The FSBO (For Sale By Owner) Fast Track

The FSBO (For Sale By Owner) Fast Track
Is Selling Your Property Alone Really All It’s Cracked Up To Be?

By Joanna Swartwood
October 3, 2005

“The reason real estate agents have a low perception in our industry is well-deserved,” says Anthony Marguleas, President of Amalfi Estates, Inc. in Los Angeles, CA. Of course, Marguleas isn’t referring to all agents, just those who have jumped on the bandwagon as of late and don’t have the 10-15 years experience, or the additional licenses, that distinguishes the good from the bad.

The by-product of an industry inundated with under-qualified agents? Sellers are fed-up with paying the standard commission for the lack of professional service and are running in the FSBO (for sale by owner) direction. Four years ago, Jed Joseph sold his house as an FSBO and saved close to $10,000. So with his new property in Ladera Ranch, CA, Joseph is selling solo once again. But this time around, he’s not without his reservations.

Joseph admits that his intentions are to save money, but he’s aware that selling without an agent does increase liability. “It’s a lot of work too,” he adds, “more work than I want to spend on it.” In fact, with the liability and intense workload combined, Joseph’s advice to the newbie FSBO is: “Use a real estate agent.”

Although there has been a surge in disgruntled sellers – or otherwise sellers hoping to save a buck on the back-end – who have taken it upon themselves to sell a property, some may not have considered the underlying risks, or the many hours it takes to reap the rewards.

“I think the bottom line is, especially for a working investor, time is money,” says Marguleas, whose book, Real Estate Secrets – What Your Agent Is Afraid To Tell You, will be on the market at years end. So if your time is worth $50/hour or $100/hour and you spend close to 100 hours in showing the property, following up with the hundreds of potential buyers, and learning the nearly 150 pages of contracts and disclosures, that’s $5,000 to $10,000 of your own time.

A responsibility normally afforded to the broker, Marguleas emphasizes that for a seller new to the real estate scene, it’s no small feat going through the contracts and learning what the natural hazards disclosure are, what the six-page lead report is, what passive vs. active is, or what liquidated damages are, for example. And there are new forms being added all the time, like the mold disclosures added a couple of years ago; if you overlook a form, you could set yourself up for liability later.

“I think a lot of people just don’t realize the extent of work that goes into it,” Marguleas adds. “They think: put up a sign and wait for the phone to ring.” If you’ve ever worked with a run of the mill agent, then perhaps that was the perception you got. But the difference lies in working with the top 10% of real estate agents – those who are professional, have the proper designations, have been in the business for a lot of years, are extremely knowledgeable, and have been highly recommended. “We’re going to go the extra yard and get you the maximum amount of money,” says Marguleas. “And if there is a problem, we are going to know the contract really well, we’re going to know how to negotiate for you, and we are going to prevent any problems.”

While the savings of selling your property sans agent may seem irresistible, remember that you’re only saving the half that you would normally pay the listing agent. In other words, if the standard in your area is a three percent commission to the listing agent and three percent commission to the buyer’s agent, you’re not saving six percent; you still have to pay the fee to the buyer’s agent. Says Marguleas, “Once in a rare, rare situation will a buyer not have their own agent and then the FSBO would save on both ends.”

Marguleas believes that, in the southern California marketplace, a lot of sellers could put a for sale sign in their front yard, send letters to their neighbors, drop off flyers at different real estate offices and get a decent price. But the question then becomes: are you throwing away the money you saved on commissions?

“Because the property would not be going in the MLS and would not be marketed the way that a professional would market it, they could be leaving $20, $30, $40,000 on the table,” adds Marguleas. Even if you are a good negotiator, it’s not likely you’ve negotiated over 300 homes and know how to negotiate multiple offers properly.

Or worse, you could open yourself up to liability if one of those foreboding documents, like the lead-based paint disclosure form, was left out of the mix. “Did they miss a couple pages?” Marguleas continues, “and if they did, that $5,000 to $10,000 they saved by not having an agent could cost them hundreds of thousands of dollars afterward due to liability.”

That’s why the broker provides errors and omission insurance (a.k.a.: E & O insurance) to their clients. If something were to go awry in a transaction and litigation ensued, E & O insurance protects the sellers. Not surprisingly, agents are (or should be) overly cautious in advising their sellers to disclose every possible known defect. “Disclose, disclose, disclose is more important than location, location, location,” says Marguleas.

He thinks the transfer disclosure statement (TDS), for example, is one of the most important documents that a seller will fill out and that a buyer will receive in a real estate transaction. “If you're not filling out a page worth of disclosures, you’re doing it wrong,” Marguleas emphasizes. “A squeaky doorknob, doors that are uneven, the backyard that doesn’t drain properly – you name it, we recommend it.” He even recommends that his clients get a pre-inspection done so as to get a good grasp on the home’s defects.

When partnering with an agent, the perks are many, including protections and the chance at maximizing your property’s sales price. “But,” Marguleas warns, “don’t just go to any real estate agent, because if you go to an average agent, you’re better off going on your own.”

Joanna Swartwood is Senior Editor of The Working Investor. Email her with any questions or comments at Joanna@theworkinginvestor.com.