I have come across numerous people who get very excited about buying FSBO's: For Sale by Owner Properties. I'm not sure why, but basically what I've gathered is that there is a urban myth out there that the best deals are FSBO's. After all, the seller isn't paying any commission to a real estate agent so the houses must be good deals, right? Well, let's see.

 

FSBOs are Usually Overpriced, and not Good Deals

That's a pretty strong headline. Let's see if I can prove it. Now recognize, I'm using properties that are listed in MLS as FSBO, and there are certainly other types of FSBO's that are not in MLS, but I can tell you right off the bat, if you're not in MLS, you're stats are going to be worse than the ones I'm quoting. Currently in my area, there have been just 20 single family sales of FSBOs in the last six months. That's compared with 1,474 sales of homes that sold with an agent. So that statistics tells you that FSBO's aren't very common, but lets look at the actual success of these sales. Currently, there are 66 FSBO's listed in my area. There are 2769 non-FSBO homes that are listed in my area. When we look at the "success ratio" we see that 20/66= 30% while 1474/2769 = 53%. That's a huge difference (23%). It's a small sample size, so let's look at the whole state, where we see that the FSBO success is 42%, but real estate success jumps to 73%, a difference of 31%. Now those numbers should give a buyer pause. Why are FSBO's not selling at the same rates that other homes are? (In fact, selling at just about half as fast). Because they are overpriced. It also doesn't help that they are probably not getting good advice about staging, making their property show well, and they don't have anyone to bounce ideas off of, and no insight to the market. But the #1 reason is price.

 

Why are FSBO's overpriced?

I have no idea, frankly. I find it just as confusing as everyone else. You would think, that if they weren't going to pay commission, the price on their home would be LOWER than the market value, and it would sell FASTER. But that is not what we see. It's also because most FSBO's aren't paying zero commission. Most of the homes in my study are paying 2.0-2.5%,the standard rate for buyer agents, in addition to the $1000 or so that it costs them to list the property, their fees are still substantial, (about 60% of a standard commission) and they probably want to "get that back". But the market is generally efficient, and that's not so easy.

 

Things to Remember When Purchasing a FSBO

#1 And the whole point of this post - is don't assume that the property is fairly priced. It is, in fact, likely to be overpriced.

 

#2 Remember that there aren't very many, so make sure to include on your search other houses.

 

#3 Just because it's a FSBO, doesn't mean you can't bring a buyers agent, or hire an attorney. And you should do both.

 

#4 Following these steps means buying a FSBO is not any different from buying any other home: A) Determine it's market value B) Determine it's value to you  C) Write offer  D) Negotiate  E) Purchase!

 

#5 Remember, private sellers are unlicensed, and not bound by the laws of disclosure that real estate agents are. No buyer should assume that a seller is 100% truthful (though many are), some are not. And there's nothing illegal about that if you are the home seller. You've been warned!

 

Do Good Things Today!

Matt Heisler