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Pitfalls of Selling via “For Sale By Owner”

I’ve never sold a house so I don’t entirely understand their side of the process (so take this article with a grain of salt), but I do know what I looked for as a buyer. I do know that not a lot (percentage-wise) of buyers go online and search for homes on the For Sale By Owner websites so as a seller your potential market is already smaller. I also know that a buyer agent, which most buyers will have, has little or no incentive to show their clients an FSBO… that’s another factor decreasing your potential market. Finally, even if you do find a buyer, they will have to bring “buyer agent-like expertise” to the closing table (if they even make it that far) which is something a total novice probably won’t be able to do, let alone feel comfortable doing. But ignoring the final point expertise point, which was the main thrust of the previous article [3], you’re still betting that an educated buyer (or buyers preferably) in search of a FSBO will find your house and put in a competitive offer. I think that is a dangerous bet to be making.

When I bought a home, I did it with the future sale of the home in mind. Even though I don’t have any children, you want to buy into an area with good schools because when it comes time to sell the fact you’re in a good school district makes your home more attractive to more buyers. Why do you want more bedrooms and bathrooms? Bigger families with bigger incomes want bigger homes! If you buy a $300,000 rowhouse in an area where you only expect young professionals to live, even if the paper value of your home rises to $500,000… how will a single young professional be able to afford to buy the home from you? He/she won’t, but a dual income family of four will be able to afford that.

So, when you choose FSBO you are reducing all your preparation when you first bought the house. Your only benefit is in not paying a large commission. When you consider that commissions are so high (you don’t even need to add the other little fees to make this point hit home) on property sales (7% standard, so $35,000 on a $500,000 sale), perhaps it’s a worthy tradeoff.

The secondary pitfall behind chopping your market to a fraction of what it normally would’ve been is that you force yourself into dealing with a savvier customer or a total dope. One on hand, the savvy buyer will be on top of his or her stuff and can get you to closing without a hitch. You won’t be able to make as much money as from a total dope. The risk with a total dope is that a mistake in the contract, in the research, in something; could hold off the closing sale – which may have negative downstream effects. You’d prefer a total dope with expert representation.

Lastly, a smaller pitfall that probably wouldn’t concern most FSBO sellers, is that you need to be on top of your game. One of those savvy buyers could pull one over on you if you’re not careful!