Homes for Sale by Owner: 5 Reasons Why FSBO Sales Fail
Homes for sale by owner, or FSBO, transactions are commonly seen in seller's markets or whenever homeowners want to maximize their profits by not having to pay commission. A home 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?
Well, maybe not ...
Statistics show that selling your home with the assistance of a professional real estate agent will garner you a higher profit, enough to cover the commission as well as put more money in your pocket. According to the National Association of Realtor®'s 2016 Profile of Home Buyers and Sellers, the average FSBO sales price was $185,000, while the average price for a home represented by an agent was $245,000. That's a difference of $60,000!
Houses for sale by owner leave a seller to do the negotiating. You'll be relying on your own skill to finalize a contract, leaving yourself open to potential legal problems and a smaller profit when all is said and done.
Here are some of the top reasons why for sale by owner homes can cause major headaches.
1. Marketing your home online isn't as easy as you think
Buyers always start online, and "for sale by owner" sellers are unlikely to get the exposure they need on a number of listings websites to reach their audience, says Realtor® Wendy Hooper with Coast Realty Services in Newport Beach, CA. Sticking a sign in your yard or trying to pull off some DIY social media marketing hardly has the same effect.
How an agent can help: Using an agent automatically offers widespread exposure for your listing through the multiple listing service. Your real estate agent will also have the means to promote your house to fellow agents to share with their clients. FSBO sellers would have to shell out big bucks for advertising and still might 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—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 real estate consultant 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 real estate agent 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 an agent can help: A real estate agent will provide an accurate home value based on a comprehensive market analysis to help you arrive at the right listing price. The goal is to make sure you’re pricing your home in the sweet spot—not too high so that you are turning 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 curb appeal
“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. 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. Hooper had sellers who were convinced they had to totally overhaul their 35-year-old kitchen and floors to the tune of about $50,000. Instead, she advised a $10,000 investment for paint, staging, and minor repairs, which still netted $45,000 above their target price.
How an agent can help: Even if you’re not up for a full home makeover, your agent has an eye for detail and can recommend simple, budget-conscious swaps that can translate into real dollars when it comes negotiation time.
“We know how to spend the least amount of money to get the best outcome and home presentation possible,” Hooper says.
4. Showings are a drag
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 (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 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 an 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 contracts or law, you might want to leave the paperwork to the pros. The closing process can entail 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 an agent can help: Your agent will take care of all property disclosures and corresponding documentation to avoid future liability.
“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.