How Home Sales By Owner Works


Modern communication tools and new economic realities are removing the real estate agent from the traditional home-selling equation.
Modern communication tools and new economic realities are removing the real estate agent from the traditional home-selling equation.
Grey Villet/Time Life Pictures/Getty Images

For many years, if you were selling your property, it was a given that you would need the help of a professional real estate broker. You would pay a set commission for the service -- typically about 6 percent of the sale proceeds. In times of rising property values and favorable market conditions you would usually come out ahead. Often, it was worth the expense to have someone else do the hard work of selling your house.

But in today's market, home prices have appreciated little and owners are mortgaged to the hilt. The idea of selling your house without paying a hefty agent's cut is tempting indeed. This is called For Sale By Owner (FSBO). Selling a $250,000 house on your own could put $15,000 in your pocket that would have gone to your agent! But there's a caveat: You have to be willing to work for it.

­According to a 2006 National Association of Realtors survey, 7 percent of sellers sell their homes without the aid of a broker [source: Moloney]. But homeowners lured by the potential savings should know what they're getting into. You have to do your homework. You should also be prepared for a possible roller-coaster ride.

­Personal circumstances usually determine whether someone chooses to sell his or her house without the help of a real estate agent. If you aren't under pressure to sell due to relocation, marriage or other life event, and you don't mind undertaking some of the grunt work, FSBO can be appealing, challenging and potentially rewarding. If you need to sell your property in a hurry, it's probably worth the cost of the commission to hire a broker.

In this article, we'll explore your options and discuss some of the resources available if you decide to go it alone.

Advantages and Disadvantages of Homes For Sale By Owner

Selling your home without the services of a real estate agent could save you thousands of dollars in commissions, but it’s not as easy as it seems.
Selling your home without the services of a real estate agent could save you thousands of dollars in commissions, but it’s not as easy as it seems.
Joe Raedle/Getty Images

Beyond the issue of commission, many homeowners are wary that real estate brokers -- for all their efforts and expertise -- may not have their best interests at heart. According to some economists and other financial experts, real estate agents may be motivated less by getting you the highest possible price for your home than by securing a buyer as quickly as possible. Since their actual commission as a percentage of the sale only rises by small increments for every additional thousand dollars of purchase price, few brokers are motivated to encourage sellers to sit back and wait a month or two longer in hopes of getting higher offers.

 

In his book "Freakonomics," economics professor Steven D. Levitt cited data showing that many real estate agents sell their own homes for considerably higher prices than those of similar properties for their clients. So, many sellers who tackle FSBOs are motivated at least in part by the notion that no one is looking out for their interests better than they are.

For sale by owner sellers (FSBO) have more devices at their disposal than ever before. Previously, you'd have to post a For Sale sign on your lawn, take out ads in the newspapers and real-estate circulars, put the word out to everyone you knew, maybe host an Open House, and then sit back and hope for the best. You couldn't get your property listed in the Multiple Listing Service (MLS), the marketing tool brokers use to share listings with each other in order to match buyers with sellers. The FSBO seller was definitely at a marketing disadvantage.

But recently, new real estate services have cropped up mostly online -- including Zillow, BuyOwner, ForSalebyOwner.com and FSBO.net among others -- catering to the FSBO market. For relatively small fees, you can reach hundreds of potential buyers by posting your property online and including color pictures and 360-degree virtual tours. It's even possible to get listed in the MLS for a flat fee through some of these services, though they may require you to be willing to pay a 2 to 3 percent buyer's agent commission.

If you are creatively inclined, you or a friend can take pictures with a digital camera and create flyers and brochures to distribute at open houses. Don't forget the power of word of mouth. Many homes are sold through personal and professional acquaintances, much like job networking.

Advertising Homes for Sale by Owner

FSBO sellers who do their homework, invest enough time and make their homes as attractive as possible to buyers can reap big rewards.
FSBO sellers who do their homework, invest enough time and make their homes as attractive as possible to buyers can reap big rewards.
Justin Sullivan/Getty Images

Selling your home involves a lot of homework. Make sure your home is priced right for the market. Research the recent sales and home prices in your area. Overpricing a property can make it languish unsold for months or even years, undermining any leverage you as a seller may have later in negotiating. It's easy to become subjective about the value of your home, especially if you've lived there awhile and made upgrades to it. You have to put aside your pride, avoid setting an unrealistic price and be willing to lower it if necessary.

It can be a worthwhile investment to spend a few hundred dollars to have your home professionally appraised. Visit open houses in the area to get a general idea of going prices. Ask the listing agent how long the house has been on the market and if there have been any price reductions. Make full use of the Internet as a research tool.

Make sure everything in your home is in working order. If you somehow miss a problem before the contract is signed, it's a pretty safe bet that the professional inspector will catch it and you'll be forced to fix it anyway before the closing.

Don't ignore cosmetics. Make your home attractive to buyers. It should be clean and clutter-free, with fresh paint and clean carpets -- the perfect opportunity for that fix-up project you've been putting off! Help buyers envision themselves living there.

Know the rules. Research state laws and regulations governing fair housing, lead paint disclosure and other requirements, so that you're in full compliance. Also bone up on the rules governing offer-and-acceptance (your sale negotiations with a buyer) and sales contracts. The last thing you want is to risk a future lawsuit for not disclosing some defect on your property. Go to a library or bookstore to get familiar with these procedures.

Know about financing. Ask the buyer if they have been pre-approved for a home loan. This is especially important in the current credit crunch. You should get an earnest money deposit to ensure they are serious about purchasing your house. Financing can fall through at the last minute, so be prepared for that possibility.

If you're selling a condominium, townhome or co-op, it is the buyer's right to be informed about the association and its financial health. This includes information about the bylaws and reserves (how much money the association has in the bank to fund needed repairs and improvements to the property). It's your duty as the seller to disclose these facts.

Hire a lawyer to draw up a sales contract and represent you at closing. If you were happy with the attorney who assisted you as a buyer, consider him or her. Otherwise, get recommendations from family or friends. Be aware of the tax implications. Your attorney should be able to advise you on whether or not you will owe capital-gains taxes on the sale.

It's not right for every situation, but if you're willing to work for your money, FSBO can help you save a lot. The links on the next page can tell you more.

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More Great Links

Sources:

  • Galaty, F., Allaway, W. and Kyle, R. Modern Real Estate Practice in Illinois, 4th edition. Dearborn Financial Publishing: 2001.
  • Levitt, S. and Dubner, S. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. William Morrow: 2006.
  • Owner Illlinois, Inc. http://www.homesbyowner.com/chicago/Helpful-Info.asp
  • Silverman, Jacob. "How Selling a House Works." HowStuffWorks.com. https://money.howstuffworks.com/personal-finance/house-selling.htm
  • Moloney, Walter. "Survey Shows Buyers and Sellers Use Technology and Want Personal Servive." National Association of Realtors. November 2006. http://www.realtor.org/press_room/news_releases/2006/survey_shows_buyers_and_sellers
  • "Selling Without A Broker." Smart Money. April 3, 2007. http://www.smartmoney.com/home/selling/index.cfm?story=solo