11 Reasons Why For Sale By Owner is a Risky Business
Executive Summary for Busy People….For Sale by Owner transactions often leave money on the table and owners immerse themselves in a quagmire of potential legal pitfalls.
When the real estate market is strong and listing inventory is tight as it is now in 2022, you might be thinking that selling your home yourself (FSBO) is an easy proposition, one that will yield greater returns and a quick transaction. But nothing is ever as easy as it seems, and below I provide 11 reasons why FSBO’s can be riddled with potential pitfalls. Worthy to note is that in 2020, according to the National Association of Realtors®, FSBO homes sold for an average of 19% less than comparable homes listed on the Multiple Listing Service. According to Zillow, a popular portal for FSBO sellers, an estimated 25% of home sellers in the US tried and failed to sell FSBO.
We will net more by saving the commission.
Many For Sale by Owner sellers (FSBO) believe that they’ll net more on the sale by saving the commission, which varies from market to market, and generally falls in the 6% total range in the Park City market when a transaction involves both a buyer and sellers agent, or 3% if only one side has professional representation. This potential saving is not borne out by statistics, and must also be weighed heavily against one’s ability to effectively administer a proper pricing and marketing strategy.
Selling your personal home can be highly emotional – How neutral can you be?
While your kitchen’s layout and wall paint color or wallpaper may be features that you absolutely love, will the market perceive their value? The antiques you’ve collected from your grandparents may hold special sentimental value yet might turn off a buyer who is thinking strictly modern. Buyers will be sensitive to saying so in your presence, but an improperly staged home can turn off a buyer in no time. I always provide up to 80 free hours of free staging to my clients using a professional home stager, because proper presentation is so vitally important. A professional knows how to declutter, add sparkle, emphasize desirable features in tune with the current market and, more importantly, de-emphasize those that could negatively impact pricing and appeal.
Properly pricing property is so much trickier than it appears.
Many FSBO sellers believe they can price their property themselves using data from public facing portals such as Zillow or Redfin. However, these portals do not address the details of presentation, uniqueness of properties, and knowledge and details of Homeowner’s Association assessments and the like. Their estimates of value are algorithm based. Utah is a non-disclosure state, which means that sales prices are not a matter of public record, so these algorithms do not have actual data to work with. This can make pricing a challenge in a rapidly appreciating marketplace. Failure to launch a proper pricing strategy in the Park City marketplace could mean you’re leaving hundreds of thousands of dollars (or more) on the table by not understanding our niche market considerations. An example might be in our gated golf course communities. Currently, the availability of an included membership with a home is rare, and can drive up the price several multiples of the current going rate for a golf membership, because demand so far exceeds supply. Your property might be located in a high demand (or low demand) neighborhood with very few transactions and wildly different properties. Understanding these nuances in Park City’s numerous niche markets is crucial to proper pricing. Further, that pricing becomes even more complex when nightly rental potential is factored in; this impacts so many of our Park City area properties. A savvy and experienced agent can weigh all these factors together to develop a solid pricing recommendation.
Negotiating real estate deal termsis a finely honed skill
If you own property in the Park City area, chances are that you are in a profession where you had to learn to negotiate well to succeed. However, negotiating real estate terms is a unique skill set. An experienced and successful Realtor will have developed those skills and will be best placed to get you the highest price possible, and to avoid pitfalls. Another consideration is that in Park City, buyers’ agents in the marketplace are savvy and highly professional, with many holding professional certifications in negotiating. With Park City’s complex transactions, it’s never just about price. The specific deal terms are so important to achieving your desired result, impacting every aspect of the transaction from the appropriate amount of earnest money to time to review Sellers Property Condition Disclosures. Understanding the give-and-take required to reach a mutually acceptable deal requires experience in our specific industry and solid relationships within our brokerage community.
Managing showings in a low inventory market requires exceptional organization and follow up
If you reside in your property full time, managing the onslaught of requested showings when your property first hits the market requires time and organization. If you have a full time job, you may miss opportunities or neglect to follow up appropriately due to your personal scheduling constraints. FSBO sellers do not have access to the same lockbox technology that Realtors® use, so keeping track of the buyers’ agents and direct client inquiries requires one to be masterful at organization and follow up. Feedback from showings is not easy to obtain yet is vitally important to help guide the process. On the flip side, many buyers’ agents are reluctant to show FSBO listings as they’ve been burned before, either with insufficient or non-existent compensation levels or more likely, having to execute “both sides” of the transaction, which presents a fiduciary conflict for the agent. Realtors® must adhere to a strict Code of Ethics; these FSBO transactions often present significant conflicts in representation.
Multiple offers – The Good, The Bad & The Ugly
Many properties, if properly priced, are receiving multiple offers in our strong market. Managing the complexities between similar seeming offers can be challenging for the inexperienced. We are a tight knit brokerage community here, with a high degree of mutual respect among our peers. We can interact with our professional colleagues in a way that allows us to truly evaluate every aspect of competing offers to advise our clients on which is actually best for their needs and desires. It’s never as simple as it might appear.
Do you have the proper skill to financially pre-qualify your buyers?
In our marketplace, where 50% of our real estate transactions are cash, I always require proof of funds to qualify a buyer. Would you be comfortable asking for this information, and more importantly, evaluating the data once received? An asset-wealthy buyer can still have liquidity issues which may impact their ability to perform within your desired timeframes. Additionally, when financing is involved, evaluating the lenders capacity to perform in our unique resort market is hugely important to sellers achieving a successful closing. What about buyers who present offers “sight unseen?.” Depending on the legwork their agent may or may not have provided, this might be acceptable. However, when inventory is as scarce as it is today, we are seeing many deals fall out of escrow upon buyers’ physical inspection because one key element of vital importance to them was left out of their agent’s Facetime or Zoom tour. Ascertaining the true strength of an offer requires expert probing.
Are you capable of presenting your property properly in today’s digital marketing channels?
While you may be able to find a professional photographer, do you understand how to manipulate the photos for proper sizing and orientation on various digital channels? Do you have access to drone photography (which requires an FAA license) and virtual walkthrough software? Are you able to create scaled floorplans when needed? Today’s discerning buyers expect proper visual and digital representation. I always attach the most relevant documentation to all my listings to disclose as much as possible, including all key information and documentation to limit the frequent and often challenging degree of back-and-forth that would otherwise ensue.
Are you able to obtain and translate all the exceptions on your property’s title report and understand how they might impact value?
If you haven’t looked at your property’s title report lately, you should do so. Do you understand what all the exceptions might be on the affixed Schedules and if necessary, what steps to take to remove any clouds? There could be a lien looming of which you are totally unaware that could sully a transaction at the 11th hour.
Do you have access to all relevant addenda?
In Utah, we are an escrow state, meaning that title companies customarily handle closings versus some parts of the country where attorneys manage the escrow process. The Utah Division of Real Estate has developed 50+ addenda to utilize in our transactions, and our Park City Board of Realtors® has numerous documents specific to our resort market. These documents provide much needed protections to both parties in a transaction and understanding which to use, and when, is vitally important to limit your legal exposure. A licensed Realtor is an expert at negotiating these addenda for their clients. While a FSBO seller can readily Google to obtain our Utah state approved purchase contract (REPC), knowing what addenda are needed is far more complicated; omitting one of them adds significant risk to the transaction. Sellers have an affirmative duty to disclose any fact that materially affects the value or desirability of the property and can be held liable for fraud, negligence, or breach of contract if they do not disclose properly.
If you own property in an LLC and need to do a 1031 exchange, do you understand how to facilitate this?
Last but not least, so many of our Park City properties are owned in a Limited Liability Corporation (LLC.) This can make it exceptionally tricky to navigate transactions, in particular a 1031 transaction when there are multiple members in that LLC. I have considerable experience in this and can guide my clients to the proper experts and tools to facilitate these types of transactions.
As you can see, there are considerable and significant risks and downsides to selling your home yourself. I conclude with some simple words of advice…..If you want to get the best possible price, and sleep well, use a Realtor!