If you want to sell your own home without parting with thousands of dollars in commissions to real estate agents, consider the for-sale-by-owner process.
Doug Perlson, founder of RealDirect, a New York City company that helps FSBO sellers market their homes, says many owners who paid top dollar for their properties a few years ago are finding that the drop in real estate prices makes it harder for them to come up with funds for closing.
“A for-sale-by-owner approach is appealing because every dollar saved is that much more important when you're selling for less than you ultimately paid,” he says.
In 2011, FSBO accounted for 10 percent of home sales, according to the National Association of Realtors. Selling your own home requires more time and effort than working with a traditional agent, Mr. Perlson says. But it's worth researching the pros and cons.
The biggest reason people sell FSBO is the potential to save money, Mr. Perlson says. Sales commission paid to a real estate agent is often as high as 6 percent. Avoiding this fee is the only way many owners can afford to sell, he adds.
While saving money is a huge plus, FSBO has its drawbacks. Owners still have to spend money upfront, and they have to spend time marketing their property without a guarantee they will find a qualified buyer, says Katie Wethman, a real estate agent in McLean, Va.
It's a given that sellers will have to design and print fliers, yard signs, and other marketing material on their own. But, Mr. Perlson says, it can also cost sellers up to $400 a month to list homes on Internet sites and a local multiple listing service, or MLS.
Homeowners have to take time to stage their property, take photos, and write descriptions for their listing, Mr. Perlson says, adding that they must be available to potential buyers. This can mean staying home on nights and weekends so potential buyers can visit.
“The work and time commitment really comes around showings,” Mr. Perlson says.
If a buyer makes an offer on a FSBO, it could be lower than what the owner hopes for, because the buyer knows the owner isn't paying a commission.
“The buyer may want to participate in the savings,” Ms. Wethman says.
If a potential buyer has his own agent, he may not even consider a FSBO home unless the owner is willing to pay the agent's commission, according to Mr. Perlson. That's because the seller's agent would normally split his fee with the buyer's agent, so with a FSBO, the owner takes the place of the seller's agent. If you agree to the sale, expect to pay around 3 percent of the purchase price to the buyer's agent.
Your net proceeds would be lower, but a buyer's agent can expand your pool of prospects, Mr. Perlson says.
Even after you agree on a price, you still need to prepare the sales contract, says Shawn Christopher, a real estate attorney in Henderson, Nev. The contract should list the responsibilities of both the buyer and seller, terms of the sale, and how the transfer will take place.
He adds that if you don't disclose problems before the sale, such as a foundation crack, roof leaks, or mold, the buyer may try to seek legal action later upon discovering a problem.
This may be avoided if the seller hires an attorney to review the contract and even conduct the closing, Mr. Christopher says. Typically, lawyers charge $300 an hour or more for their services, but the cost of good legal help is worth it.