FSBO’s: For Sale By Owner

Two important rules you should remember when shopping for a FSBO

People have long asked me about “For Sale By Owner” houses. These are commonly referred to as “FSBO’s.” No real estate office is involved in selling the house; the Seller has undertaken to sell the house. You find FSBO’s advertised in local newspapers, the local Pennysaver, or just a sign on a lawn or in a window as you drive around home-shopping on a Sunday afternoon. Lately a new industry of real estate services has sprouted up offering Sellers assistance in selling in the form of marketing materials, signs, and even MLS access. These services are offered at a flat fee to the Seller; no real estate commission is involved.

These are the typical questions my clients have about FSBO’s:

Should we consider buying a FSBO?

Of course you should consider buying such a house! Any house on the market that fits your needs, your wish list and your price range is worth considering for purchase.

Are they a good deal?

That’s hard to say. The definition of “good deal,” is different from one person to the next.

In terms of general market price, only you can know if it’s a good deal. As I am wont to say, “Know your market.” If you know your market area, have a pretty good idea what the prices are in your target area, and feel confident of your knowledge then you approach a FSBO from the perspective of being an educated Buyer. You determine the market price for the house when you agree on a price with the homeowner.

Therefore, if you get the house that is acceptable to you based on your knowledge of the market then you surely are getting a good deal. The good deal is the house you want at a price you’re willing to pay.

Now, if you mean good deal as in, “Wow, I got this suit at 75% off and no tax and free tailoring!” then, well, that’s really a whole other ballgame and in my opinion has no bearing on the idea of buying a home to live in. Homes are not pork bellies, used cars, or shares of Google. Or cheap suits for that matter, either.

Aren’t FSBO’s priced lower because there’s no real estate broker involved?

Ahh! Now we get to the crux of the problem with FSBO’s. Do not make the dangerous assumption that a FSBO is priced lower just because it’s not listed with a real estate office. Remember there is that word hanging in the background of any real estate transaction, “greed.”

A Seller who doesn’t wish to pay a real estate commission is not necessarily lowering the price accordingly.

No. More likely the Seller wants every possible dollar for the house in a sale. Therefore the price might be higher than market or the Seller refuses to negotiate with you once you try to “discount” for the real estate commission. Worse, the Seller might not give you any price reductions after your engineer tells you certain items in the house need to be replaced immediately.

Remember, these are the same people who will negotiate with real estate offices for lower commissions. Assume the worst case: the Seller wants top dollar (maybe even more than the house is worth). If you walk in the door of a FSBO with that worst-case scenario firmly lodged in your mind, then you can negotiate more sensibly, or make a quick decision that this house just isn’t going to work for you.

Two important rules you should remember when shopping for a FSBO:

1. Know the market prices of your target area. Negotiate based on market price, not on what the Seller tells you is so amazing about the house.

2. Input the “greed-quotient” into your shopping equation. Assume the Seller is not really interested in selling the house as much as getting the highest price for the house (and this price might be absurd).

We check FSBO’s on a fairly regular basis. My wife, The Realtor, does that to target potential listings. Many FSBO’s convert to real estate offerings before long: it’s hard work selling a house. My wife indicated to me this morning, based on the this week’s research, the number of FSBO’s in our area has dropped.

I’m not surprised. The market is cooler than last summer.

I have said it many times: it’s easier to sell a house in a “HOT” market. Thus, Sellers get greedy, decide to sell on their own, and avoid paying a real estate commission. Then those new breed of real estate offices sprout up. You know the type. They offer Sellers MLS listings, signs, and other “services” for a flat fee. No real estate commission involved.

That’s all well and good in a busy market when Buyers are knocking down the doors. When the market cools, however, folks pretty quickly realize (or maybe not so quick!) that the business of selling a house is complicated, difficult and requires a lot more than just an ad in the local Pennysaver or a lawn sign stating, “Open House Sunday 1-4 p.m.”

If you notice fewer FSBO’s, you are not crazy. It’s symptomatic of a cooler real estate market. The hard work of selling in such a market is undertaken by real estate professionals.