Many people have tried to sell their houses as a For Sale by Owner. Were they successful? Some were, many have left money on the table, others gave up and listed with a real estate agent.
I am going to share with you the full scope of what is a For Sale by Owner, the processes needed to prepare a home for sale, how to market the home, and the sales process. Selling a home by yourself is not an easy task. You are on your own to do everything, and I highly recommend using certain experts to help you during the critical stages. Perhaps the most difficult part, aside from making repairs and prepping the house, is accurately pricing your house, marketing, and negotiating.
FSBO Home Sales Numbers Are Down
Today, the number of For Sale by Owners or FSBOs has declined significantly from 1981 to 2019, down from 15% to 8% of all sales. The decline of For Sale by Owners and their lackluster results over the years have led a national reduction in this method of selling a home. In 2019, the Profile of Home Buyers and Sellers shows that 6 out of 10 FSBO sellers knew the buyers! The buyers were predominantly friends, neighbors, or relatives.
The main reason homeowners chose to sell by the owner was that they knew the buyers. The seller and buyer relationships allowed them to receive a higher amount of money for their homes, 101% of the asking price. Because the homeowner already knew the buyer when posting the home for sale, the homes sold quickly with most under one week. And because of the existing relationships of the sellers to the buyers, 76% of sellers did little to no promoting and marketing the homes to the public.
The main purpose of the private homes For Sale by Owner was to save by not paying a commission. Of the houses sold to strangers, 63% of the For Sale by Owners were selling their homes to save money.
The downside of homeowners trying to sell their homes to save money resulted in sellers losing more money than the average sale because they poorly negotiated their positions or underestimated the real value of the home. The median sales price of all home sales was $275,000. However, the do-it-yourselfers’ final house prices were much lower at $200,000. The sellers who used real estate agents saw a much higher return of $280,000!
The For Sale by Owners indicated several areas of the sales process as being very difficult. These included establishing a correct price and getting the price they wanted from the buyers. They also noted preparing or fixing up the home for sale and selling within the length of time planned.
History of Home For Sale by Owner
Let’s do a quick glimpse into the history of homeownership and the real estate agent before moving into more complex sales techniques of selling a home by oneself. The term “real estate” was first used with “real” being derived from Latin meaning genuine or actual sometime in the 1660s. Estate refers to the land.
Colonial Land Charters & Grants
With the discovery of the Americas, the Spanish claimed all lands in Central and South America in the name of the King. In North America, King James 1 of England granted charters to two land companies in 1606, the Plymouth Company and the London Company to establish colonies in the new world. These land grants were owned by the companies and individuals didn’t own land until the land grants and companies began dividing the properties to sell.
The Louisiana Purchase
Perhaps the most famous land transaction was between Napoleon Bonaparte of France and President Thomas Jefferson for the purchase of the Louisiana Purchase. In an effort to raise cash to fight the British, Bonaparte sold 828,000 square miles of land for $15 million in 1803.
In the United States, individual homeownership has been around for a little more than 3 centuries. The earliest individual land transactions were handled by “For Sale by Owner”. For almost 3 centuries individual homes and landowners bought and sold the property on their own without any form of representation.
The First Real Estate Office
The concept of using a real estate agent isn’t seen until about 1855 when the first real estate office was established in Chicago as Baird Warner. The National Association of Realtors was established in Chicago on May 12, 1908.
Most real estate in the United States until after World War II was sold by a simple sign or an ad in the Classifieds. As our society became more sophisticated and legalistic, the real estate agent became a permanent fixture.
Tech Enters Real Estate
Today, tech giants like Zillow, Realtor.com, Trulia, Redfin, and Opendoor have changed the dynamics of home buying and selling. This has made it more difficult for real estate agents to compete and they have lost some market share. However, this is probably short-lived as both Zillow and Opendoor ceased all house buying and canceled contracts in March 2020 because of the stock market crash caused by the coronavirus. I also believe the individual home seller for the first time in centuries is facing a much more difficult process to sell their home. Let’s look at some of the reasons why.
We live in a complicated technology world. Home selling and buying have also become complicated for both do-it-yourselfers and realtors alike. Complications arise from pricing the home correctly, having all the necessary legal documents and advice, making repairs before and after the home is listed, to marketing the home for best exposure. The art of negotiation is not readily understood by the public and most realtors. The legal part of the sales documents and the closing process is problematic to individual buyers and sellers.
Preparing and Selling Your FSBO
Let’s start at the beginning of getting your FSBO home ready for the market. Repairs are the best place to start. Do you have some repairs needing attention, or a lot of repairs before it can be sold? Would your home generate a higher value with new upgrades and updating?
Presenting a home with new paint, clean interiors, and all components in an operational condition is the best way to show your home to buyers and maximize your return from the sale. If your wall colors are more than 7 years old, (walls are painted in bright colors, and colors do not harmonize between rooms) you may want to consider a more neutral palate to appear fresh and fashionable.
If you know there are repairs to be made, hire the tradesmen to begin work. If you are unsure of what is needed or the cost, then you might want to consider hiring a professional home inspector.
The Home Inspector
The home inspector should be licensed and insured in your state. Their thorough study will examine every component of your home from the roof to the foundation. They will review and test your electrical, plumbing, HVAC system, water heater, roof, windows, doors, and exterior and interior walls.
Their findings will be presented to you in a written report of some 20 to 50 pages including suggestions of things needing repairs. Many inspectors will also suggest the approximate cost of repairs of some of these items if asked. The cost of a home inspector starts about $350 for basic inspection and goes up in price depending on the complexity of the inspection and the size of the home.
Many simple things requiring repairing or replacing can be undertaken by a good handyman. Electrical work and HVAC systems require certified and licensed professionals for work and maintenance. Plumbing fixtures may call for a licensed plumber. If your roof needs repair or replacement, please seek out a licensed, bonded, and insured roofing company with a good track record.
Upgrades and Renovations
Not everyone wants to live through a renovation or can afford it. It’s a mess, it’s loud, and you have no privacy. However, some homes in certain neighborhoods would benefit from having older bathroom tiles and fixtures upgraded. Kitchen countertops, sinks, faucets, and appliances have almost 100% return on the investment when updated before listing the home. Large renovations of kitchens and bathrooms, floors, light fixtures, etc. bring even a higher return to the homeowner. But in larger renovations, local permits, general contractors, and a designer may be needed to bring this project to fruition.
Cleaning & Staging
Assuming all the repairs and upgrades have been completed, it’s time to think about your contents and presentation of your home. You will need to declutter the home. This should be a deep decluttering by removing most of the items in your closets with nothing on the closet floors and the racks half-empty for starters. Yes, we are serious if you want to reach the top dollar.
The Home Staging Consultant
Bringing a home stager onboard may be a wise decision on your part as they can guide you without any emotion the things you need to move out, what to keep, and how to place furniture and objects for the strongest impact. The key is to make the home look inviting, clean, spacious, and a desirable place to call home.
If you are like me, decluttering is a difficult task. The easy way to remove items is to set up 3 boxes or bags. The first Box is for things you want to keep. Box 2 is for the trash, and Box 3 is those things you wish to donate to like Goodwill or ARC, etc. The object is to get rid of as many things as you can. Remember – Keep, Toss, Donate.
As you declutter and clean, please remove valuables from the house. Some visitors to your home pose as buyers as they rummage through the home searching for valuables, medicine, guns, etc. Find a secure place to store all of your bills and accounts. Those account numbers and addresses once stolen can destroy your credit and your identity.
To show your house to prospective buyers, your house has to look amazing! Once all the clutter has been removed and the house is cleaned, replace all broken light bulbs. Clean out HVAC filters and stove filters. Most houses need painting and yours might too. Each room should look fabulous, fresh, and clean.
The exterior appearance is critical. The curb appeal must be strong to lure buyers out of their cars. Your lawn is as important as are the scrubs. But it is the front door that is special. Your front door needs to be freshly painted or stained and the hardware new looking. Remember how people make first impressions in the first 5 seconds? Well, the home also makes an impression in 5 seconds. What does your home say?
Pricing Your For Sale by Owner House
Let’s face it, we all want and think our houses are worth maximum dollars. This one though really burdens home sellers. How do you price your house? The Jones’ got $$$ for their home across the street or the people 3 streets over got $$$. So, our house should be $$$, right?
Pricing a house accurately is very difficult. There are so many variables influencing the value. Does it have a fireplace, attached 2-car garage, all
brick or brick, and siding, was it updated recently or 12 years ago. Is the roof new, 10 years old, or original? Inside do you have carpet, hardwood, tile, laminate or vinyl, or all of the above? Is your lawn level or sloped? There are so many things that go into pricing a home. If you need help, consider hiring a certified appraiser for $300-500.
What you should be very careful about is not overpricing the house. Overpriced houses sit on the market and fewer buyers visit. Then you start thinking maybe I did go a little high on the price, so you lower it in 3-4 weeks $5,000-$10,000. Still not much response. Now you are concerned. So, you lower it some more and then some more. You are baiting the low-ball buyer who smells blood to come in with their insulting low, low offer.
What has happened is the home was overpriced, to begin with, and it didn’t sell in 2 or 3 weeks like all the others. As buyers watch the price drop, they start wondering what is wrong with this house, why hasn’t it sold? In reality, your house has a “stigma” now and that is hard to overcome. Pricing a home accurately is an art. Done well and the house sells quickly. This is probably why in 3 to 4 weeks if a home hasn’t sold 80% of the for sale by owners quit and turn to Realtors.
List Your Home For Sale By Owner
This is the moment you have been anxiously waiting for, putting your house on the market. There is a process to getting your house on the market. You will need all the necessary legal forms to sell your house as well as disclose all the repairs you have completed as well as a list of known defects.
Lead Paint in Homes
If your house dates prior to 1978, you will need to disclose the home may have leaded-based paint and you need a document the buyers can sign off on stating they know there may be lead in the paint. This is an important issue. You may or may not have lead-based paint under all those layers of paint and you will not know unless you’ve had it tested. So, don’t test it, just disclose the house was built prior to 1978 and lead-based paint may exist.
A real estate attorney can prepare all the necessary forms for you and maybe even do your closing. If you have a buyer represented by a real estate agent, they will want to use their TAR (Tennessee Association of Realtors) documents for the transaction and are required by their real estate brokerages. These forms are copyrighted and approved by TAR attorneys.
Photograph Your Home to Sell
Don’t even think about using your cell phone for this or an old digital camera! You must have professional quality photographs to show off the beauty of your home. The photos will be used online as well as included in your sales materials for buyers to see and pick up.
Remember, the first impression is a lasting impression, and this goes for what people see online as well. A professional photographer can photograph your home for $100 to $200. Check out their work for clarity, rich color, no dark shadows, and great angles that speak well of a house before hiring them.
Let the World Know Your House is For Sale
Marketing a home in today’s technology-driven world where users only look at prices and pictures for a couple of seconds is difficult. In the past, home sellers listed their houses in the newspaper “classifieds” and put a sign out front. Today, it is so much more involving. The major sites for listing homes for sale by owners are Zillow, Craigslist, and Facebook.
Craigslist and Facebook
List your house on Craigslist as for sale by owner classifieds. Craigslist is more cumbersome to use because the house listing is pushed down the list after a couple of days and will need to be reposted. Facebook is almost as bad; the listing gets buried with all the others. With Facebook, you will need to join the groups you want to post like Middle Tennessee Homes for Sale or Rent or other market-place locations. Many of the Houses for Sale and Open Houses sites are restricted to Realtors only because Realtors created and monitor the sites.
Open House for Sellers
You have marketed your house online and now it’s time to do an Open House. The most effective open houses have cookies baking or apple cinnamon cider on the stove simmering. Bottle water is another nicety to offer buyers. Some owners place cut flowers and have soft music in the background. Your listing details should be out ready for the buyers. Sundays are the most popular times, but Saturdays are picking up in popularity.
Security for a For Sale by Owner
If you are a female, you really need to consider having someone with you during the open house for security. In this day and age, even real estate agents are getting murdered at showings. Recently, in Middle Tennessee, several agents have had some strange and malicious calls. Instances from strange callers, repeat callers, disturbing phone calls and strange “buyer” requests to meet in odd places are becoming more common. Some callers have been very demanding.
You should develop a screening process for all incoming buyer calls. Just be cautious of those who might intend to harm you. We all have been trained while growing up not to talk to strangers or allow strangers in our homes. You have decided to sell your house by yourself to strangers. Prepare yourself and your home.
Working with a Buyer’s Agent
Another consideration for you, are you willing to give a buyer’s agent a commission if they bring you a buyer? If you are not willing to give them their commission, they probably will not bring their clients to you. If you do honor a Realtor a commission, they will present to you a document from the Tennessee Association of Realtors, TAR form RF161 Agreement to Show Property. By signing this document, you give them the “right and privilege” to show your house and you agree to pay them the commission they are asking for at closing if their clients buy your home.
Keep in mind many savvy buyers know you are selling your house as an FSBO to save money. They have no problem lowballing you 2%-3% even 6% to get a “deal” since you are using a commissionable agent.
MLS Listing Services
You may decide upfront or after a couple of weeks into the market to seek additional help with your home selling. Listing your home on the MLS, Multiple Listing Service, will give your home the visibility all other MLS homes have. Do note 80% of all properties sold are listed on the MLS.
Listing on the MLS is not free and is not available to people other than real estate agents. Using a Flat-Fee service, List for Less, or a real estate agent who does limited listings can put you on the MLS for a few hundred dollars. These fees begin around $300 and go up depending on the service. Do not expect any help from these people, just a listing and maybe some documents for the purchase.
The Closing Process for FSBO
Your home is in contract!!! Or as they say in other states in Escrow. Now what? The buyer will start with a home inspection, then the appraisal, followed by the loan underwriting, and then the close.
The Home Inspection
Most of the homes in Middle Tennessee that fall out of contract happen because of the home inspection. Even if nothing major is found in the inspection, many buyers use this as their opportunity to walk for whatever reason they are thinking including cold feet or buyer’s remorse.
The inspection report is used by the buyer to prepare a list of items they want to be repaired or replaced. Be prepared, these repair requests can become quite lengthy and intimidating. Even a shortlist of only 5 to 9 images can unnerve some of the most veteran home sellers and agents alike. Many sellers, unfortunately, tend to take these repairs personally.
Radon Gas in Middle Tennessee
One of the bigger items that kill deals is radon gas, an odorless, invisible gas that is immitted from the natural breakdown of uranium in the many rocks we have in Tennessee. The meter that reads radon gas runs for 48 hours and the results are then analyzed. The acceptable level of radon gas has to be under 4.0 pCi/L.
If the numbers are higher than the acceptable EPA standards, you will have to lower the amount of gas coming into the house. Radon gas remediation systems that reduce the amount of gas entering into a house start about $1,500. In Middle Tennessee, radon testing is becoming more common, and the number of houses with unacceptable readings is going up.
Fungus and Mold in Middle Tennessee
Another big inspection item found often is fungus/mold. The inspector cannot know if the fungus/mold is safe or deadly until it is sent away for testing. There are several companies in the area that remediate fungus and often the fees are usually $500 to $1,000 for small to average projects. That being said, I personally know a homeowner who became seriously ill and the doctors couldn’t figure out what was wrong with her. She almost died before they discovered her house had a serious mold problem. The house had to be torn down.
Structural Issues With Houses
This is a very common problem in Tennessee because of our limestone ground. Most houses have hairline cracks showing normal settling. Many homeowners are just not aware of what is under the house or notice a crack in the foundation.
One home my client wanted to buy had some settling on the floors. They had dropped almost 2” on one side of the house. The inspector found a large hole under the foundation measuring 10’ long and up to 3’ deep. The house had a sinkhole developing in the crawlspace! The foundation was starting to settle into the hole. My client immediately backed out of the contract. The repair cost to the house and fill the sinkhole was in the thousands of dollars. The seller had already moved out and we were not sure if the home insurance policy would cover sinkholes!
Termites in The House
Another common problem in Middle Tennessee houses is termites. These unseen insects can destroy a home very quickly. Some mortgage companies require a clear termite letter which means in addition to the home inspector, a termite specialist searches for current evidence of termites and damage. If termites are found, treatment is required and that is several hundred dollars. All damaged wood must be repaired, and if the termites have been active for some time, then major repairs are required, and this is where it gets expensive.
FSBOs Working with Buyers
Working with buyers is where your negotiation skills come into play. In real estate everything is negotiable. You might negotiate your closing date; items buyers want to remain with the house or buy, and the repair list the buyers want you to correct or lower the price to cover.
Price is the biggest item to negotiate. You should probably have a minimum price in mind you will accept for your home. This price line will be tested because buyers know you are selling your house by yourself to save the commission fees, and they will think you have more room to come off the price.
You will need to stay in contact with the buyers or their agents during the whole process. You want to know the status of their loan and underwriting, appraisal, and calls/emails to the title company waiting for that magical message “clear to close”. Communication is key in keeping the deal alive and on course.
Closing Costs for FSBO Sellers
This is probably an area most sellers, regardless if you are an FSBO or working with an agent, do not know the closing costs involved. You have your typical closing fees with an attorney or title company that ranges from $300 to $500. You will also have a proration of city and county property taxes and maybe HOA fees to coincide with your closing day. Other fees include courier fees and a wire fee for settlement funds to your bank.
The costs many sellers don’t expect are buyer’s title insurance, title search, and buyer’s title insurance letter for the bank. If you are a good negotiator you might be able to push this $1,300 to $1,800 chargeback to the buyer. The price is determined by the value of your home. The prices above are based on $200,000 to $300,000 homes.
If you have agreed to a commission for the buyer’s agent, that will probably be 3%. A cost that I see often is when the buyer asks you to pay their closing costs! Yes, this is a regular occurrence and this amount can range from maybe $3,000 to as much as $8,000 depending on how much support they need from you to keep this deal alive on a $200,000 to $300,000 home.
What this covers is part or all the buyer’s portion of the prorated property taxes, recording fees, Tennessee tax stamp (price is all over the board depending on the city and county, Davidson County is not pretty), loan origination fee, underwriting fees, appraisal fee, credit report, flood certification, prepaid interest, discount points, title company fees, homeowner’s insurance premium for 12 months, and sometimes a termite letter. Selling a home is expensive. Buying a home with a loan is even more expensive.
Congratulations! You just sold your house!
The Downside of Selling a House by FSBO
Let us look at the downside of selling For Sale by Owner as there are several key points that will give sellers second thoughts on selling in this fashion. We have gone through all the processes of cleaning, prepping, and making repairs to a home. These functions have to be done regardless of selling it yourself or with an agent.
However, sellers do all the preparation work of obtaining legal documents, finding a title company, and having the home photographed. The area where FSBOs fail the most is with pricing the house and negotiated. Sellers have difficulty pricing the home accurately because they either don’t have the expertise or tools to price a home like a realtor.
Sellers also lack the negotiation skills needed to get a fair price with the buyer. They also need to negotiate performance deadlines and repairs. Sellers tend not to be familiar with the lender pre-approval and approval letters for buyers and how to use this tool to their advantage. Again, this may be the reason why 80% of the for sale by owners give up and resort to other means after only a few weeks.
House sellers also must create systems to screen and show buyers their house. This is a lot of work and time not to mention the safety of working with complete strangers. Sellers need to request feedback from all of their showings to guide them on any changes that might need attention. You cannot take those criticisms personally, and some of the comments will be negative. You might even find it hard to get buyers to open up to you in fear of offending you.
Selling a house as a For Sale by Owner approach is a full-time job until you get the house sold! Your next step is to keep a steady line of communication and follow-ups with the buyers. Do you have this much time and patience?
Enter the Direct Buyers
What are other options are there to sell a house? There are several and they are direct buyers and iBuyers. Some of the big tech companies are entering this arena of real estate such as Zillow, Opendoor, and some real estate brokerages branching out. (However, Zillow and Opendoor have canceled all contracts and stopped buying houses beginning in March 2020 because of the stock market crash caused by coronavirus). The largest direct buyers are real estate investors, not the large Wall Street-backed companies, but small, locally owned businesses that have been saving and renovating houses for decades.
Many homes really don’t quality for retail market listings with real estate agents. The condition of the homes requires too many repairs or need expensive renovations. Many buyers would be shocked to see the scope of repairs needed on some homes, and they just don’t have the expertise, money, nor the knowledge to pursue a renovation.
Bankruptcy, Foreclosure, Job Loss, Illness
Other homeowners are facing financial difficulties like bankruptcy, pre-foreclosure, foreclosure, or illness. These homes must be sold quickly to get them out of the financial burden. They need to be rid of their houses fast, needed cash yesterday, and can’t afford closing costs. For Sale by Owners in these situations would be much better served to sell to a direct buyer.
Divorce and the House
Did you know more than half of the divorces sell the houses during or after the divorce? The reason is either the court orders it or the ex-spouse holding the house is challenged with making the payments on a single income. Often these sellers need to sell quickly and with all the personal and financial chaos in their lives, they just don’t have the time and the patience to sell it by themselves like an FSBO.
Job Transfer Sell My House Fast
I have had home sellers call me because they just received a job transfer to another part of the country. Their company doesn’t have a relocation package, and they are left to their own whim to sell their home fast. Asking a realtor is not an option nor is trying to sell their home themselves. The house has to go now and a real estate investor like Southern Homes Investments may be the answer for them because we can close as quickly as 7 days.
Owning investment properties is a smart financial move. However, some rental property owners become jaded over time. They are tired of trying to find new tenants or repairing the toilets at all hours of the day or night. Being a landlord can be exasperating with all the issues they face and having unexpected expenses that seem to be never-ending. The last thing a landlord wants to do is list the property on MLS or try to sell themselves. Imagine trying to schedule showings around tenants’ schedules with a 24-hour notice is not an easy task. The direct buyer is the answer. We at Southern Homes Investments are delighted to talk to fellow landlords and help them out of their nagging situations.
Inheriting Unwanted Property
Other homeowners we help for a fast sale are those who inherit properties they no longer need. Having some extra cash and peace of mind is more valuable to these beneficiary homeowners. They sure do not want to sell the property as an FSBO nor do they want to use a real estate agent because often, the property needs work and updating.
Many of the inherited properties have multiple beneficiaries and cash is what they really want, not a long, dragged-out sale process, and surely not to sell it as an FSBO. Can you imagine the discussions among the family members? Who is going to sell it, who will take the photos, who will determine the price, and who will show the house? The real estate investor is the smart choice.
I Want to Move
Occasionally we receive a call from a homeowner who wants to sell because they are ready for another home. They just want to move. These owners surely don’t want to sell their homes by themselves, and they don’t want to be bothered with a real estate agent. We are the logical choice for many of these house sellers.
Well, this has been a very long but comprehensive article on For Sale by Owners, and I congratulate you for reading this far. I think holding the dual positions of being a Realtor and a real estate investor, really affords me a unique perspective combined with years of experience, training, and knowledge. I am a CRS designee, Certified Residential Specialist, the highest credential awarded to residential sales agents, only 3% in North America.
Southern Homes Investments Nashville TN
If you would like to know more about me, please visit my extensive biography on LinkedIn. My company is also on Facebook: Southern Homes Investments. You can read more about Southern Homes Investments, a locally owned family business in Nashville, and some of the clients we work with at SouthernHomesInvestments.com. If you have any questions or would like to talk, please call us at 615-500-4466. We would love to hear from you.
Disclaimer: David Wright is a licensed real estate agent in Tennessee and this article is not a solicitation to list your house.