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Reasons Why “For Sale By Owner” Can Be a Risky Idea
A home buyer on Chicago’s North-West Side fell in love with a “For Sale By Owner” home. He agreed not to use an agent and paid the homeowner $10,000 in earnest money deposit. The homeowner turned out to be a tenant with no ownership rights. With no signed contract and no receipt, the buyer lost all of his earnest money deposit. He trusted the fake homeowner who moved out when he should have trusted an agent. “For Sale By Owner” scams happen to both – buyers and sellers with little recourse besides hiring an attorney. Common scams include fraudulent ownership papers (fake appraisals, loan documentation), foreign buyer deposits (scammer sends too much with a bad check and then requests a refund), purchases through a third-party (a fake attorney, etc.) and asking for personal information.
Liability is all on the seller
Everyone makes mistakes. A seller (or buyer) who doesn’t have the representation of a licensed agent pays for those mistakes. Attorneys can close a real estate transaction, but they are not real estate agents, they don’t perform any of standard agent functions. So, if s homeowner lists “hardwood floors” as a feature and the buyer discovers it’s just a wood veneer, chances are seller is going to pay for that mistake dearly. An agent would have either caught the mistake or covered it with his E&O insurance. Let’s face it: this is a litigious society, so what homeowner wants to be a target for lawsuits?
Legally necessary paperwork is daunting
The 2017 National Association of Realtors’ Profile of Home Buyers and Sellers showed that understanding paperwork was one of the most difficult tasks for “For Sale By Owner” sellers. There are a variety of legal forms that are needed, including but not limited to, a long and complicated sales contract, mandatory property disclosures, occupancy agreements and lead paint records. Sure, ready-made contracts can be downloaded easily enough. But does an untrained seller understand what all that means? Would the seller know how to customize that one-size-fits-all contract? Understanding paperwork is one of the most difficult tasks for “For Sale By Owner” sellers.
Sellers can get stuck in a bad deal
“For Sale By Owner” sellers who sign on the dotted line and then realize an error are stuck. They have to pay the buyer (if they’re willing) to get out of it or just take the deal. Experienced agents can save “For Sale By Owner” sellers from that headache.
For Sale By Owner sellers always sell for less
In 2017, “For Sale By Owner” sellers lost 16 percent of the sales price with a median selling price of $210,000 (agent-assisted homes sold for $249,000). Homeowners selling by themselves simply don’t have the time to devote to the process, don’t know the market, don’t understand market reports and don’t properly market the property. If the 2017 “For Sale By Owner” seller sold to someone they knew (a friend, neighbor, cousin, coworker, neighbor’s friend etc.), the median sale price dropped from $210,000 to $151,900.
“For Sale By Owner” sellers spend more time on the market
Unless the seller personally knows someone who wants to buy the home (for less than it’s market value….), “For Sale By Owner” sellers take longer to sell than homes listed with an agent. For the same reasons, they can’t get the right selling price. No one is “behind the curtain” running the marketing show. On average, 18 percent of “For Sale By Owner” sellers were unable to sell within their chosen time frame last year.
“For Sale By Owner” sellers lack representation
There’s no one looking out for the homeowners who sell on their own. They have no one to call if they have a problem or a question. Seller, Dave, found this out when he sold his Chicago home himself. Studying for his real estate license, Dave felt confident he could handle the contracts. Then the unexpected happened. When his house was under contract, a state patrol car pursuing a speeding motorist crashed into a downstairs bedroom. Repairs threatened to push back closing, and suddenly the buyer was asking for a storage unit, the cost of temporary housing, and more. He was lucky enough to have an agent friend who could step in, but a homeowner with no representation could have been out thousands of dollars unnecessarily.
Inspections are problematic
Sellers who don’t know the rules can get stuck with unnecessary and costly repairs. When Sue sold her 10-year-old suburban townhome the home inspector said she needed to change the stairs from the garage to the house because the building code had changed. He listed other code changes, and the buyer began to demand these be done. Surprisingly, the inspector didn’t know that because these items were up to code when the home was built the seller wasn’t responsible for these changes.
Marketing is limited
“For Sale By Owner” sellers have limited resources to market their home. The 2017 National Association of Realtors Profile of Home Buyers and Sellers showed 42% rely on a yard sign, 32% rely on friends and family, and about 15% use social media. Relying on the neighbors and Uncle Bob’s second cousin has its limitations. Even paying for the online listing won’t be enough because there’s no incentive for an agent to bring a buyer to a “For Sale By Owner” seller.
Hidden costs add up
The mindset for most “For Sale By Owner” sellers is saving money. Chances are, these sellers are being nickel-and-dimed out of a pretty large chunk of change. They’re paying for a lot of extras: signage, flyers, photography, online listing, real estate attorney’s for extra time (in addition to a closing fee of $500 on average) spent on a transaction without real estate agents, home warranty (optional but hard to sell without one), home inspection, wood destroying pest inspection, credit report for buyers (if applicable), contracts, excessive title insurance fees/closing fees and the list goes on.
Time costs the seller money
The biggest cost to a homeowner is their time. You might hear the argument that it doesn’t take an agent that much time to sell a house. And honestly, given the technology at our disposal, that’s true — to an extent. But it will take a homeowner working alone a whole lot longer. They don’t have the expertise or access to the resources agents have. What is their own time worth to them? How much time is the seller willing to spend researching the market and contracts? Is the seller going to leave work to meet potential buyers at the property each and every time there’s a showing appointment? “For Sale By Owner” sellers simply don’t have the expertise or access to the resources agents have.
BRINGING BUYERS & SELLERS TOGETHER IS WHAT WE DO BEST
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