March ABODE: By owner, beware?

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 In a rough housing economy in which homeowners have to routinely lower their asking prices to sell their homes, it’s logical for a seller to want to save money wherever possible, making the For Sale By Owner property seem like a good idea.

A For Sale by Owner (FSBO) is exactly what it sounds like: Sellers try to sell their homes themselves without using a real estate agent, saving themselves thousands of dollars in real estate commission fees, usually 5 to 8 percent of the price of the home.

(File photo)

FSBO homes can be a good idea in certain situations, which we’ll get to in a minute. But it has a few drawbacks that may, ironically, end up costing the seller much more than the savings on commission fees.

The biggest, most practical downside of a FSBO is one of reach. Some 80 percent of homeowners work with real estate agents who bring with them a network of potential buyers through MLS, or multiple listing service. MLS is an online database of available properties on which only sellers working with brokers and agents can advertise their properties. Sellers don’t have to list their properties on MLS. They can advertise their homes in the newspaper, in a sign staked out in the front yard, on Craigs list, or FSBO specific websites, like gotofsbo. com. But not using MLS is a little like having a website that can’t be accessed via Goo-gle—expect less traffic. FSBO sellers limit themselves to roughly 20 percent of available buyers in a given market—slim pickings.

The other drawback to a FSBO sale is one of experience. How many sellers really know how to negotiate a real estate transaction? Selling a home is rarely if ever a simple process of agreeing upon a price, then depositing the check. Sellers or their agents are required to draw up a buy-sell agreement, as well as arrange for all inspections and remediation, such as checking for mold, contaminated water, radon and other potentially hazardous substances. Also, what kind of transaction is it? A short sale, owner financing, family transfer, veteran affairs, rural development? Different paperwork with different terms and conditions are required for each type of sale. The FSBO seller will still have to hire an attorney for any legal documents that need to be drawn up.

A real estate agent can also protect sellers down the line. Let’s say the seller, owing to inexperience, didn’t file the right paperwork or made a mistake with the inspections. A year later, the new owner discovers contaminated well water, and sues the previous owner for damages. Had the seller sought the representation of an agent, it’s less likely such a mistake would have been made, and if it had, the seller would have been protected by the agent’s errors and omissions coverage. Errors and omissions is a form of liability insurance that protects the agent—and his or her client —from a negligence claim.

An agent can also help save money at closing. For instance, an experienced buyer may finagle a FSBO seller to pay more of the closing costs, or title company fees that are typically split, or arrange for a move-in date prior to closing that’s rent free; all perfectly legal negotiations that less experienced sellers might not realize they can contest.

FSBO is recommended for sellers who know what they’re doing, who’ve been around the block, know housing data such as square footage and zoning details and are good negotiators. It’s also a great choice for sellers who come with their own buyer, since half the agent’s job is finding someone to make the offer in the first place—no easy task in a tough buyer’s market like this.

A new service has popped up that takes advantage of the current climate. If a seller finds her own buyer, thereby freeing the agent from the marketing of the property (taking photos, disseminating the listing on websites), the agent will still handle the nuts and bolts of the transaction—arranging for all inspections, filling out paperwork, etc.—usually for a flat fee that averages around $2,000. This allows the seller to save thousands in commission fees and to rest easy knowing the sale of her home has been handled by a pro.

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