Is Going FSBO Really Worth it?

One of the main objectives a homeowner strives for when selling their home is to get "top dollar". Actually, the National Association of Realtors' (NAR studies) show that 51% of FSBOs said saving the commission was the number one reason to sell without an agent. Without digging too deep, many homeowners assume that selling their home without an agent will save them the commission they would have otherwise paid, right?

Here are 5 reasons you don't save by selling your home FSBO:

1. 2006 NAR studies show that, nationwide, a home sold through a Realtor receives 32% more at closing than a home sold FSBO. This calculates to an average loss of $59,800 per FSBO that chooses to go alone. This, by far, outweighs the 5-6% brokerage fee involved in the transaction.

2. According to NAR, in 2005 90% of home buyers used an agent to search for home. Agents search for homes through the Multiple Listing Service (MLS). This means that if you aren't on the MLS you have only 10% market exposure. This is staggering!

3. Even if a FSBO receives an offer from a buyer, there is no experience agent to negotiate the highest price. This leads to an offer that was accepted under its potential.

4. Without access to the MLS, FSBOs cannot accurately price their home. Only SOLD comparables should be used in a market appraisal, not what the neighbors are asking. This can lead to an over priced home or, even worse, an under priced home.

5. Real estate professionals work with qualified buyers (buyers with pre-approvals) only. They also have a slew of resources to get buyers qualified. Instead of unqualified buyers pulling your leg, having an agent handle the situation can save you time (money) and frustration.

Other Options

If you're like most of us, you probably already have a rough idea how much your home is worth. You've browsed ads for similar homes, peeked at the fliers on some nearby For Sale signs.

Now, you're ready to sell and thinking about what you'll do with the money. Maybe you're planning to put it towards the kids' college fund or a condo overlooking the ocean. Or maybe you'll be buying a new home while yours is for sale, in which case, any proceeds are already more or less spent.

Regardless of the reason for selling, there's one more thing you may want to think about: Is there any way to make sure that there's more money rather than less?

This is what FSBOs (pronounced “fizz-bos”) are all about. Short for For Sale By Owner, it simply means that you handle the sale yourself instead of hiring a licensed agent who is trained to handle all aspects of your transaction, and either keep the money that would otherwise pay an agent's commission, or offer a lower price to entice a buyer, or both.

It's probably not small change, either. Consider: With a commission of, say, 6 percent, that's $6,000 for every $100,000 of home value, which can add up in a hurry. An extra $12,000--$18,000 sounds pretty good, doesn't it?

Good? Yes. Easy? Not really. The fact is, the FSBO process can be time-consuming, stress-inducing, and mind-numbingly confusing -- and there are no guarantees it'll pay off in the long run. Moreover, the sales process is not exactly free; it may be called "by owner," but the reality is that the homeowner really ends up acting more like a general contractor: He has to hire and manage a team of people (such as a real estate attorney, title insurance company, etc.) while handling much of the work himself (such as preparing the home, marketing the home, negotiating the sale, etc.). On the other hand, those professionals can provide invaluable guidance during the process and significantly reduce the associated stress and confusion.

That said, if you're up for the challenge, selling your home yourself can be exciting, empowering, and very, very lucrative. Just be aware of the downsides: You may incur legal liability given your lack of experience with the process, you may get a lower sales price due to the reduced exposure, and licensed agents may not see or show your property as they would a home that was listed with a local broker paying a full commission. Nonetheless, these downsides can be minimized -- if not eliminated -- by hiring appropriate professionals whose total fees will still add up to much less than a typical agent's commission. For example, an attorney can explain the legal process and insure you avoid or minimize liability, an appraiser can identify a fair market price, and a stager can present the home in the best light possible.

The Four-Point Plan

Obviously, you'll need to do the work that agents ordinarily do. At the very least, your sales plan should cover four main bases, each of which comes with its own set of challenges.

Pricing

Setting an appropriate price is crucial -- too high and potential buyers won't even bother looking; too low and you leave money on the table. The trick is to be objective and consider how your home compares to the rest of the market -- not how it looks in your mind's eye. Look around your house and around the neighborhood and ask yourself:

• Does my house have the features and amenities that buyers are looking for? If not, what will it take to bring it up to snuff?
  
  
• How much are comparable homes in the neighborhood selling for? You can get a good sense via the Internet, local papers, and nearby For Sale signs.
  
  
• Are prices rising or falling? In a softening market, for example, it may be worth setting a lower price in order to come in under the competition.
  
  
• What do the experts think? Hire an appraiser, ask a real estate agent for a Comparative Market Analysis (CMA).

The fact is, given the emotional attachment most of us invest in our homes, it's all too easy to overprice when selling. Or, to put it another way, you won't be selling the memories you have of living in the house, so you shouldn't let them be a factor in the price.

Preparation

It should be obvious: If your house is rundown, in need of repair, or just plain messy, buyers won't find it appealing. Before you even consider showing people your home:

• Make any necessary repairs. Your buyer's inspector will almost certainly find any flaws, so you might as well get them fixed beforehand.
  
  
• Clean the place up. Clutter makes people uncomfortable. Uncomfortable people go elsewhere.
  
  
• Pack it up. It's weird, but true: The emptier the room, the bigger it looks, so consider putting some of your furniture in storage.
  
  
• Break out the brushes. When it comes to the cost vs. benefit ratio of various home improvements, nothing beats a fresh coat of paint.

If it sounds like a lot of work, well, that's because it probably is. Simply put, your house needs to look as good or better than others on the market, and as a FSBO seller, you won't have an agent working on your behalf. As the saying goes, you don't get a second chance to make a first impression.

Promotion

It's called marketing, and it's all about getting the word out that your house is for sale. Because they're not tied into the network of real estate agents, FSBO sellers typically have to work even harder to attract potential buyers. A comprehensive marketing plan is crucial and should include some or all of the following:

• Signage: A For Sale sign for sure, but consider adding a box with fliers that highlight your home's features and amenities. Good color photos are well worth the cost of printing.
• Advertising: Many Websites offer free ads to sellers. Newspaper ads, local real estate magazines, even the bulletin board at the local grocery store can also bring in buyers. Always include the price, square footage, and number of bedrooms and bathrooms to eliminate buyers who really want something else.
• Open houses: Truth be told, open houses rarely result in a sale -- most agents use them to meet potential clients who they can later show other houses to -- but you may want to consider holding one. Food, beverages, and staging can all help put buyers in the right frame of mind.
• Other resources: Some FSBO sellers design their own Web sites to get the word out; others do a lot of pre-marketing to family, friends, and neighbors. At the same time, there are an increasing number of companies out there that will provide everything from yard signs to MLS listings -- for a fee, of course.

That last one, by the way, raises an important point. While you can now buy an MLS listing for as little as several hundred dollars, you'll still have to pay a commission to any buyer's agent who finds your home via the MLS. (The higher the commission you offer -- 2.5 to 3 percent is typical -- the more likely agents will show your home.) Of course, that cash comes out of whatever you hoped to save by going the FSBO route.

Paperwork

How will you document your agreement with a buyer? Will you use a generic form from the web? Will you let the buyer choose the form? Purchase and sale agreements are complex legal documents affecting your rights and liabilities. Each state has its own laws governing the sale of real estate. It is important that you understand the agreement. It should clearly reflect your understanding of the deal with your buyer. A real estate attorney can help prepare the agreement or review the buyer's form and suggest changes to protect your interests. Many attorneys will perform this service for a small fee or even a flat fee.

With a valid offer on the table, many FSBO sellers feel they can take a deep breath and relax. But there's still a lot of work to be done before closing. In fact, the offer and its acceptance is just the first -- and most important -- step in the legal process of selling a home. Among the issues you may need to keep track of:

• Counter-offers and contingencies: Are there repairs needed? If so, who will perform them -- and who is going to pay for them? Is the offer contingent on the buyer selling their home or other issue beyond your control, and how will you handle it? An attorney's guidance on these issues can be invaluable.
• Disclosures: Most states require sellers to disclose whatever they know about their home, including any flaws or hazards. FSBO sellers need to make sure they're adequately protected from liability issues and possible lawsuits. Again, an attorney can provide insight on the issue.
• Transferring title: You'll need to hire an attorney to make sure the i's are dotted and the t's are crossed and that the process moves forward in a timely manner. If you've hired an attorney, he or she can review all of the documents you will sign in order to close the transaction.

Clearly, going the FSBO route is not for the faint of heart, but it can be done. And with so many resources now available, you can decide just how much you want to do yourself and how much you're willing to pay others to do. Either way, the potential savings can be substantial, which brings us back to the original question, but with a twist.

For FSBO sellers, it isn't, “What are you going to do with the money?,” but rather, “What are you willing to do for the money?”

Are You Type F?

Do you have what it takes to go FSBO? Even with all the assistance available, there's a lot of work involved, and you'll need to factor in the time involved in each step of the process. Even more important, perhaps, you need to consider your personality and ask if you're up for the task. Consider:

• How will you feel about having strangers troop through your house at all hours of the day?
• How flexible are you going to be about late-night phone calls and last-minute requests?
• How comfortable are you with face-to-face negotiations?
• How proactive are you going to be about ensuring the deal stays on track all the way through closing?
• How do you feel about managing the players to usher this through to closing.

There's no right answer, of course, but the more honestly you approach the questions, the more likely you'll make the right decision. Some home sellers prefer to leave the whole process to the pros; others go FSBO but lose heart and eventually hire an agent. And some discover that they actually enjoy the process and feel the money they save is well worth the time and effort they've invested.