they were supposed to do, just not at the same time or in the right order. Had the owner read this post and made a real committment to sell the home buyers may have had an easier time responding to the listing. Some sellers think that an agent wants you to look or act desperate, but you can look serious about selling without setting yourself up for a difficult negotiation.
With all of these things they would simply have increased the buyer interest, and encouraged this interest to come in at the same time and not over a period of 6+ months. Think about it this way: If you went to an auction, and the room was full of eager people, would you expect to get a great deal, or would you expect that you’re going to need to bid a bit higher today? Doing it right the first time is a way to get interest from buyers that focus on new listings (they have been looking for a while, they know the inventory, and they need to find the ‘one’). These buyers are typically reluctant to let a property slip through their fingers when they find one that is presented to them properly. Getting this interest early on also influences the initial offer because buyers are not quite as comfortable playing around when the potential for another interested buyer is still real. Or 6 months later you find the opportunistic buyer who is looking for the seller who has had enough, and the buyer who will feel very safe sending you a low offer knowing that it is unlikely that another buyer will come around to spoil the fun.
I don’t know what cosmic forces are at play, and granted some credit has to go to dumb luck, but something magical happens when there is this much energy and activity surrounding a property in the first month of a properly coordinated launch. The buyers and buyer’s agent can “feel” the sincerity that they need to come up in price. There is a perception that everyone wants this property, and that “it’s not going to last long.” There is no “nagging suspicion” that something is wrong with the property because it hasn’t sat on the market for a long period.
Now, let’s reflect on the thought that “The worst that can happen is that we fail to sell, and then list the home with an agent.” Not only will you likely have spent a considerable amount of time and money that won’t be recouped, but your home already then suffers from Market Time Stigma, which results in a lower sales price and lower net proceeds from the sale even if a Realtor takes over the listing. You have to capitalize on the burst of energy that can be accomplished in the first two weeks of a listing.
Again, to avoid Market Time Stigma, and thus a low selling price, you have to COMMIT to plan out your entire strategy ahead of time. You’ll schedule and coordinate all marketing activities before they actually happen so they can happen at the same time. Selling a home For Sale By Owner can be very exciting. We can be tempted to “jump right in” but like all instant gratification, its usually a bad idea. Think of selling your home on your own exactly like planning a wedding. The actual event is not going to last long, but the planning takes months of very detailed work so that it goes off without a hitch. This is especially true if you are going it alone, because you likely do not have a proven system that you are used to employing. Again, no one needs a Realtor to get top dollar if they have invested the appropriate time, money, and acquire the right knowledge. However, if you don’t do these things, and if you therefore aren’t going for top dollar, you are better off selecting a great Realtor, so that you get more for your property than the cost of their listing fees.