Residential and commercial real estate matters are a big part of what we do here at Wright Beamer: purchase and sale transactions, leases, title issues, property disputes, and so on. While I have had the privilege of representing both buyers and sellers in for-sale-by-owner (FSBO) transactions throughout my career, it was not until recently, when my wife and I sold our home of 36 years, that I was involved as an actual party to the transaction. Here is some of what I learned (and some of what I already knew):
FSBO Transactions Are Not for Everyone. In my experience, all too often FSBO sellers have little understanding of the interests and principles involved or the documentation needed in order to market and sell their home. Likewise, many potential buyers are wary of dealing directly with a FSBO seller and unaware of what they need to do in order to protect their interests and to satisfy a potential lender. Both sides need to do their homework – a lot of homework. I recently spoke to an elderly lady who asked about selling her home to a friend. Upon my explaining the documentation and steps that would be involved, she was greatly distressed. She was a willing seller, and she had a willing, cash buyer. Why did it all have to be so complicated? The fact is, real estate transactions and real estate ownership involve a lot of money and very old, very well-established legal principles. If buyers later decide that they don’t like the house or that they got a bad deal, they can’t just return the property and get their money back.
Marketing is Key. Although of limited reach, a sign out front, complete with flyers containing information about the house and a phone number, is helpful. Internet marketing, on the other hand, is key. There are countless FSBO websites out there, along with other sites that offer no-cost postings. Many of the FSBO websites offer the option of including the property on an MLS service (multi-list) for a fee. While an MLS listing affords maximum exposure, be careful. The fees vary, the services vary, and the contractual terms vary. I recently worked with FSBO sellers who, after signing up with a FSBO website and paying the fee, found that they had contractually bound themselves to a listing agent who had far more control over the transaction than they wanted.
Commissions. FSBO sellers figure that they can save a sales commission by selling themselves. This is only partially true. While the standard listing agreement includes a 6% sales commission, it also specifies that the commission will be shared between the agents: 3% to the seller’s agent, and 3% to the buyer’s agent. (If there is only one agent, he or she will keep the entire 6%.) What I quickly learned in the process of selling our home is that nine out of ten calls we received were from real estate agents. They had seen our sign, found our FSBO listing, or represented buyers who had seen our listing. And, in order for them to have any incentive to bring their clients to our home, we had to agree to pay them a buyer’s agent commission of 3%.
Documentation and Due Diligence. Here’s a partial list of what is needed: an informational flyer or listing containing accurate information about the home, disclaimers, and photos (lots of photos); purchase agreement (one size does NOT fit all, and online templates that are not state/locale specific will cause more problems than they are worth); seller’s disclosure statement; for homes built before 1978, a lead-based paint disclosure statement and federally mandated, lead-based paint informational pamphlet; a mortgage preapproval letter; owner’s policy of title insurance; buyer’s inspection report; appraisal; and closing documents, including a warranty deed, settlement statements, property transfer affidavit, rescission of seller’s principal residence exemption, buyer’s affidavit for principal residence exemption, water and occupancy escrow agreements, and so on, and so on.
In this particular area of the state, at this particular period in time, we seem to be enjoying a resurgence in the real estate markets. How long this will last is unknown. (We sold our home in under three weeks, for very close to our asking price.) If you’re contemplating buying or selling FSBO, we’re here, we’ve got the experience, and we can help.