For Sale By Owner is a Bad Idea . . . Or is it?

Updated: Jul 5

Selling a home is a big deal. There’s a lot of money at stake – your money. Obviously, you don’t want to give away any of it. Maximizing cash in your pocket is likely the main reason you're considering For Sale by Owner (FSBO). More than 40% of people who initially list their home themselves (i.e. FSBO) reported "avoiding commissions" as their primary reason. They believed selling on their own would get them more money. Would it surprise you to learn, on average, FSBO’s sell for 20% less? Well, they also take 30% longer to sell.


Most FSBO sellers believe they’ll save money; (i.e. avoid agent commissions). Generally, real estate commissions are around 6%; a $250,000 sale garners $15,000 in commissions. So, no agent, no commission. That’s quite a savings, right? Well, surprise, that’s not true either . . .


OK, it’s actually half true. You see the 6% is split between the buyer’s agent and yours (usually 3% for each). So, in reality, when you hire an agent you’re only paying him/her half of the $15,000K. The other $7,500 goes to the buyer’s agent. If you go FSBO, you’re most likely going to pay the buyer’s agent his/her commission. In fact, most agents will ask you to commit to that before showing their buyer your house.


While time and money are common considerations there are others. Before putting a FSBO sign on your front lawn, consider the following.


Risk and Liability

When you sell a house (with or without an agent), you are liable for errors and omissions made during the entire process.

Selling a house to a Retail Buyer requires a mountain of paperwork, especially if they need a loan. There are state-required disclosures including material defects and lead paint requirements; to name only two. Most of the paperwork is meant to protect the buyer against fraud, errors, and omissions. Make a mistake on the paperwork, or misrepresent some material aspect of your home, and lawsuits can and often do ensue. Without an agent, you are solely responsible for everything that happens during the marketing and sale of the home. In short, when you go the FSBO route, you are truly on your own.


On the other hand, licensed agents provide some risk mitigation. Licensed agents carry insurance (i.e. Errors and Omissions). You probably do not. This insurance protects them (and you) from mistakes which, while unintentional, can trigger legal action.


Look, licensed agents are expected to have professional knowledge the general public (you) doesn’t. This helps avoid costly mistakes, mitigating the risk of a lawsuit. When you hire an agent, their job is to ensure you follow all of the rules and disclose everything appropriately. Thus, should a lawsuit occur, and assuming you were fully transparent and honest with your agent, your liability is significantly reduced, if not entirely mitigated.

Example: Your house has oak floors. Since you’ve lived there, you have referred to them as hardwoods, after all, they’re made of oak and that’s a hardwood. However, in actuality, the oak is only a thin veneer. If you advertise them as hardwoods and the buyer later discovers the oak is only a thin veneer, you could be at risk of a lawsuit and liable for damages.


However, if you had an agent, they likely would have known the difference and advertised it correctly, avoiding the lawsuit altogether. Furthermore, their insurance is may cover some or all of the cost associated with any judgement made against you / the agency if they did not catch the error.


Inconvenience

It takes more than 30 showings to get an offer on a home which is in excellent condition, ideally situated , and priced correctly. Furthermore, you have to schedule and be present for every one of those showings, unless you have a lockbox on your front door with keys, which sounds great until you realize that, unlike an agent’s digital lockbox, you’ll have to give out the code to a bunch of strangers – I wouldn’t do that, would you? If you’re house isn’t in what we call TV-ready condition, prepare for significantly more showings.


Also, as we discussed above, there is a mountain of paperwork involved in selling a house, especially when selling to a Retail Buyer. As a FSBO, you have to do all of it.


Costly Repairs

When selling your house to a Retail Buyer (as opposed to an investor), you’re going to need to make repairs. That “slow” leak in the bathroom is going to turn your buyers away. Most Retail Buyers are looking for a move-in-ready house; especially today. Fewer people have the time or skills necessary to fix a house and the last thing they want to do after having just paid hundreds of thousands of dollars for a house is spend more money to fix it.


To make matters worse, there are a ton of TV shows creating unrealistic expectations for buyers. According to TV, all homes are fully renovated; they have the most modern finishes, colors, and layouts. Yup, if you own an older house and have a closed in kitchen, they’re going to expect that “extra” wall be taken down and replaced by a giant high-end island counter with quartz counters, two dish washers, and a built-in wine cooler.


In short, if you want to sell to a Retail Buyer in 2020, you’d better break out the tool box or call your contractor and get ready to spend some serious money.


So, let’s summarize where we are so far. If you're selling to a Retail Buyer, FSBO won't save you money, it won't save you time, it opens you up to the risk of a lawsuit, you have to do all of the marketing, showings, and open houses, and there's a 90% change you'll hire an agent anyway. In short, FSBO is a Bad Idea, right?


Well . . . not so fast! That’s absolutely true if your house is truly move-in-ready AND you can wait 3 to 6 months to get your money. In that case, FSBO is just going to cost you money, waste your time, and open you up to liability.


HOWEVER, if your house needs repairs you can’t or simply don’t want to make, OR if you need to sell your house fast (under 30 days), we recommend selling it on your own, but NOT to a Retail Buyer.


Retail Buyers require loans, will put you through a rigorous inspection and due diligence period, and will, generally, take a long time to close. Additionally, they will have a buyer’s agent and you’ll have to pay at least 3% commission to their agent. That’s still a lot of money!


Instead, sell to a Home Buyer. Home Buyers are investors who buy property for a variety of reasons and purposes. Home Buyers generally:

  1. Close in less than 30 days

  2. Buy As-IS, requiring no costly repairs or upgrades

  3. Do NOT charge any commissions or fees

  4. Cover all closing costs

  5. Offer Fair Market Value (see our blog entry “Understanding Fair Market Value”)

  6. CAN offer alternative purchasing options which may be more advantages (i.e. give you more than Fair Market Value – see our blog post on Fair Market Value)

At the end of the day, choosing between an agent and FSBO is a matter of how long you have to sell your home and its condition at the time of sale. Here is a quick summary:


  • Call an agent if you have a Pretty House and 6 to 9 months. Professional real estate agents are remarkably well suited to sell your home, especially to a Retail Buyer. Never underestimate the effort and expertise required to sell your home.


  • Sell on your own (FSBO) if you have a Pretty House and lots of time to waste. However, you’ll likely end up back with an Agent because of the high liability and incredible inconvenience. Besides, you’ll ultimately pay most if not all of the commissions anyway. 90% of FSBO sellers eventually turn back to agents.


  • Call a House Buyer: if you simply can’t (or won’t) wait for your money, regardless of whether you’re selling a Pretty or Ugly House. House Buyers like TEG Home Buyers can get you your money in 30 days or less.


We hope this article helped you with this very important decision. Feel free to reach out to us if you have further questions. At TEG Home Buyers, we are both Georgia Licensed Real Estate sales agents AND Professional House Buyers. Regardless of your decision, contact us today for a guaranteed offer!


If you’d like to list your home, call us for a FREE, no-obligation Competitive Marketing Analysis (CMA) with a fair market value pricing recommendation. We guarantee to sell your house fast.

1 view0 comments

Recent Posts

See All