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Tuesday, September 6, 2011

So You Wanna Buy a For-Sale-By-Owner (FISBO)?

Being in the real estate business you can't avoid things like For-Sale-By-Owner properties, they are part of the territory. Also known as FISBO's (pronounced "fizz-bow'), one might think that they can get a bargain if they are trying to buy one of these properties. Unfortunately, that is not always true. Typically, in my experience, it's rarely true. What is true, however, is that people who try to sell their homes on their own and Realtors don't get along very well.

Almost everything in life comes down to numbers, or math, in some form or another. Such is usually the case for the seller who just wants to sell his home on his own. So why do people decide to try to sell their homes on their own? Because they think they can save money. That's pretty much it. For-Sale-By-Owners think they can cut out the listing Realtor, and possibly the buyer's agent as well, and save a bunch on commissions. But can they? And can a buyer get a "deal" on a FISBO? Are there other concerns?

First off, it's important to understand that homes are rarely sold in an arms-length transaction without the use of a Realtor. Why is that? Well, let's say the seller doesn't want a Realtor to list his home; he want's to try and sell it on his own. That's fine. However, almost all buyers, the savvy ones anyway, have their "own" agent, a buyer's agent. Rarely will buyers undertake such an important transaction without having someone to guide them. Why should they? Why would they? Considering that buyers rarely, if ever, have to pay their agent, why wouldn't they engage the services of a knowledgeable buyer's agent? Well, they would. So, what
normally happens is that these buyers are paired up with a buyer's agent and either the agent, or they, come across a FISBO. What now? As I said, buyers don't normally "pay" their agent. This is because in most situations a buyer's agent's fee is included in the price of the home, paid (shared) by the listing agent, for any home that is listed on the MLS (multiple listing service). So, you have a situation where the seller, in this case, is not a Realtor (agent). That means the FISBO seller has no agreement to pay any fees (or commissions) to anybody. However, will buyers look at a FISBO knowing that their agent may not get paid? Will buyer's agents show a home if they are not going to get paid in the end? Can you see how complicated this can get?
In reality, most FISBO sellers will agree to pay a "buyer's agent," they just don't want to "list" the house and pay "full commission." Most of them are aware that if they don't offer a fee to the buyer's agents it will be difficult to get showings and difficult to sell. So typically FISBO sellers will say "Realtor's welcome," or "will co-op," both of which mean that they are willing to pay the agent who is representing the buyer. So in essence, they may save partial commission, the commission that they didn't pay the listing Realtor. So is this a good deal for a buyer? I mean, if the seller doesn't have to pay a "full" commission, they will sell the house for less, right? Hardly. Did I mention that most FISBO sellers are  mostly motivated by money? 99% of the time if a buyer purchases a For-Sale-By-Owner the seller just pockets the extra commission they saved by not paying their own Realtor. Savings rarely get passed on to the buyer. So where are the savings to the buyer? Typically, there aren't any. In addition to not getting a discount from a FISBO purchase, sellers who attempt sell on their own notoriously over-price their homes. They always think their houses are better than the ones up and down the block. And occasionally they have some strange ways of coming to their asking price. Rarely does a FISBO seller accurately price their home due to lack of understanding, lack of knowledge, or just plain stubbornness. Ultimately, these homes are NOT a value for a buyer. And along with over-valuing their homes and being overly -thrifty (read: cheap), they usually do not understand how to negotiate a sale and they also rarely budge on their asking price. (Note: many FISBO sellers are not very motiveated to sell, either).  And some FISBO sellers seem downright paranoid that some  pesky buyer's agent is trying to get his clients, the buyers, a fair price on a home. That doesn't seem to resonate with most FISBO sellers that I've encountered. In the end, if the sellers save a few bucks on commission and sell for what they want, don't they save money? Isn't that goal in the first place?

Well, the answer is really "no." The main problem with true For-Sale-By-Owner homes is that they aren't marketed very well, if at all. Even with the internet it is difficult to find a For-Sale-By-Owner home, even if you are looking for one. These sellers are competing with the marketing power of thousands of Realtors in their local market. The bottom line is that buyers rarely find these properties. And that means they sit on the market, and eventually they end up being listed with a Realtor anyway. I would guess that 90% of homes that try to go FISBO end of being listed eventually (I read that stat just today). That means that the seller will now have to pay "full" commission anyway. And what about all of the lost market time, where the house just sat? It seems like, to me, that FISBO sellers who eventually list with an agent do so after six to twelve months. That's more mortgage payments, more upkeep, and potentially missed opportunities to buy something else because you couldn't sell your home fist.
In the end, there are rarely any savings to be had if you are a buyer considering buying a For-Sale-By-Owner home. But if you must buy one, proceed cautiously, know the value, and make sure you have a buyer's agent!