CHAPTER 10
Sell Your House Yourself
We’ve come full circle in the journey of home ownership—from buying to owning and maintaining—and now it’s time to sell. Heads up, because this is one more opportunity to save tens of thousands of dollars. How? By doing a For Sale by Owner or FSBO (pronounced “fizz-bo”) deal. Selling your house yourself is not easy, but it’s not that hard. I helped my husband sell his house without an agent, and I bought and sold my condo without one.
If you can do this just once, you will get ahead financially. According to the National Association of Realtors, most people own six homes in their lifetime, so you have half a dozen chances to SAVE BIG. FSBOs work best if you have a cool head and a hot housing market. Look for the opportunity.
In this chapter, learn to SAVE BIG by:
• Pricing your house right for sale. If you get this wrong, nothing else matters.
• Welcoming buyers’ agents to your home, but offering them less than full commission.
• Negotiating strategically to make the most money on your home.
• Asking a seller’s agent to accept a lower commission if all else fails.
It’s the Price, Stupid
Just as candidate Bill Clinton once figured out how to get himself into the White House, by reciting “It’s the economy, stupid,” you can get yourself out of your house by reciting, “It’s the price, stupid.” Nothing else really matters. You must set the right price for your home to succeed in selling it yourself and making a profit. But hey, no pressure! Below are several ideas for how to zero in on the perfect price point for your home.
Check Comparables
The most important factor in deciding the selling price of your home is how much similar homes have sold for in the past six months. Fortunately, in the age of the internet, this is easy to find out. Just go to a website like
www.Zillow.com or
www.Domania.com, enter your address and then follow the links to homes sold recently nearby. Concentrate on those homes that are closest to yours in terms of geography, size, and amenities.
When using these sites, you need to make sure you are looking at actual sales figures rather than the sites’ own estimates. For example, Zillow’s “Zestimates” are great fun, but the site itself acknowledges it has a margin of error of about 7 percent. That is too big a margin for purposes of pricing your home.
Moving Estimates Given by Phone or Online Are Useless Scams
If you go with a phone or Internet moving estimate, you’re just setting yourself up to be lowballed. Many companies lurking online are not even movers. They’re moving
brokers infamous for cheating people. You must invite three or four reputable movers to come to your home, view your belongings and give you
written estimates. Insist on
binding estimates. The best kind of binding estimate is one that is “guaranteed not to exceed.” In other words, the mover promises to move your household for a set rate. If your move involves
more weight or takes
more time than the mover thought, you
still pay the estimated amount. If your move involves
less weight or
less time than the mover originally estimated, you pay
less! Never hire a moving company without first checking it out at
www.bbb.org and
www.movingscam.com.
In addition to studying sales over the past six months, you should also be aware of how houses on the market are priced right now. In order to get a sense, scan your local paper’s website and classified ads and spend a couple of Sundays visiting open houses. This will enable you to see what the houses have to offer compared to yours. Compare based on square footage, number of bedrooms and bathrooms, architectural style, features, and finishes.
Call In the Experts
Okay, that all sounded very nice, but now it’s time to call in the experts. The reason I suggested that you do some research of your own is so you will be prepared to listen to what the experts have to say! In the end, pricing the house is your own decision, and you will be better able to appreciate expert advice if you have a first-hand feel for the market.
Ask an Agent One strategy is to ask real estate agents how you should price your home. I know, I know, this is a chapter about selling your house yourself, but if you can get some advice from a pro (gracefully and gratefully), you should. When I was selling my condo, I ran into my neighbor Barbara B. while out walking my dog. Barbara happens to be the expert agent who sells most of the condos in my old community. I explained that we needed to squeeze every bit of profit out of our condo in order to afford our next home, so we were going to try to sell it ourselves. I went on to say that if we failed, we planned to give her the listing. Then I asked what price she would recommend.
She cheerfully suggested a price and I went with it. I am grateful to Barbara to this day because I would have priced the condo about $5,000 higher. With the price she suggested, it sold in four weeks. So if you have a friend who is a real estate agent, find a way to approach her politely and ask for advice.
If you can’t fall back on a friend, interview three agents who are experts about your neighborhood and ask them to do a pricing analysis for you. I know this doesn’t sound like the world’s classiest move, but I can rationalize it. When you try a FSBO, I believe you should set a deadline for yourself. For instance, if the house hasn’t sold in, say, three months (or whatever time frame works for you), you will hire an agent. When you interview these agents for their pricing suggestions, you will also be choosing who to give the listing to should you fail to make the sale on your own.
Don’t Hire an Agent, But If You Do, Sign Up for a Three-Month Contract
Most real estate agent contracts are for six months, but three months is preferable. You want to give this agent a sense of urgency about selling your house. If they are doing a great job, but it just hasn’t clicked, you can extend for another three months. But if you are disappointed in the agent, you will be able to bail out sooner and hire somebody else
Pay for an Appraisal If you can’t stomach this minor deception, fair enough, I have another idea for you. Hire a professional appraiser to put a price on your house. The appraiser will perform a comparable analysis of recent home sales, and—better yet—will tackle the tricky task of evaluating how those homes are different from yours and what dollar value to put on those differences. Try to find an appraiser who has worked in FSBO situations before. You can find an appraiser at
www.appraisalinstitute.org.
Be Aware of Benchmarks
Another important factor to consider when setting your price is benchmarks, pricing cutoffs that buyers are likely to pay attention to. Here’s what I mean: It has always seemed dumb to me when a candy bar is priced at $.99. I mean, everybody knows that’s the same thing as a dollar! But with real estate, there is a sound rationale for goofy prices like $499,000. Many sellers will instruct their agent that they want to buy a house “under $500,000.” Or they may search online and choose the search category that says “$475,000-$499,000.” You don’t want your home to be excluded from their search because you priced it at a round number of $500,000.
Know Your Minimum
As you price your home, you need to establish the rock-bottom minimum price that you are willing to accept. It’s best to start thinking about this now rather than when you are under pressure because you have just received an offer and you have 24 hours to respond to it. In addition to considering comparable sales, think about the amount of money you need to get out of the house in order to recover your own purchase price. And don’t forget about the closing costs you paid when you bought the home and any major money you have spent on upgrades. You want to try to recover those costs, too. Memorize this bottom price and keep it in mind as you receive offers.
Underpricing Your FSBO
Once you know your home’s value, the great thing about selling it yourself is that you can afford to underprice it and still make money. Having a house languish on the market because it is overpriced is considered the worst danger in real estate. In a FSBO situation you have a built-in mechanism for avoiding that blunder. Deliberately underpricing your house is your number one strategy for a painless FSBO process. The discounted price makes your home appealing, making up for any disadvantage you may face because you are selling without the help of an agent.
Don’t worry, you can still make money if you underprice your home. Since you are selling the house yourself, you can price it under what you would with an agent, but make over what you would with an agent. You can afford to do this because real estate agents traditionally make a 6 percent commission. Since you don’t have to pay an agent, you can play around with the price within that 6 percent that agents usually make.
For instance, Cindy G. of California was moving because she wanted to send her son to the wonderful private school she herself had attended as a child. She needed to squeeze as much money out of her house as possible to pay for that private school so she decided to try to sell it herself. Cindy knew she could afford to underprice her home a little bit to make it attractive and still make more money than if she paid an agent.
After doing her homework, Cindy learned that an agent would have priced her house at about $250,000 (actually the agent suggested $249,999!) and charged a 6 percent commission. So Cindy priced her home at $247,500, a 1 percent discount. This pricing strategy worked! In fact, she got multiple offers and received her asking price for the home because it seemed so reasonable to buyers. Here’s how much money Cindy saved by selling her house herself, even though she discounted it a bit:
The Power of Underpricing Cindy’s FSBO Home| Proceeds after discounting |
| house 1% and selling it herself | $ 247,500 |
| Proceeds at higher agent’s price |
| with 6% commission | 235,000 |
| BIG SAVINGS = | $ 12,500 |
To buyers, Cindy’s house looked alluring—downright sexy—because it was priced $2,500 below others around it. But despite that discount, she actually made $12,500 more than she would have with an agent because she didn’t have to pay a commission.
Remember, “It’s the price, stupid.” For those who live in more expensive real estate markets, you can save even more. What if you were selling a pricier house that an agent would list for $500,000? Here’s how you would SAVE BIG if you discount the price 1 percent and sell it yourself.
The Power of Underpricing a More Expensive FSBO Home| Proceeds after discounting |
| house 1% and selling it yourself | $495,000 |
| Proceeds at higher agent’s price |
| with 6% commission | 470,000 |
| BIG SAVINGS = | $ 25,000 |
That’s $25,000 saved! As you can see, in this example I assumed you get your asking price, just to make the math easy. There’s no guarantee that will happen. It depends on the real estate climate. But if you sell a house yourself, even if it sells for less than you had hoped, you are saving the 6 percent commission. Depending on the market, you can play around within that 6 percent range that is the agent’s typical commission—lowering your discount when it’s a seller’s market and increasing it when it’s a buyer’s market.
Hire a Lawyer Instead of an Agent
If you are selling your house without an agent, you will do the work of advertising and showing your home yourself, but you will still want help with the unfamiliar details of the offer. Long before you get an offer, you should hire a good real estate attorney. Your attorney will be able to advise you on the proper protocol, review offers, and be present at your closing. Whether you pay a lump sum or an hourly fee, it will still be much less than what you’d pay a real estate agent.
Agents Welcome
At this point you’ve set your price and you’re waiting for buyers to come tour your home. True, you chose not to hire an agent to help you sell the house. But if there is an agent who can help somebody else buy your house, you should consider it. According to the National Association of Realtors, 86 percent of home buyers find their property with the help of a real estate agent, so you don’t want to exclude this constituency.
Welcoming agents simply means that instead of saving 6 percent in commissions, you may save 3 to 5 percent. Traditionally, real estate agents split commissions in half—3 percent to the seller’s agent and 3 percent to the buyer’s agent. So the low- friction option is to agree to pay the buyer’s agent that 3 percent bounty for bringing you a buyer.
Just when Kendell A. of Illinois finally bit the bullet and bought her own condo, she met her soulmate and they decided to move in together and get married. Ah, life. Suddenly Kendell needed to sell her condo. She wanted to try to do it herself so she could make enough money on the place to recoup her closing costs. Kendell considered paying a buyer’s agent 3 percent, because she knew she would still make a tidy profit on her $495,000 home if she did that. Here’s how paying a 3 percent commission compares to paying the traditional 6 percent commission:
If Kendell Pays a Buyer’s Agent 3 Percent on Her $495,000 Condo| Proceeds after 3 percent commission | $ 480,150 |
| Proceeds after 6 percent commission | 465,300 |
| BIG SAVINGS = | $ 14,850 |
As you can see, if Kendell paid the full 3 percent to a buyer’s agent, she would still save $14,850 compared to the cost of paying both a seller’s agent and a buyer’s agent.
Offer a Lower Percentage
Kendell might have been willing to sacrifice the 3 percent in a lop-sided buyer’s market, but her home was in a hot Chicago neighborhood, so she figured she could save even more.
She also knew that many real estate agents will accept a commission of 2 percent. It’s pretty routine. So Kendell decided to offer buyer’s agents 2 percent instead of 3 percent. Kendell’s plan paid off! She still compensated a buyer’s agent for bringing her a sale, but she preserved more profit for herself.
If Kendell Pays a Buyer’s Agent 2 Percent on Her $495,000 Condo| Proceeds after 2 percent commission | $485,100 |
| Proceeds after 6 percent commission | 465,300 |
| BIG SAVINGS = | $ 19,800 |
There, that’s better. A $19,800 savings for all your hard work seems more like it. Call me greedy. The smart thing to do is raise or lower the percentage you are willing to pay a buyer’s agent, depending on the real estate climate. It’s a nice safety valve that you can adjust to the times.
Flat-Fee Commissions
Hang on. There’s one more option! In a hot real estate market, where sellers have the upper hand, you may be able to offer a flat fee to buyer’s agents instead of a percentage of the sales price. Choose a flat fee that is still attractive to agents but far less than a percentage commission would be.
This is what my husband and I did when we sold our condo. We advertised that we were offering a flat fee of $5,000 to buyer’s agents. The strangest thing happened. The agent representing the couple who bought our place tried to get us to pay 3 percent instead. He made it sound like his clients wanted it that way and the deal was in jeopardy if we didn’t pay.
I called up the couple, because we had established a rapport, and they were horrified at their agent’s deception. My husband and I stood our ground and the sale went through with just a $5,000 flat commission. I felt no guilt, because this couple found our home through an open house. The only service this agent performed was filling out the offer form for his clients. That’s not worth 3 percent!
Have Your Lender Help You
Remember the lender you carefully chose in Chapter 5? That pro can help you sell a house as well as buy one. Normally your real estate agent would qualify potential buyers to make sure they have the financial means to buy your home. Instead, send prospective buyers to your lender for vetting. This mortgage broker or banker will be happy to have the referral and will pull a credit report, and so on. If the buyers are mortgage-worthy, this pro will let you know and also offer them a loan, a free service to both sides.
Negotiating the Deal
When you’re selling without an agent, it’s easy to feel so relieved and grateful to receive an offer that you don’t want to jinx it. But as long as the buyer is financially fit, you should always make a counteroffer. Don’t be insulted if what you’ve received is a lowball offer. Unfortunately, you don’t have an agent to shield you from this sort of thing, so you’ll have to shrug it off on your own. It’s worth making a counteroffer because this is somebody who has shown a strong interest in your home.
Fortunately, counteroffers are simple to prepare. You simply state the price that you would accept and list the other items in the offer that are not okay with you. Then you list what you would accept instead. You may be able to use a standard regional form designed for counteroffers to make it even simpler. Your lawyer will know. Be sure to give a deadline by which the buyer must respond.
As you go back and forth, here are a few strategies to consider:
• If you have the upper hand because it’s a seller’s market, make your price reductions smaller than the buyer’s price increases. But if it’s a buyer’s market or a balanced market, consider splitting the difference. There’s something about meeting in the middle that seems profoundly fair to people.
• Consider tabling smaller matters, like who’s going to fix the leaky faucet, until you have settled on the big stuff like price and closing date. (Note: Tighter closing schedules are better because less can go wrong.)
• If you and the buyer are close but can’t quite meet on price, find out how much your higher price will cost the buyer per month (ask your lender). When they hear that a $10,000 difference only amounts to about $60 more per month, they may concede.
If none of these strategies works, you may want to consider paying for some of the buyer’s closing costs. Offering to pay some closing costs can save a sale—and it doesn’t have to cost you anything. Some buyers have diligently amassed a down payment, but just can’t quite scrape together the closing costs. So here’s what you do: Offer to pay some or all of their closing costs, but raise your price by an equal amount. This may seem like just a psychological ploy, but it’s not. You net the same amount, but the buyers get the all-important cash they need to close their loan.
This transfer of funds is done painlessly at the closing. You never have to front any money. Just be sure to set a dollar limit on your closing cost contribution, in case the buyers haven’t read this book and don’t know how to cut their closing costs!
Pretend to Be a Curmudgeon
When negotiating the sale of your house, pretend to have certain ironclad sticking points that are not open to compromise. Then, when you concede those items later, the buyers will think they have really scored!
If All Else Fails
If you manage to sell your house yourself, you’re a genius—a richer genius! If you don’t, you’re right back where you started. So what? Now you will hire an agent. You gave yourself a workable deadline at the beginning, so you still have time to sell before you need to move.
Since you have done so much work already polishing your house for sale, there’s one last-ditch chance to save: See if your new agent will agree to take your listing at a discount. According to Real Trends, a real estate consulting firm, a commission of 5.2 percent is now the national average, and for that to be the case, plenty of agents must be agreeing to take less than 5 percent.
If your agent accepts a 5 percent commission instead of 6, even though your FSBO didn’t work out, you still SAVE BIG! Don’t believe me—check out the numbers for a $250,000 house:
Paying a Lower Commission on a $250,000 House| Proceeds after 5% commission | $237,500 |
| Proceeds after 6% commission | 235,000 |
| BIG SAVINGS = | $ 2,500 |
There you have it, a final last-ditch savings of $2,500 in the life cycle of getting a mortgage, buying a home, paying taxes on the place, and finally selling it again. You were able to SAVE BIG at every step along the way. Now, you can start the entire process all over again and save even more!
BIG TIPS
• Look up comparable homes and see what they sold for.
• Attend open houses to scope out your competition.
• Interview real estate agents or hire an appraiser to help price your house.
• Discount your house slightly to make it alluring to potential buyers.
• Welcome buyer’s agents but try to pay them less than 3 percent.
• Hire a real estate attorney and ask your lender to help.
