| Copyright 2005 All Rights Reserved Charles E. Marunde & FreeRealEstateLaw.com |
| FSBOs are rarely under fair market value, and often are priced above. This is a fuller explanation of that statement. |
Realtor Perspective:
I was a Realtor in Spokane, Washington, in the early '80s, and the market
had it's normal contingency of FSBOs. They were populated here and there,
and you could see the standard black marker "For Sale By Owner" signs with
a phone number and arrow pointing toward the house. I did CMAs on a
number of them and found, as was confirmed generally by other more
experienced Realtors, that the typical FSBO was $8,000 above fair market
value. Of course, this was no scientific study, but when a Realtor does a
good CMA from the MLS, he gets a pretty darn good vignette of the fair
market value.
Of course, one of the sales pitches a FSBO gives a Buyer is that the Buyers
are saving the real estate commission. Oh really? Why would someone sell
a house for less than FMV? They would not. No one does. They don't have
to. So a Buyer has not saved the real estate commission, unless the house
has an bank appraisal, and that price is specifically reduced by the going
real estate commission. I've never seen that happen. It could, but it just
doesn't. And why would a Buyer go into a transaction like that when they
could be represented by a professional and experienced Realtor, pay the full
price with the Seller paying the commission, and everyone ends up at almost
the same place on the closing statement. If the Seller does not you to be
represented, shouldn't that get your heart beating a little faster? Remember,
the Seller's job, if they do it well, is to get as much as possible out of your
wallet, and to shift all liabilities onto your shoulders. Can you imagine an
experienced gambler playing an inexperienced novice? Of course the
experienced one plays dumb, jokes a little, maybe feints a mistake or two,
and then like the true professional he is, gets the best of his naive but "nice"
card playing "friend, and goes home with all the money" Buying and selling a
home is a high stakes game, maybe the highest you ever will play. Why
gamble?
I listed a home in Spokane in the early '80s that was a FSBO, and I can
remember clearly arguing with the owners before I listed it about what the
listed price should be. As normal and intelligent owners (unexperienced in
real estate values, marketing, and contracts), they logically thought it should
be listed substantially above FMV, so they would have room to negotiate a
final price, which would end up being somewhat below the competition or
FMV in their way of thinking. This approach is only taken by inexperienced
negotiators, and more often than not, ends up with a stale house on the
market. Buyers who might have made an offer have moved on and rarely
look over their shoulders at overpriced properties. The "window of
opportunity" to connect with that buyer is often gone. I listed the house at
just below its FMV, which was the price the owners wanted (they had to be in
Hawaii in two months), and it sold at that exact price in a "not-so-hot" market
after only being on the market for two weeks.
I had the exact same experience in Fairbanks, Alaska, with a FSBO in the
late '70s. At that time, the competition to list a house was very tough, and I
was told by the owners that I was the 24th real estate agent to knock on their
door. But the principles I've shared worked as they consistently do, and that
house sold in two weeks also.
Apart from the FSBO who overprices but really expects to negotiate way
down to FMV, the other kind of FSBO is one who prices a property
substantially over FMV with the hope that they might get lucky and get a
really dumb Buyer who will give them all their money. Since that is extremely
rare, why go there? And if you are a Buyer, why risk being that Buyer victim?
Attorney Perspective:
Many of the issues I've already raised from the Realtor perspective are full of
implications for litigation or at least stressful disputes. I can tell you, and
most honest real estate attorneys would, that I made a lot of money in legal
fees over the years from FSBOs who got into major trouble prior to closing as
well as after closing. And I could say the same thing about Buyers of FSBOs.
The list of legal problems (causes of action) is fairly extensive and probably
serves no great purpose by creating a laundry list here. It's a little difficult to
concisely summarize three yeas of law school education and 19 years of law
practice to make these points. I expect to offer some free seminars on this
subject to more fully education and respond to questions. You can also find
a great deal more about how real estate litigation works on this web site and
in the Forum. A rather detailed description of what I used with clients can be
read at: Litigation
Attorneys make a lot of money off Buyers and Sellers who are already in
great financial stress. As I often said to clients, "You can pay me a few
hundred now, or tens of thousands later if things go bad." Many clients paid
me the later.
I was a Realtor in Spokane, Washington, in the early '80s, and the market
had it's normal contingency of FSBOs. They were populated here and there,
and you could see the standard black marker "For Sale By Owner" signs with
a phone number and arrow pointing toward the house. I did CMAs on a
number of them and found, as was confirmed generally by other more
experienced Realtors, that the typical FSBO was $8,000 above fair market
value. Of course, this was no scientific study, but when a Realtor does a
good CMA from the MLS, he gets a pretty darn good vignette of the fair
market value.
Of course, one of the sales pitches a FSBO gives a Buyer is that the Buyers
are saving the real estate commission. Oh really? Why would someone sell
a house for less than FMV? They would not. No one does. They don't have
to. So a Buyer has not saved the real estate commission, unless the house
has an bank appraisal, and that price is specifically reduced by the going
real estate commission. I've never seen that happen. It could, but it just
doesn't. And why would a Buyer go into a transaction like that when they
could be represented by a professional and experienced Realtor, pay the full
price with the Seller paying the commission, and everyone ends up at almost
the same place on the closing statement. If the Seller does not you to be
represented, shouldn't that get your heart beating a little faster? Remember,
the Seller's job, if they do it well, is to get as much as possible out of your
wallet, and to shift all liabilities onto your shoulders. Can you imagine an
experienced gambler playing an inexperienced novice? Of course the
experienced one plays dumb, jokes a little, maybe feints a mistake or two,
and then like the true professional he is, gets the best of his naive but "nice"
card playing "friend, and goes home with all the money" Buying and selling a
home is a high stakes game, maybe the highest you ever will play. Why
gamble?
I listed a home in Spokane in the early '80s that was a FSBO, and I can
remember clearly arguing with the owners before I listed it about what the
listed price should be. As normal and intelligent owners (unexperienced in
real estate values, marketing, and contracts), they logically thought it should
be listed substantially above FMV, so they would have room to negotiate a
final price, which would end up being somewhat below the competition or
FMV in their way of thinking. This approach is only taken by inexperienced
negotiators, and more often than not, ends up with a stale house on the
market. Buyers who might have made an offer have moved on and rarely
look over their shoulders at overpriced properties. The "window of
opportunity" to connect with that buyer is often gone. I listed the house at
just below its FMV, which was the price the owners wanted (they had to be in
Hawaii in two months), and it sold at that exact price in a "not-so-hot" market
after only being on the market for two weeks.
I had the exact same experience in Fairbanks, Alaska, with a FSBO in the
late '70s. At that time, the competition to list a house was very tough, and I
was told by the owners that I was the 24th real estate agent to knock on their
door. But the principles I've shared worked as they consistently do, and that
house sold in two weeks also.
Apart from the FSBO who overprices but really expects to negotiate way
down to FMV, the other kind of FSBO is one who prices a property
substantially over FMV with the hope that they might get lucky and get a
really dumb Buyer who will give them all their money. Since that is extremely
rare, why go there? And if you are a Buyer, why risk being that Buyer victim?
Attorney Perspective:
Many of the issues I've already raised from the Realtor perspective are full of
implications for litigation or at least stressful disputes. I can tell you, and
most honest real estate attorneys would, that I made a lot of money in legal
fees over the years from FSBOs who got into major trouble prior to closing as
well as after closing. And I could say the same thing about Buyers of FSBOs.
The list of legal problems (causes of action) is fairly extensive and probably
serves no great purpose by creating a laundry list here. It's a little difficult to
concisely summarize three yeas of law school education and 19 years of law
practice to make these points. I expect to offer some free seminars on this
subject to more fully education and respond to questions. You can also find
a great deal more about how real estate litigation works on this web site and
in the Forum. A rather detailed description of what I used with clients can be
read at: Litigation
Attorneys make a lot of money off Buyers and Sellers who are already in
great financial stress. As I often said to clients, "You can pay me a few
hundred now, or tens of thousands later if things go bad." Many clients paid
me the later.
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| IMPORTANT NOTE: Statements about FSBOs being under or over market price have absolutely nothing to do with character. Such statements are not negative statements of the individual sellers involved. Every buyer wants the lowest price possible, and every seller wants the highest price possible. The two goals are obviously adversarial. Isn't this the nature of our free enterprise system wherein a ready, willing, and able buyer comes to an agreement with a ready, willing, and able seller? |