FSBO, or For Sale By Owner, vs. Using a REALTOR®

This has implications from both side so we will evaluate the selling side and the buying side of a FSBO property. This account will take broad statistics into account and not necessarily local ones.

From the Selling side

As a seller of real estate, it is often considered to sell your property FSBO instead of using a knowledgeable agent in an effort to save money. The statistics are everywhere that proves the undeniable fact that agents command a higher selling price and even after their commissions are accounted for, still net sellers more money. So what is the real reason?

Well, many sellers are more in tune with market conditions now. Many will just ask an agent for an opinion of market value. Then, they will attempt to market it as FSBO at the agent listing price. There is nothing inherently wrong with this and is a reasonable strategy. The problem comes in when you get to service providers and buyers.

Service providers (mostly FSBO sites trying to get $$$ to list the property on the local MLS) do not care if your house ever sells. The only thing they care about is getting the $$$ from you as marketing expenses. They will take your $400-$800 and pay an agent in the area to list it on MLS (which is most areas is against MLS by-laws as the agent is not in a fiduciary relationship with you in most cases).

The next part are the buyers. If a buyer comes to you off the street so to speak, they still have to get a loan and you need to be prepared to point them in the right direction. Most buyers who do not know the ins and outs go straight to a real estate agent for help who will inform them (if they are doing their job correctly) of the actual market value of your home. They will then add in their commission, typically by way of an exclusive buyer order, and are going to offer you fair market value LESS the commission you would have normally paid a selling agent. You will also often times get less than favorable terms in the transaction as the professional representation is all in favor of the buyer.
On the other hand – if the buyer knows what they are doing, they will often low-ball you in an effort to get the best deal. Their thought-process is they can get a MUCH better deal if there is no real estate commission. Why would they pay the same price for a house that is FSBO as they would if it were listed?

Expect to sell your home for 5-13% below market value if you sell FSBO.

Buyers and FSBO

Many times FSBO sellers are not in a position to sell their home for what it is worth. If they are not represented by an agent, then they are probably not familiar with options available to them such as short sales.

If the seller is able to sell at market value (with or without commission as market value for a FSBO is different than market value for a brokered transaction), then FSBOs are great for you to look at. If you see a FSBO that you want my opinion and expertise one, I will gladly assist you as my commission is almost always covered just by the money I will save you in the deal.

Conclusion

Sellers: Unless you have vast real estate experience, it is almost never in your interest to try to market and sell your home yourself. There are thousands of case studies you can look up online to prove this. While it does occasionally work for some, the overwhelming majority of sellers come out at the bottom by doing this.

Buyers: Look at FSBOs but contact your agent/broker. Their expertise will guide you to get the best deal and protect your interests.

I represent both buyers and sellers in their real estate needs. Contact me to see how I can help you with your needs.

In this real estate climate, especially over the past few years, it is not uncommon for people to owe a little, or even a lot more than their home is worth. I recently had the opportunity to discuss this with a potential seller a few days ago who had questions about their options and had another comment that she could not list her home without raising the price (which the market would not substantiate) over her FSBO (For Sale By Owner) pricing.

The good news is that there are options.

Short Sale

This is when the bank negotiates to take less than what is owed on the property in an effort to get the house sold in lieu of foreclosure. There has to be a hardship (unable to afford, job loss, moving to another state with good reason, etc). The reason of the hardship often dictates how willing the bank is to work with you.

The general process of a short sale is to contact the bank for a short sale packet. This can generally be received through a loss mitigation department. Fill out the packet and send in with your hardship letter. Go ahead and list the property if it is not listed. Be sure to put “subject to short sale” or “subject to approval of short sale from lender”.

Know that choosing the right agent to represent you is crucial. Not any agent can handle short sales effectively.

Most of the process will play out as a usual sale. Where it gets time consuming is that there will be additional documents you will be required to submit to the lender and the buyer will need to understand that in some cases, it can take months to get a final approval to sell and close a short sale.

Short sales may come with credit consequences and potential tax liability. Feel free to contact me and discuss as every situation is different and regulations change frequently.

Owner Finance

You owe more than the house is worth and can’t sell it and don’t want to do a short sale for one reason or another. You could rent the house but that would more than likely be at a loss and you would be responsible for fixing things that tenants break.

Why not owner finance? Take a little money down and finance directly to buyer. A buyer who cannot easily get a loan through conventional means may be willing to pay more for a home if you will finance it to them. In an owner finance situation, it is often the buyer’s responsibility to fix things when they break.

Contact me for more information as I can list your property and market it to buyers that need this type of financing.

Other Options

Depending on your unique needs, the property, and other variables, there may be other options. Talking to a knowledgeable broker can be the difference between finding a solution and ending up in foreclosure.

Contact me to discuss.

Since there are numerous foreclosures and short sales on the market, would it be feasible/legal to place offers on multiple properties at one time?

If you plan to go through with the purchase of every property you put an offer in on, then this is a perfectly accepted practice. However, if you only intend to purchase one property, then the answer gets a little more “gray area”.

There is nothing illegal about placing offers in on multiple properties at one time and I have done it in the past with clients, but only under extreme scenarios. Typically, it is best to put one in at a time as placing offers on multiple properties at once with the intent of only buying one, could present potential issues such as:

1. Multiple offers being accepted at the same time:If you place more than one offer and two or more get accepted at the same time, it is possible that you could effectively be under contract for two different properties at the same time. There are contingencies that can be added to the sales provisions that would make it fairly easy to get out of a contract, but you do not want to be under contract with two different properties at the same time unless you are using it as a strategy to lock the property up in a fast-moving area. Doing this definitely needs to be discussed with your REALTOR® so there is no doubt what you are doing and apprpriate measures can be taken to minimize the risk of your earnest money.
2. Asset Manager blocking: If both properties happen to be foreclosures, managed by the same servicing company (Wells Fargo for instance, not necessarily the same listing agent), and you are accepted on both properties but find issues with both and do not end up closing on either, you could actually be blacklisted from putting in offers to other assets (foreclosures) by that company.

There are other inherent dangers in using a practice of putting in offers in on multiple properties, but these are probably the biggest issues. If you are pressed for time on your house-hunt, you could use better strategies. Work with me to find homes you love. We will put in the first offer and if we are unable to make a successful deal, we can have a list of 2nd and 3rd choices. Then, we just move down the line. I can either write the offers and email them to you (you print, sign, and email/fax back). This is the most efficient way of doing things and assures that you do not run into any “sticky” situations.

What is the difference between a buyer’s agent and a seller’s agent? Also, why should I use a buyer’s agent?

The simplest version of your first question is that a buyer’s agent represents you as the buyer. A seller’s agent represents the seller. If you call off a sign in the yard, you are calling and speaking directly to the seller’s agent. The seller’s agent has a job and is bound by a fiduciary responsibility (see agency relationships) to get the most money and best terms on the sale for their seller. A buyer’s agent will represent you and get you the best price and the best terms for you.

To expand on why you should use a buyer’s agent is pretty straightforward. Most of the time, using the services of a buyer’s agent does not cost you any additional money. The seller’s agent typically has already agreed to a percentage of the sale to go to a buyer’s agent. If you contact me to represent you as a buyer, I will negotiate the best terms for you in the purchase of your new home and will almost always be paid by an already agreed percentage from the seller.

You can start by searching for homes on my site. Most of these homes are listed by other agents and I would represent you as the buyer.

As I deal with a lot of investors, I often run into deals with Options, Lease Options, and Lease Purchase agreements. The problem is that these terms are often used interchangeably because many investors have received bad information on what they actually are. “Lease Options” are often pitched to investors in a “sexy” manner but nine times out of ten, they person pitching them is using the terms incorrectly. This brings us to a question that was recently asked (and recently misunderstood by another):

What is the difference between an Option, Lease Option, and Lease Purchase?

An Option is easiest defined in the manner in which it is stated. The buyer has the “option” to buy it. He also has the option not to. An option by itself has no lease attached and typically no other tie-in agreements. There may be an option fee associated with purchasing an option (or there may not be). Options are used primarily by investors, but also may be used by buyers who are nervous about certain external aspects of a property. For example, an option may be used to give a buyer the ability to buy a property at a pre-negotiated contract value/terms at some point in the future. A personal experience where this was used was when one of my buyers put an option on a piece of land where he wanted to build a gas station. There was a new road getting ready to come through and he did not want to buy the property if the road was going to dissect the property. He put the option on the property until the department of transportation finalized the plans for the road. Options typically:

• Have a predetermined/pre-negotiated contract in place and the buyer has the “option” to purchase at some point in the future
• Have a fee associated with obtaining the fee. This can range from $1 to several thousand dollars and is usually determined by the motive of the option (someone just wanting an option to pre-negotiate  deal while waiting on an external source such as department of transportation is called an “innocent option” and is usually not costly where an investor trying to tie up a property to resell or assign the option may have a higher fee associated with it). Option costs are also determined by the length of the option. An option for a few months may be next to nothing where an option for a few years would be substantially more
• Owner of the property cannot sell to anyone else while the option is in place
• Are typically easily assigned or transferred by buyer without consent by seller unless specifically noted otherwise in option
• Have an expiration. If a buyer does not exercise his option within the time period – it expires and he loses option and typically any fees associated with obtaining the option (the option fee which could have been as little as $1 or quite substantial).
• Come without obligation. The buyer has an “option” to buy property but he is not obligated to.

Now, this brings us to a Lease Option. The only real difference between an Option and a Lease Option is that a Lease Option also has a lease attached. Think of this like renting a place (the lease) and having the ability to buy it at any time during the lease period. In a lease option, the option may be easily assigned but often times, the lease is not. A perfect example of a lease option is the a buyer really likes a home but he has to sell his first before he will qualify for a loan or there may be other issues associated with obtaining financing. He may negotiate the terms of the purchase agreement up front using the option, and then you attach a lease so he can move in now and the seller can cover the note. Lease options are very popular among investors and vacant properties because it gives the seller the ability to have money coming in on the property during the interim while buyer is getting their financing together.  A lease option is nothing more than a lease [with an] option to purchase.

Now, this brings us to a Lease Purchase. This is probably the most under-used term for what it is. Often, investors and real estate professionals alike, substitute the term lease option for lease purchase. In fact, there are entire books written by real estate agents who improperly use this – no wonder the investors are confused! A Lease Purchase is pretty easily understood once you have full understanding of options and lease options.

• A Lease Purchase agreement still includes the lease and an option, HOWEVER, the buyer (or tenant) is responsible for things such as insurance, taxes, HOA dues, and other basic maintenance items as well as mechanical issues, and any other expenses
• The “option” in Not Really an option – it is more of a convenience fee
• Buyer is typically obligated to purchase under a lease purchase
• A Lease Purchase is also typically classified as “Rent to Own” and some portion of the money from the lease may (or may not) be applied toward a future downpayment for the purposes of a bank loan
• May be called a “Land Contract”, “Land Trust”, “Deed Contract”, “Contract for Deed” or other terms which are more in the legal realm than the investor/real estate realm.

Options and Lease Options are typically used when a buyer is not 100% sure if they want to buy a property or if they just need a small amount of time to determine their ability. Lease purchase agreements became really popular in the 80’s when bank rates were very high and sellers were willing to finance to buyers under long term loans (seller financing). They have since become an instrument for investors to sell to people who may not otherwise qualify for a loan or need a long-term solution to get prepared. A lease purchase agreement could last from 1 year to 10 years. An average is 3-5 years with the ability to renew if necessary.

If you are considering any of this as a viable solution for your properties or as a buyer, I urge you to contact me, quite frankly because there simply are not that many people in our area that fully understand this and you run the risk of serious issues if you do not know what you are doing – or have someone that does!