Why For-Sale-By-Owner Sales Fail
A home for sale by owner option sounds like it could be a pretty sweet deal for the seller, after all, if you’re doing the work, you’ll walk away with the most money, right?
Houses for sale by owner requires a seller to do the negotiating, to rely on your own skill to finalize a contract – leaving yourself open to potential legal problems, time away from your life, frustrations, and a smaller profit after all is done.
According to the National Association of Realtor®’s 2018 Profile of Home Buyers and Sellers, the average FSBO sales price compared to the average price for a home represented by a real estate agent was a difference of approximately $60,000. Statistics show that selling your home with the assistance of a real estate agent will give you a higher profit – enough to cover the commission as well as put more money into your pocket.
Below are reasons why for sale by owner homes lead to major frustrations:
1. Marketing your home online isn’t as easy as you think
Photo: The Muse
“For sale by owner” (FSBO) sellers are less likely to get the exposure they need online on a number of listings websites to reach potential buyers. Putting a sign in your yard or trying to pull off some do-it-yourself social media marketing hardly has the same effect.
Here’s how a real estate agent can help: Realtors automatically offer widespread exposure for your listing through the MLS (multiple listing service), which can be seen by hundreds and thousands of other realtors representing buyers. Your real estate agent will also have the means to promote your house to other agents in their brokerage to share with their clients. FSBO sellers would have to shell out tons of money for advertising, and still may not reach the most important audience.
2. Homes for sale by owner could be priced wrong
Those who put their homes on the market as FSBO tend to set a price based on an online assessment tool, or the lofty sum that the neighbor down the street claims they were offered— which are two methods that are liable to put the listing price way off.
“Using a free online valuation tool is like bringing your doctor a printout of your Google search about symptoms and possible cures,” says Jon Sterling, a realtor with Keller Williams Realty in San Francisco. “There’s no substitute for actual market knowledge.”
“The danger in overpricing a home is that it will languish on the market, and buyers will wonder why, even if you lower the price later,” says Mark Ferguson, a realtor/investor with Pro Realty in Greeley, CO. “The home becomes stigmatized, and buyers are likely to pay a lower price when the home has been on the market an extended period of time,” Ferguson says.
How a real estate agent can help: A real estate agent will provide an accurate home value based on a comprehensive market analysis (CMA) to help you arrive at the right listing price. The goal is to make sure you’re pricing your home in the sweet spot — a price that’s not too high so that you are putting off potential buyers, and not too low so you are leaving money on the table.
3. You could underestimate (or overestimate) how much money to spend on upgrades
Photo: Co-Op Insurance
“A novice home seller is unlikely to view their home objectively or know how to stage it to appeal to the broadest audience,” says Hooper, a realtor. That means you might be turning off potential buyers with an amateur paint job, an overgrown yard, or even a broken doorbell.
On the flip side, if you’re trying to make the home sale by owner option work, you might end up investing far more money than is needed. There’s no need to overhaul a 35-year-old kitchen and floors to the tune of about $50,000, when a $10,000 investment for paint, staging, and minor repairs will do and still net above a target price.
How a real estate agent can help: Even if you’re not up for a full home makeover, your agent has the experience and an eye for detail since they see homes everyday, and can recommend simple, budget-conscious swaps that can translate into real dollars when it comes negotiation time. They know how to spend the least amount of money to get the best outcome and home presentation possible.
4. Showings are a drag
Photo: Marshall Independent
FSBO sellers don’t realize how draining it can be to set up showings. And on top of scheduling actual potential buyers, you also have to deal with both “looky-loos” (the gawkers with no intention of buying the house), and “sharks,” (investors looking to flip your house for a profit).
“Sellers who advertise their FSBO will quickly be inundated with calls from real estate investors (the sharks) who are looking to save the same commission the seller hopes to save,” Sterling says. Unfortunately, typically these offers are very low and could likely lead to no sale.
How a real estate agent can help: Your agent will handle all the scheduling and staff the tours for you, so all you have to do is quickly tidy up and vacate.
In fact, that is another key reason to have an agent: Buyers can get uncomfortable with a seller hanging around during the showing, says Ferguson. Agents also will weed out unsuitable offers and collect feedback that potential buyers might be unwilling to share directly with the seller, which can make subsequent showings even stronger.
5. Preparing your own paperwork can be tricky
Unless you have a background in real estate contracts or law, you might want to leave the paperwork to the pros. The closing process can involve more than 20 pages of complicated paperwork, including the contract and addendums, designed to cover all of the situations that could go wrong, says Ferguson.
For example, houses built before 1978 require an addendum regarding lead-based paint and some states need a release confirming the presence of carbon monoxide detectors.
How a real estate agent can help: Your agent will take care of all property disclosures and corresponding documentation to avoid future liability. They work with the escrow company and transaction coordinators to ensure that the transaction goes smoothly.
“If the seller does not use an agent and doesn’t know every law and required paperwork specific to their community, they open themselves up to lawsuits,” warns Ferguson.