For sale by owner

Published: April 22, 2000

By Kim Palmer; Staff Writer   

The "For Sale by Owner" sign went up in front of Louise and Dave Hauge's Richfield Cape Cod on a Friday in mid-March. Twenty minutes later, a man knocked on the door asking to see the house. The Hauges showed it to two other prospective buyers the next morning. "We had 25 people through Sunday for the open house but we had already signed a purchase agreement," Louise said. "We got our asking price" (approximately $146,000). "Overall, it was easier than I thought [it would be]."

Selling by owner was not easy for Cheryl Fredrickson, however. She tried to sell her two-story, custom-built house in Apple Valley for two months before listing it with a real estate agent last month. Then it sold in eight days for close to her approximately $340,000 asking price, she said. "In less than a week, I had more showings with the Realtor than the whole time by myself."

In a hot seller's market like the current one, selling by owner rarely has been more tempting. In many parts of the Twin Cities, the demand for houses exceeds the supply.

"Things are selling quickly, usually within a couple weeks," said Greg Lawrence, owner of the For Sale by Owner Shoppe, based in St. Louis Park. "Three years ago, we'd have signs out there for over a month. The average [selling time] was 30 to 40 days. Now it's five to 15."

The percentage of Lawrence's customers who actually succeed at selling by owner is higher than it was when the market was cooler, he said. "Three years ago, 65 to 70 percent [of his customers] were selling by owner. Now it's 80 to 85 percent. Only 15 to 20 percent [end up] going with a Realtor" after being unable to sell the house themselves.

The Regional Multiple Listing Service (MLS) reported that it does not keep statistics on the percentage of houses sold by owner or the percentage eventually turned over to Realtors.

Whether FSBOs (For Sale by Owner), as they're known in the industry, are successful depends on timing, pricing, location, how much the owner is willing to do, and sheer luck.

John and Michelle Kalligher sold their Eden Prairie house in less than a week last month. "Honestly, it wasn't a heck of a lot of work," John said. "The work was preparing the property," which they would have had to do anyway.

The biggest challenge, he said, was "being uncertain about how to act when people come over: Where do we stand? The For Sale by Owner Shoppe gave us suggestions."

The Kallighers asked $204,000 for their house, and accepted an offer for $200,000, he said. "Absolutely, I'd do it again, especially in this market."

Brian Flaherty found FSBO success on the second try. Last summer, his mother moved out of the Minneapolis house she and Flaherty's father had owned for nearly 50 years. Flaherty and his siblings sought price estimates from several real estate agents but decided to sell it themselves.

"Given the market, it seemed like [a full commission] wasn't a necessary expense," Flaherty said. "It seemed to warrant the old college try."

They offered the two-story stucco house near the Lake Harriet Rose Garden in mid-October, asking $220,000, the high end of the prices suggested by agents. When they hadn't sold it by the holidays, they took the house off the market and tried again in mid-March, this time listing it at $194,900, Flaherty said.

"The sign went up on a Wednesday, on Sunday we had an open house and by 4 the next afternoon it was sold," Flaherty said. About 35 people attended the open house. The first person to walk through ended up making an offer of $195,000, Flaherty said.

The market was stronger this spring than it had been in the fall, Flaherty said. "It was a mistake to try to sell it late in the year." His advice to other owners/sellers: "Be priced right."

Pricing is important, Lawrence agreed. "The ones who price too high get a reality check a few weeks later." If, after four weeks, there have been no offers, it's time to take a look at the price, he said, assuming the house is in good condition. Sellers are better off pricing it realistically in the first place, he said. "The first six weeks are really crucial." Houses that are new on the market attract the most interest, "and you don't want to miss that window."

How can an owner decide on price? The For Sale by Owner Shoppe and Direct By Owner both offer a comparative market analysis, comparing a home with similar ones sold recently. Lawrence also advises sellers to visit open houses in their neighborhood to see how those houses compare to their home. Or ask a real estate agent who knows your neighborhood, Lawrence suggested.

However, many agents are too busy to provide free pricing advice, said Fran Davis, president of the Minneapolis Area Association of Realtors and a Coldwell Banker Burnet agent. "You're finding more good Realtors pressed for time. They won't talk about price until you list the property."

Pricing is challenging in a hot seller's market because prices are increasing so rapidly, Davis said. Your neighbor may have sold a house just like yours three months ago, but that may be an outdated reflection of value. "We're seeing 10 to 20 percent price increases in some neighborhoods." Even in a seller's market, "I don't think anybody comes out ahead [selling by owner]; they just think they do. They're probably leaving dollars on the table."

Pricing isn't everything, she added; it's also important to expose the house to the greatest possible number of buyers. "I've seen several instances where a property was listed for sale by owner" and didn't sell, "then was listed by an agent and sold at a higher price."

"If you want [market] penetration, you need to be seen by the Realtor community. In most price ranges, buyers are working with agents. They're going to support people who list houses with them."

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The MLS question

Owners willing to pay a commission to a buyer's agent (often 2.5 to 3 percent) have the option of listing their properties on the MLS to get wider exposure. Lawrence of the For Sale by Owner Shoppe recommends it. "Some people think they don't need it. But MLS really does help."

The For Sale by Owner Shoppe offers two service packages. The first one includes signs, brochures, a picture ad, a how-to handbook and other services for $399. The second package includes all the same services and resources as the first, plus MLS listing, for $599. About 60 percent of his customers choose Plan A, Lawrence said. "But a lot who choose Plan A, after a week or two, they put it on MLS" and pay the difference between the two plans.

Tim Montgomery, owner of Direct By Owner, also offers MLS listing but says fewer than 20 percent of his customers use it and he doesn't recommend it. "We're trying to get away from MLS," he said. "What's kept the [real estate] industry together is MLS. They've held the public hostage. We recommend that [sellers] don't use MLS. There's no sense putting it in a system where they pay a commission."

As an alternative, Direct By Owner offers its "PLS - People's Listing Service," a database in which sellers list their houses and buyers can list what they're looking for. "When something comes available, they can get an e-mail brochure on the property," Montgomery said.

Showings were difficult for Cheryl Fredrickson. She was reluctant to hold an open house, and didn't like screening people over the phone, trying to determine if they were qualified buyers or just people who wanted to look at her house. "I wasn't real comfortable doing that. You pay a lot for a Realtor but they can do the legwork."

Evaluating prospective buyers' qualifications is one skill an agent brings to the selling process, Davis said. "You can get a prequalifying letter [from a lender], but which are really prequalified and which are `looks good' letters?" Knowing whether a buyer is truly prequalified is "an important part of deciding which offer to accept" in the case of multiple offers, Davis said.

Finding a buyer is only part of what a listing agent does, Davis said. Agents often handle matters that sellers may not be aware of, such as negotiating details of the purchase agreement, resolving title issues and arranging Truth in Housing inspections. "Even the simplest transaction often has something that could be a glitch if there isn't someone who can be a calm problem-solver," she said.

Without a listing agent, "There's a real concern about the seller being unrepresented. Do they really understand what position they're in?" Agents who represent buyers sometimes "end up doing things [for sellers] that are not their responsibility, just to get things done."

"I had a case where the seller was thinking of selling [by owner] and later said, `I'm really glad we didn't do that. I'm glad you're here to handle the problems.' "

Many sellers are wary of handling the transaction without assistance, Lawrence said. "One of the great fears of selling by owner is, `What if I get an offer? What now?' " Lawrence recommends that sellers hire an attorney and often refers them to one who charges $595 for a package of services, as well as providing services a la carte.

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Time commitment

In general, the more effort a seller makes to market a house, the better his or her chances of selling and at a good price. Torrey Babb was disappointed not to get more calls on his Brooklyn Park rambler, which he tried to sell by owner in October and again this spring.

"My goal [in putting it back on the market in March] was to try to get Parade of Homes traffic," he said. He's had a few open houses, he said, but hasn't marketed the house aggressively, with newspaper ads and signs to direct traffic to the house. "I`m not a real motivated seller," he admitted. "I'm in a unique position where I don't need to sell."

Louise Hauge thinks she may have done more work than was necessary to sell her home. "I became very knowledgeable about real estate. It's always been sort of a hobby for me. I read books, studied the market. I learned all about the mortgage market. I erred on the side of having too much information."

Still she found the experience rewarding. "It empowers you - knowing you have this knowledge and can do this. You think, `Hey, I accomplished this on my own. Pretty cool!' "

The emotional reward of doing it yourself is part of what's fueling the "FSBO revolution," according to Lawrence. "I believe we're in the beginning of it. The trend is growing."

There are more companies offering FSBO services than when he started his company 10 years ago, he said. "Competition is good. It forces me to think of new things." He just worked out an agreement, for example, with a national lender to offer appraisals as part of the FSBO package. The appraisal can help the seller determine a price, and can be transferred to the buyer as a cost savings and incentive, he said.

Lawrence cites a recent realty ad campaign comparing the trials of a seller trying to do everything himself, with a seller who lists with an agent. "I don't remember the real estate community taking on FSBOs before," he said. "They thought it would go away. It's not going away."

Davis, however, believes that most sellers will continue to want to hire a professional. "A majority of [sellers] don't have the time or energy to do everything, and they know that the knowledge a real estate agent brings to the table benefits them," she said.