For Sale by Owner (FSBO), a concept few sellers attempt, holds many potential rewards for the savvy seller. Unfortunately it also holds many perils for the seller solely attempting to cut out a perceived middleman. With the tactics any investor can learn from this very website, it should be easy to find a realtor worth their 6% fee. Before an investor decides whether or not this method of selling would work best for them, they should consider the following analysis.Strongly consider the value of your time and the expected cost savings of not using a realtor. On a $100,000 home, an investor will avoid costs of approximately $6,000 or 6% by not hiring a realtor. However, the investor will incur numerous additional costs that would be traditionally born by the realtor. Marketing fees can be substantial. After printing signs, flyers and putting ads in the paper a seller could be down $500 - $1,000.
Next, the seller must put an hourly wage on their time. As an investor, a generous number of $50 per hour is appropriate. Doing some very simple math, after marketing a seller can afford to spend about 100 hours of their time on the sells process. While that seems like a lot, its about 12 eight hour work days. The most basic property will require a minimum of two to four weekends of showings. After four days (2 weekends) of showings at six hours a day (2hrs. prep time, 4hrs. show time), an investor only has about 76 hours left. Add 5 -10 off hour showings and the time really starts to add up. This is before the buyer’s realtor begins requesting documents from you and the banks start calling. It’s very easy to spend 12.5 eight hour days selling your home. Most realtors spend the equivalent of that amount of time or more on a transaction. And remember, they do it for a living so they are much faster and generally better at it than you.
Consider the market you are selling into. FSBO properties work very well in strong markets when the seller has the upper hand. Conversely in a buyers market, the negative perception of an FSBO property alone could cost an investor 2-3% of the property value. Think about it from the prospect of a buyer. Owners typically know much less about the real estate market, have very little access to current market comparables and have completed far fewer transactions than an experienced realtor. That’s worth a 2-3% discount in most buyers’ opinions. Additionally, so many FSBO properties are poorly managed. Many realtors farm FSBO markets for this very reason.
Investors should also understand the scope and the value of their network before attempting a FSBO transaction. Realtors know buyers, sellers, other realtors, investors and other interested parties. They employ their entire network with the goal of selling this particular property. If an investor can’t think of at least 10 people to pitch their investment property to it might be time to call a realtor. Smaller networks mean it will take longer to sell the property. During this time an investor could be missing numerous investment opportunities.
FSBO transactions can work, but investors need to understand the risk and rewards.
