The Top 5 Mistakes For-Sale-By-Owner Sellers Make and How to Avoid Them
by Joseph P. DiBlasi, Esq.
The real estate market continues to pose large obstacles for prospective homesellers. The homeowner looking to sell his home today does so with a home value lower than it has been in a number of years. Moreover, he faces a high level of competition, given the large inventory of other homes on the market. Additionally, he faces prospective buyers, those who can qualify for financing despite the credit squeeze, who are being exceedingly choosy and who are under no sense of urgency to purchase.
With these conditions, it is every seller for him or herself. Only those sellers who have a good product at a good (or even very good) price, will have a decent chance at selling. As a result, many home sellers have looked to sell their homes wholesale, rather than retail, by not using a traditional real estate broker whose commission averages around five (5%) percent of the sales price- $25,000 for a $500,000 home. By selling their home "by-owner", they are able to reduce their asking price by some, most, or all of this commission amount allowing them: 1) a better chance of selling quicker; and 2) to net the same or even more money from the sale than if they used a traditional broker.
Consequently, selling your own home is more popular than ever and can be done successfully. Approximately 25% of all home sales are sold by the owner without a broker, and most expect that number to continue to rise. Many more have tried to sell their home, but mistakes made along the way prevented them from being successful. For those of you who are considering doing it yourself, here are the top 5 biggest mistakes that those before you have made.
1) Failure to Set a Fair Asking Price
Many for-sale-by-owner sellers (FSBOs) fail to assign a fair price befitting the home and the current market conditions. This, I believe, can be explained by 2 reasons: First, our home is our prized possession. As a result, we often have difficulty being objective about it and consequently often assign a price greater than its true value. Second, in an effort to proceed quickly with the selling process, homeowners fail to take the time to commission an appraisal of the home or otherwise use an accurate methodology for determining its value. Instead, they may take a cursory look at what other "similar" homes have sold for, or worse, listed for, and make their decision from there.
More often than not, the homeowner sets a price that is higher than the market will bear. This causes the house to sit. Even though the owner can later reduce the price, a house that has sat for a length of time develops a "staleness" aura and often loses much market appeal. A FSBO seller should make the investment in having the home appraised by a licensed appraiser at the outset to best determine the right asking price.
Home owners also need to factor in the current market conditions. In a vibrant, seller's real estate market, where houses sell at full asking price within a few weeks of being on the market, the owner will be able to pocket most, if not all, of the savings of a broker's fee. However, in a slower, buyer's market, as we currently have, the seller, instead, needs to reduce the price of the home by most, if not all, of the savings in order for the house to have the best chances of selling quickly.
2) Failure to Retain an Attorney from the Start
By definition, the FSBO seller enters the home selling process without a broker. However, he or she still can have a trusted, informed advisor and, actually, needs to have one to avoid problems. There is no better person for this role than the local real estate attorney. He or she can prove extremely valuable throughout the home sale adventure by counseling the homeowner on the process, relaying current market conditions, advising on seller obligations and disclosure requirements; evaluating offers from potential buyers, drafting the purchase and sale agreement; holding the deposit money in an escrow account; and providing representation through the closing. Often times, the FSBO seller neglects to retain a good real estate attorney or, almost equally worse, neglects to retain one from the beginning. Many irreversible or costly mistakes can be made even before the purchase and sale agreement is signed. Buyers will likely have the assistance of a buyer's agent, an attorney, a loan officer, and the bank's attorney or settlement agent to best protect them. Sellers should go through the process with their own attorney by their side from the start to help ensure a successful result.
3) Failure to Use a Professional Lawn Sign and Other Marketing Materials
For many, the thought of dealing directly with a homeowner over the purchase of his or her home is a bit disconcerting. Of course, you can put the buyer at ease once he or she meets you and sees your home. However, often times, the marketing that a FSBO seller employs in the sale of the home- what a prospective buyer sees even before he or she steps foot inside your home- will serve to either increase or reduce the buyer's apprehension. The simple "For Sale By Owner" lawn sign is a good example. Many sellers have cut corners and used very flimsy pre-made signs they purchase for $5 on which they handwrite their telephone number. Unfortunately, this sign is much too small, sits too low to the ground, and the telephone number cannot be read. More importantly, however, it conveys a feeling that the owner is not serious or informed about the process and that the process may be problematic. A professionally-made lawn sign will cost a couple of hundred dollars but will serve to help convey an assuring message to your prospective buyers.
Similarly, FSBO sellers often fail to put together an attractive marketing package containing the information sought by potential buyers, such as a listing sheet, highlight sheet, plot plan, and photos. These materials, which you can put together inexpensively yourself or with the help of a local printer/copy store, will convey your pride in your property in a professional manner and will assure your buyer that you are being open about the process.
4) Failure to Use Attorney-Drafted Agreements
It is quite common for FSBO sellers to obtain purchase and other agreements via the internet or from an office supply store. After all, they do not have a broker to obtain them from and must find a substitute. This can be a costly mistake. The sale of your specific home cannot be "shoe-horned" into a generic form agreement. This will no doubt result in key terms being left out, and ambiguous, incorrect or even unlawful terms being included. The sale of your home is governed by the legal agreement. A lawyer is needed to draft and/or review one for your unique situation.
5) Failure to Harness the Power of the Internet
The internet has changed the home selling process forever. Today, it is estimated that 110 million Americans actively use the internet. As a result, many successful home listing sites have blossomed catering to the FSBO seller. The power of the internet has surpassed the power of the broker multiple listing service network. Consequently, home sellers and home buyers have all the information they need at their fingertips and no longer need to rely on the information provided through a third party. It is no longer adequate to merely place an advertisement in the real estate section of the local newspaper and hope for the best. The serious buyers are checking the internet for the latest listings, and the savvy seller understands this and lists his or her home on the sites that successfully cover his or her geographic area. Type in "for sale by owner" on your favorite search engine to find the sites best for you.
Joseph P. DiBlasi, is an attorney in North Reading, a licensed Massachusetts Real Estate Broker, the author of Sell Your Home Without a Broker, Sphinx Publishing 2006, and the creator of www.FSBOLaw.com, a multi-disciplined concentration of services to allow the for-sale-by-owner seller to be successful.
Copyright ©2008 by Joseph P. DiBlasi, Esq.