For-sale-by-owner fallouts

Why most do-it-yourself sellers give up after 30 to 60 days.
Are you planning to sell your home in the next few months? According to the National Association of Realtors and state Realtor associations, the home sales market in most areas is booming. Most community median sales prices are at or near record levels.

The obvious reason is today’s ultra-low mortgage interest rates have flooded the home sales market with eager buyers. Landlords are complaining about high apartment vacancies because virtually every renter who can afford rent can afford to buy a house or condo.

In addition to extremely low mortgage interest rates, virtually every mortgage lender offers 90, 95, 97, 100 and even 103 percent mortgage financing. As a mortgage broker recently told me, “Even a bankrupt arsonist can get approved for a home loan today.”

But home sellers aren’t complaining because, if they owned and occupied their principal residence any two of the last five years, they can claim up to $250,000 tax-free sales profits (up to $500,000 for a married couple filing jointly).

If you’re thinking of selling your home, don’t miss the fall sales market.

The best time to sell your home is usually in the spring and early summer. That’s when the most home buyers are searching for homes in most communities. Statistics show the 2002 national home sales volume so far is likely to set a new annual record.

But the second best time to sell your home is in the fall. Weather is usually good and, especially with today’s low mortgage rates, prospective home buyers are out in droves. If you have a lower-priced home that is likely to appeal to first-time home buyers, now is a great time to sell. Just ask any realty agent who specializes in residential sales.

To hire a real estate agent, or not; that is the question.

Most home sellers, at least for a few fleeting moments, dream of selling their home alone without having to pay a typical realty agent’s sales commission of 6 or 7 percent.

Just run a few newspaper ads, put a “for sale by owner” sign on the front lawn, hold some weekend open houses, and the home will sell. That’s what do-it-yourself home sellers dream about.

But the reality is usually far different. According to National Association of Realtors statistics, less than 20 percent of U.S. homes are sold without the help of a professional realty agent. However, maybe you are in that 20 percent who can sell your home alone and “save” the sales commission. Review this checklist of six key questions to help decide:

1. How can I correctly set my home’s asking price? Here’s a little “insider secret” for correctly setting your home’s asking price: Interview at least three successful local realty agents who sell homes in your vicinity and compare their estimates of your home’s market value.

Even if you want to market your home “for sale by owner” (called “fizzbo” by real estate agents), they won’t mind giving you their listing presentations. The reason is, they know that within 30 to 60 days, most “fizzbo” home sellers give up and list with a professional real estate agent. Chances are you will eventually list with one of the agents you interviewed.

Each agent you interview should give you a written comparative market analysis (CMA). The CMA form shows a) recent sales prices of comparable nearby homes, b) asking prices of similar neighborhood residences now listed for sale (your competition), c) asking prices of recently expired comparable homes listed for sale which didn’t sell, and d) each agent’s estimated sales price and recommended asking price for your home. Best of all, this service is free.

2. How can I effectively market my home alone? Placing newspaper classified ads, putting up a “for sale by owner” lawn sign and holding a few weekend open houses usually is not enough to sell a home.

Important problems to anticipate are how to handle the phone calls which will result, how to arrange showings if you will be home alone, who will conduct the weekend open houses and what to tell real estate agents who have prospective buyers.

Will you agree to pay a buyer’s agent half of a typical real estate commission? Or will you refuse to cooperate with agents who have serious prospective buyers? Paying half of a customary sales commission to an agent is usually smarter than not selling your home.

A major marketing problem is how to make your home stand out from the crowd of other nearby homes for sale. Real estate agents have the local multiple listing service (MLS) to market listed homes to hundreds of member realty agents, many of whom have waiting buyers looking for a home like yours. But without access to the MLS, and the increasingly important Internet Web site for MLS listings, how can your home compete?

3. How can I obtain a legally binding sales contract and comply with all the new disclosure requirements? As part of his or her listing presentations, each agent should show you the required and optional disclosure forms used in your area. Depending on state and local laws, these include the lead-based paint disclosure, known-defect disclosures, radon disclosure, hazardous substance disclosure, building code and permit disclosure and energy efficiency disclosure.

More important, do-it-yourself home sellers ask themselves, “When a serious buyer wants to make a purchase offer, especially on a weekend when most homes are sold, how can I obtain a legally-binding purchase contract?”

The obvious answer is to have a pre-arranged real estate attorney standing by to quickly prepare the necessary legal paperwork. Unfortunately, most real estate attorneys are not available on weekends. By Monday or Tuesday, your serious buyer might have contracted the dread disease, “buyer’s remorse.” Worse, the buyer might have bought another home.

4. When a buyer wants to make a purchase offer, how can I know if the buyer is financially qualified to complete the purchase? Most real estate agents know how to evaluate purchase offers from pre-approved buyers and recommend their sellers accept or reject them. But successful do-it-yourself home sellers need to be familiar with FHA, VA, Fannie Mae or Freddie Mac and jumbo mortgage terms. Pre-arrangement with a nearby mortgage lender offering easy-finance alternatives greatly eases do-it-yourself �fizzbo� home sales.

Some buyers, known as “flakes,” are not financially qualified to purchase a home. But they will waste your time. However, other potential buyers are already pre-approved for a mortgage by a mortgage lender and are ready to buy. Still other prospective buyers are unsure how to proceed with a home purchase unless an experienced real estate agent guides them through the process.

5. What home purchase contingencies are normal? Most home purchase contracts contain reasonable contingency clauses for at least (a) a satisfactory appraisal by the buyer’s mortgage lender, and (b) a professional inspection report satisfactory to the buyer.

However, some buyers will add contingency clauses that are usually not in the seller’s best interests, such as a contingency for the sale of the buyer’s current residence. Most real estate agents advise against accepting a purchase offer with such a contingency unless the local home sales market is very slow and there are no other prospective buyers.

But, as a do-it-yourself home seller, you’ll need to know what to do if a second buyer then makes an equal or better purchase offer with no contingency for sale of another residence.

6. Who will handle the home sale closing details? Depending on local custom, the actual home sale closing should be handled by an attorney, escrow or title firm. The buyer’s earnest money purchase deposit is usually held by the same entity.

Who pays for the closing settlement costs? What about arranging title insurance? Who pays the transfer taxes and other closing costs? These are home sale expenses that home sellers should anticipate.

How to decide if you can sell your home alone:

After reviewing this do-it-yourself home sale checklist, you might find the task of selling your home alone without a professional agent overwhelming. Or, you might relish the opportunity to save the sales commission by selling your home yourself.

But there’s one more consideration. It is the buyer who, when purchasing from a for-sale-by-owner, expects to share in the commission savings. That’s why “fizzbos” should be prepared to sell for less than the recent sales prices of nearby comparable homes.

Still another situation “fizzbos” need to anticipate is how to handle buyer’s agents who ask to receive 50 percent of a typical real estate sales commission for bringing a qualified buyer. Will you pay half of a commission? Or will you refuse to pay any commission, risking loss of that agent’s buyer?

Conclusion: Selling a home is never easy. But it can be especially challenging when the seller insists on selling without a professional agent. After 30 to 60 days without sales success, most do-it-yourself sellers give up and decide to list their homes with one of the agents previously interviewed.

That’s why most real estate agents enjoy giving their listing presentations to home sellers who think they can sell alone. However, experienced agents know few homes are sold without professional help.

By Robert J. Bruss
Tribune Media Services