Any Advantages to
Buying Privately from a
'For Sale By Owner' (FSBO)?
Are there any advantageous to buying a house privately from a 'for sale by owner', otherwise known as a FSBO (FIZZBO)?
The vast majority of homes for sale are listed with a real estate brokerage, usually on a Multiple Listing Service® (MLS®) system provided through the local real estate board. In my part of the world, this service is supplied mainly by the Toronto Real Estate Board (TREB).
Occasionally, though, a homeowner may attempt to privately market their home and negotiate a real estate contract either personally or through a private-for-sale companies. Such scenarios are aptly called for sale by owner.
In either case, a homeowner's only justification to forgo the ease, services and financial, legal and personal security offered by one of the many professional real estate agencies operating in the marketplace is ...
To Save The Commission
But they still want full market value - sometimes more.
A homeowner often thinks, who better to sell their property than the person who knows it best - themselves. So, traditionally, they might make up a lawn 'home for sale by owner' sign (amateur) with their personal phone number (no privacy), place an ad online (usually ineffective) and maybe on the bulletin board at the neighbourhood laundromat or grocery store (even less effective) and wait for the countless calls from eager prospects (naive) looking to buy a house.
Having said all this, things are changing. In 2010 The Competition Bureau ratified a consent agreement with the Canadian Real Estate Association to allow For Sale By Owner properties access to MLS systems. So these days, we now occasionally see mere postings of for sale by owner properties on the MLS.
As a buyer, are you prepared to do this on your own? Or will you want (usually free) helpful service?
Most private sale attempts typically fail because the buyer prospect naturally distrusts anything the homeowner has to say about their home, or at least suspects exaggerations or bias. Maybe they're hiding something important.
Sometimes, it's difficult to obtain an appointment to view a home for sale by owner that fits everyone's schedule. And if you're able to organize a mutually agreeable appointment time and day, the homeowner obviously has to personally show the home.
How comfortable will you be in a home for sale by owner?
You may feel you're invading their privacy. Or you hate the place, but can't escape fast enough without risking offending the homeowner. Therefore, you offer polite small talk and waste your valuable time and theirs. And what if they offer you tea? And from a personal security perspective, how safe would you feel being inside a stranger's house - possibly alone?
A homeowner's single-minded purpose in a for sale by owner scenario is to sell their property - period. They typically have no idea of your wants and needs (nor do they naturally care), your ability to qualify for a mortgage or even your affordable price range. For all they know, you could be a dreamer, a thief casing the joint, a Nosy Parker or an axe-murderer! Nor do they have the training on how or what to ask.
If you actually find a home for sale by owner that you like, because there's no buffering 'middle-man' to negotiate fair terms, you must discuss and negotiate the real estate contract terms directly with the homeowner. No easy task!
If the process gets this far, this is often where everything falls apart, when the egos of both buyer and seller come into play ... and sometimes clash.
A Formula for Disaster
The seller may or may not (usually not) have obtained an appraisal from a certified appraiser (for a fee) or an objective letter of opinion of value from an agent based on a detailed and current Comparative Market Analysis.
In many cases, the homeowner has duped an innocent real estate agent into providing their opinion of value for free because the agent was hoping for a listing. But unfortunately for the homeowner, it's not uncommon for an agent to either surrender to a seller's demand for an unrealistically high price, or to suggest one just to win the listing contract. Sad, but it happens.
The homeowner may be basing their
purely subjective evaluation on the asking prices of what may be
comparable homes in the neighbourhood that haven't yet sold. Or they could also be relying on erroneous information provided over
the fence by a friendly neighbour who exaggerated about the price he
got for his own place. Don't allow yourself to be put into a corner with little room for escape from a pushy homeowner.
Obviously, you want the lowest price possible and ...
The Homeowner Wants the Highest Price
They want to save the commission and get market value (or more). Well, guess what? You do too! Otherwise, you'd be enjoying all the real estate support services offered by working with an agent and ...
Usually at No Cost to You
Back to negotiating an offer. Before the heavy duty negotiating even begins, you're already thousands of dollars apart in price by the entire real estate commission! At best, a reasonable seller may split the difference with you, but don't count on it because the seller is foregoing the experienced services, including comfort and security of an agent as well.
Offer too low and you insult or irritate the homeowner. Offer too high and you'll have a happy cooperative seller, but you may over-pay for the property.
And without the services of an agent, who's protecting and advising you?
If you're a buyer with a minimum down payment (under 20% of the purchase price) and over-pay for the home, for your own protection, you better hope that you included a properly drafted mortgage financing condition in the real estate contract because the lender may decline your application or at best, approve an amount lower than what you need. The purchase price must be the same as or lower than the appraised value as determined by the lender.
Who is going to draft the actual real estate contract, commonly referred to as an offer to purchase?
When agents are involved, the buyer's agent, typically equipped with the specialized software, usually prepares it. But in a private sale, it's the lawyer for either the seller or the buyer who must draft the contract, unless of course, you have current contract drafting expertise. Do you think the lawyer will work for free? I doubt it. With no assurance of a successful negotiation, someone is going to incur costs up front.
So, any advantages to buying privately from a 'For Sale by Owner'?
Not really.
Because it's rife with challenge, frustration and you'll probably end up paying the same price as you would have paid using the professional skilled services of a real estate agency. But don't fret - most homes for sale by owner usually end up listing with a real estate agency anyway.
To learn more about how an agent can help and why you may wish to avoid buying a home from a For Sale By Owner, click here.
If you're interested in expanding your knowledge about buying and selling real estate, check out Ross' book entitled The Happy Agent.
Though written to help professional realty agents improve their skills,
it will also serve as a great resource for both home buyers and
sellers. This easy-read book with its assorted home buying tips and techniques
will teach you what to look out for when viewing property, what to ask and expect from your realty agent. It will
help you make a thoroughly informed decision. Learn how to buy and sell like a pro. When spending big money, it's best to make informed choices. A small investment of your time could conceivably save you thousands of dollars and a ton of stress.
Available virtually everywhere print and e-books are sold.
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