Selling By Owner...By the Numbers

This is a bit long winded, but it's worth reviewing. Everyone wants to save money, but this will bring a few things into focus and demonstrate that you really aren't saving as much as you think with "For Sale by Owner" (FSBO) - assuming of course that your home sells.                                                         
Your home is offered for $150,000 @ 6% commission - this will total a $9,000 full commission. Most FSBO's are "broker protected"; this means sellers will typically pay 3% to an agent bringing a buyer. 3% amounts to $4,500 - half the total commission.

For the remaining $4,500 your are responsible for:

  • preparing it for sale, making repairs or arranging for it to be done
  • determining an accurate list price
  • marketing, advertising, internet, flyers, newspaper ads...what is your strategy? 
  • preparing required documents - disclosures, termite letters, surveys...
  • buying signs, keeping flyers in your yard and home
  • answering inquiries ASAP - buyers want immediate gratification
  • meeting potential buyers/agents on their schedule - " Shown only by appointment" is the kiss of death 
  • showing your property, do you know what buyers want?
  • qualifying potential buyers - don't expect that agent to have it done
  • negotiating with agents - can you be disinterested and pragmatic? Do you know the tricks of the trade?
  • Inspection - how do you know what's legit and not an issue?
  • closing - the closing attorney represents the lender, who is representing you in this legal transaction?
  • Obviously this is just a PARTIAL LIST...... 

You know that the most likely source of a buyer will be an agent, so you advertise “broker protected” and offer that 3%. Well here’s something to consider: Most agents don’t want to deal with owners because it’s essentially twice the work. You don’t typically understand the process, the requirements, and the responsibilities of a seller; the agent usually winds up doing most of your work just to ensure the deal closes. Most agents will demand 4% to 5% for the added work.

Now, how much is your time worth on an hourly basis? You'll have to rely heavily on open houses; piggy backing off other agent opens. Two to four open houses per month is reasonable, most last between 3 and 4 hours. You will likely spend several hours a week answering phone calls and showing your home, at least initially. You’ll also spend a fair amount of time arranging for the various inspectors that are required and ensuring that needed work is completed properly and timely. On top of all this, consider that much of this work will be done on your free time. The weekends are typically the most common time for serious house hunters.

It’s also reasonable to assume that your home will take longer to contract than a home listed with a competent realtor. What will you be paying per month while waiting to sell it? Consider as well the fact that you may have to wait to sell your home before being able to fully pursue your next home. What happens if you find the perfect home and still have to sell yours? A contingency can be written, but most sellers will not want to do that with a buyer trying to sell by owner. If you’re moving out of state and facing a “deadline” to be in place, have you planned for the possibility that not getting a contract on your home will have a significant impact. In addition to having problems relocating, you may also be faced with having two mortgage payments and hoping your vacant home has no problems pop up.

So - the following numbers are realistic:

  • advertising expenses (paper, flyers, internet, signs, etc) $1500+-
  • an appraiser to give you and idea of market value $300+-
  • a termite listing letter - $75+-
  • your time (open houses, meeting buyers/agents, arranging workers) say an easy 80 hours at $10/hr - $800+-
  • if you get a contract, say $500+- for a lawyer
  • let's say $3,150+- or so
How about the negotiation process? How will you stack up against a smart buyer's agent? What about negotiated items such as home warranties, surveys, termite bonds, closing costs, etc etc? You have about $1500 saved so far to play with. These numbers consider that you have a solid contract. They also assume that your closing is uneventful - are you aware of disclosure issues, mold issues, "blue pipe", stucco, insurance changes...?
While my hand is raised anytime there's a chance to save money, in most cases selling a home by owner costs in many more ways than one. The vast majority do not sell and valuable marketing time is lost.