For Sale By Owner: The 7, solution

Published on April 17, 1993

By Willard Woods; Staff Writer  National Association of Realtors 

For Sale By Owner - it's the ultimate let's-make-a-deal opportunity for homeowners.

These are everyday people who have forgone the conventional wisdom of using real estate professionals in lieu of committing themselves to one of the most important deal-making events in their lives - selling their homes without a Realtor.

Most homeowners who do so are trying to avoid paying professional commissions, which run about 7 percent in the Twin Cities area. That's $7,000 for a house that sells for $100,000.

Though the absence of a professional is the key to these deals, it also can be the drawback. Professionals know how to determine a house's value, market it, find buyers, negotiate for a good deal, write a purchase agreement and get through the closing.

Most homeowners have never done this. Nevertheless, the need to save a few dollars and the satisfaction of doing it yourself has kept this a viable option for thousands of homeowners. No one knows how many homeowners try to sell their homes without the aid of a Realtor. The National Association of Realtors, a Washington D.C.-based real estate trade group, said in a nationwide survey taken in 1991 that 20 percent of homes sold that year were sold by the owner.

FSBO estimates vary widely

In the Twin Cities, estimates of those who sell their own homes - or try to - range from 5 to 30 percent. The estimates vary because no real estate company or organization in this area tracks For Sale By Owner, or FSBO, sales.

But one thing is for certain: The current sellers' market has more Twin Cities-area home sellers acting alone. Low interest rates and relatively stable housing prices have flooded the market with buyers. Demand has been so much stronger than supply that some agents have approached people whose homes aren't even on the market. March was, in fact, the busiest home-selling month in Twin Cities history, according to information recently released by the Regional Multiple Listing Service.

"The growth of sales by owners usually is a function of market conditions," said Ronald Peltier, president and chief executive officer of Edina Realty Inc. "These types of market conditions create more sales by owners who feel they don't need the marketing skills and talents of a broker."

Indeed, homeowners who recently sold their homes without help from real estate agents talk boldly about their success.

"I figured that there was no one who would work as hard for me as I could," said Karen Sameekins, who signed a purchase agreement for her $129,900 house at 5555 Clinton Av. S. in Minneapolis within two weeks of her only open house, in January.

Sameekins told herself that she had "absolutely nothing to lose. If I fail, I could always go to a Realtor," she reasoned.

Figuring the price

Whether you use an agent or not, the rules of home selling are the same. It's the game that's different.

For instance, once a homeowner decides to sell, he or she must set an asking price. Real estate agents have the resources to conduct a market analysis of similar homes and help the seller arrive at a reasonable asking price. Agents also can place their clients' homes on a multiple listing service that is available to thousands of other agents who share the information with their clients.

It's a different ballgame for FSBOs, for whom a market analysis could involve hours of going through city and county records of recent home sales in their neighborhood. But you can, believe it or not, ask a Realtor for help with a market analysis. It's a free service real estate companies provide to lure home sellers.

And though FSBOs cannot give their homes the same type of promotion a multiple listing service can, they can have open houses, display fliers that show pictures of their homes and advertise in local newspapers. (We know this advice sounds self-serving, but if successful FSBOs hadn't sworn by the ads that brought buyers to their open houses, we wouldn't have mentioned it.)

Some FSBOs give up

Not all FSBOs are successful. In fact, the way agents talk, one would think that few succeed. Many have had clients who were ambitious-turned-frustrated FSBOs.

Ken Hislop lasted two months in the market before asking Burnet Realty Inc. for help. Starting in August, Hislop held two open houses for his $99,500 house in Apple Valley. He relied on newspaper advertisements and a for-sale sign bought from a hardware store and placed in his front yard.

"It was not a real professional undertaking at all," Hislop said. "In retrospect, we did not do a good job of advertising."

But the cost of aggressively marketing the house wouldn't have been much lower than paying an agent's commission, Hislop said. And because he was in a rush to sell, he paid the agent. The house sold within five days of its listing, he said.

"I think a lot of it had to do with just having connections," Hislop said. He added that other FSBOs on his street still haven't found a buyer even though they have been in the market longer.

There are ways for FSBOs to improve amateur marketing campaigns.

The For Sale By Owner Shoppe, based in St. Louis Park, leases professional-looking for-sale signs - see photo on cover - and guides buyers through the home-selling process.

"If you want to sell your house, do like the Realtors do," advised Shoppe President Greg Lawrence. Because the Shoppe helps homeowners find a mortgage lender and a lawyer and helps with advertising, Lawrence says, half of his customers sell their homes in 90 days, 44 days on average, he said.

She avoided $16,450 fee

Carrie Hemple went to the Shoppe before selling her $235,000 Minneapolis home alone. She would have paid about $16,450 in commissions had she used a real estate agent and paid a 7 percent fee, she said.

"I thought I could do it and knew I could save the commission fees if I sold it on my own," Hemple said.

Hemple spent about $100 for her Truth-in-Housing inspection and accompanying report from the city, about $80 total for two weekends of advertising, $25 to lease the Shoppe's for-sale sign, a $10 sign installation charge and $200 for flowers, paint and other home improvement and miscellaneous expenses, she said.

Hemple found negotiating for herself and determining whether the buyer was qualified frustrating. But Hemple, a lawyer, negotiated the deal, relied on a mortgage lender's opinion to determine the buyer's qualifications and will have another lawyer help her at the closing.

"I'm definitely glad that I sold the house by myself," she said. "I believed I saved money, and it gave me a sense of satisfaction."

Another option is a discount brokerage, which charges a 2.5 percent or so commission to get the house on the multiple listing service. A discount brokerage won't market your house or hold open houses, so it can afford to charge less. They are an option between selling your home yourself and using full-service brokerages, which usually charge 7 percent.

Try negotiating commission

But there is room to negotiate commissions even with a full-service broker, Edina Realty agent Jane Paulus said. Commissions vary by broker and agent. But in some cases, such as a one-time listing agreement, the seller may be charged as little as 3 percent. One-time listing agreements are when a homeowner agrees to let an agent show a house to one buyer for one showing only. The buyer must sign a purchase agreement that day or the agreement becomes void.

An agent also may offer to reimburse the seller for home improvement and marketing expenses if the seller agrees to list with the agent, Paulus said.

Though successful FSBOs mean lost opportunities and revenues for Realtors, there really isn't much of an adversarial relationship between agents and FSBOs, said Leonard MacKinnon, Burnet Realty vice president and spokesman.

"We understand that a For Sale By Owner is a fact of life. Our philosophy is to cooperate with these people in the hopes that they'll choose to do business with us" if they aren't successful, MacKinnon said.

Even so, you can count on a lot of phone calls and visits from agents if you try to sell your house without their help. The agents will not only try to get you to list your house, but also will want to bring in buyers to show it, warned Ceil Lohmar, a former Wayzata real estate broker and author of "For Sale By Owner: How to Succeed in the Best or Worst of Times."

Process takes time

Many agents rely on the one-time listing agreement to deal with FSBOs, Lohmar said. She suggests that FSBOs should politely refuse such one-time offers until they have spent about three months marketing their homes themselves.

"If you can't aggressively promote your home, list it with an agent who can," Lohmar said.

But to aggressively promote your home takes time, a commodity as valuable as money for many sellers. How much time the process takes depends on the necessity of home improvements and what the owner is willing to put into to it, Lawrence said.

For homes that haven't needed much home improvement, Shoppe customers have spent about four hours a day for weekend open houses and up to half an hour a week writing and placing ads. The amount of time spent reading books about FSBOs, researching information about defects and comparable home sales and making brochures also varies by owner, he said.

Home buyers may or may not get a better deal with FSBOs, depending on whom you ask.

FSBO properties usually are priced higher than comparable homes listed with a Realtor, said Dave Black, an agent with Buyer's Resource Metro Realty Inc. The gap between the seller's asking price and the buyer's offer is larger in FSBO cases because both expect to benefit from the absence of commissions.

"The participants generally don't have a handle on what the property is worth," Black said. Furthermore, sellers can't give buyers the expertise they need regarding pricing, regulations and contact with competent third-party professionals such as mortgage lenders.

But that's what a competent attorney, mortgage lender and title company is for, Lohmar said.

Long road to closing

Still, finding a buyer and getting a purchase agreement signed are just the beginning of the long road to closing, Paulus said. She noted that the file of paperwork for every home sale goes through the hands of more than 60 people between the date of the purchase agreement and the closing.

"That's a lot of hands through which the ball can drop," she said.

"Only 50 percent of the job is selling the house. The other 50 percent is getting through closing," she said. About 7 percent of home sales fail for one reason or another to get through the closing process smoothly.

Talk like that bothered Sameekins when she asked agents about what they could do that she couldn't, she said. Every agent but one tried to intimidate her into listing her house, she said.

"Mostly they tried to get me to do it out of fear, and that angered me," she said. "I don't like people telling me that I'm not capable of doing something."

Lohmar agreed: "Sellers can hear lots of negatives, making it hard for them to continue without getting approval. So, have the determination to succeed and compliment yourself. Don't do it just to save the commission but do it because you can do it more uniquely for your own house. That will get it sold in today's market."

FSBO: Why people do it and problems they encounter

The number of people deciding to sell their home without involving a real estate agent has grown in recent years. The most frequent reason cited by these home sellers is desire to avoid paying the agent's commission. Paper work and selling time topped the list of problems they encountered along the way. This data was gathered by Dataman Information Services for the National Association of Realtors in a mail survey during the second half of 1991. The survey was done as part of the NAR's Home Buying and Selling Process study done every two years.

Reason for selling home by self The primary reason for not using a real estate agent was to avoid paying a commission fee. 12% said they did not want to deal with a broker/sales agent.

1% Could not find real estate agent to handle transaction.

1% Sold it to a home-buying company.

4% Other.

4% Had a real estate license.

7% Buyer contacted me directly.

7% Sold to family members.

8% Sold to friend or neighbor. 11% Broker/sales associate was unable to sell home. 12% Did not want to use agent. 46% Did not want to pay commission fee.

Problem areas of For-Sale-By-Owner Chart at right shows problems identified by the seller during the selling process.

14% Selling in the length of time planned on. 14% Understanding and performing paperwork. 13% Getting the price right. 10% Attracting potential buyers. 10% Having enough time to devote to all aspects of the sale.

8% Making appointments to show home.

7% Helping buyer obtain financing.

6% Other.

5% Arranging for appraisers, termite inspectors, etc.

2% Holding open house.

2% Writing real estate advertisements for home sale.