When Selling Your Home on Your Own Makes Sense
Life + Money

When Selling Your Home on Your Own Makes Sense


You've got a home. The market is heating up. You want to sell. Only, you don't want to give up 6 percent in real estate agent commissions. Maybe you've had some financial setbacks and need to keep every possible penny in your pocket. So you decide to sell the house yourself.

Of course, many agents and the National Association of Realtors would warn you against it. They say you'll make a lot less than a professional could get you and it will take too long.

For some people and situations, trying to sell a house on your own -- called “for sale by owner,” or FSBO -- is a mistake. For others, it can make sense.

Does FSBO makes sense?
The National Association of Realtors claims that FSBOs represented 9 percent of home sales in 2012 and that the "typical" FSBO home sold for $174,900, versus $215,000 for an agent-assisted sale. Take away the 6 percent total typical commission and that's still $202,100. The question is what "typical" actually means. Were FSBO sellers motivated by circumstances to take less? Did sellers with more expensive properties tend to hire an agent, driving up the average price?

Many people have successfully sold their own homes. In a hot market, particularly if there are other homes nearby on the market bringing traffic near your for sale sign, you might be fine. In 2003, Bennie Waller, a professor of finance and real estate in Farmville, VA, had two months to sell before moving cross country. "As a result, [I] probably didn't get the maximum price," he said. But then, given the time frame, a realtor might have heavily discounted and Waller was "very satisfied with the experience."

Related: This Is the Hottest Luxury Market in America

If you're selling to a relative or had a buyer contact you, an agent's marketing efforts might not matter so much. David Mech, a licensed real estate broker in Florida, who has sold multiple homes of his own, doesn't think agents necessarily add much to the sales process. "They basically just enter the property information into the MLS [the Multiple Listings Service] and the buyer's agent does all the work to find and show the listing," Mech said. He suggests paying a flat fee to an MLS listing service, offer the typical 3 percent commission to the buyer's agent and save the other 3 percent to the seller's agent.

Although you might want to shave down the buyer's agent commission, tread warily. "I don't think most agents would do it for 1 percent," said Loren Keim, president of Century 21 Keim Realtors in Allentown, Pa. "A realtor would try to talk the buyer into finding something else to get their [typical rate]." Offer more, like builders of new home construction do in a slow market, and buyers' agents will make your house a priority in their own best interest.

Know your price
Still, the selling process is more complex than an experienced professional like Mech might remember. "We're not brought up to be very strong negotiators," Keim said. "Every [FSBO] situation I've seen personally, they've discounted it beyond the level I thought they needed to."

One advantage for sellers today is low housing stock, according to Rachel Torchia, president of Gateway Title Associates in Cleveland. "As a result, [agents] are turning to the for-sale-by-owner [houses] to find a property," she said.

Related: Why Second Home Sales Are Surging

Setting the right price requires research. Find comps -- comparable neighboring homes that sold within the last few months -- to help identify a price said Sandy Neumann of Neumann Realty Corp in Jacksonville, Fla. You might be able to pay an agent to pull some applicable comps from the MLS that agents regularly use. Barring that, sales records from the local property appraisal agency can help. "They're usually a couple of months behind, so they're not going to be the most recent, but they'll be helpful," she said.

Compare the sales prices with the assessed values of the properties to find the predominant ratio. That helps find a reasonable sales price without trying to take into account specific features such as a pool or new roof.

Have an independent appraisal done on the house. The buyer's lender will have its own appraiser, but if the appraisal comes in low, you want evidence to argue the higher price. Make sure you know whether the appraiser uses foreclosures, which will typically be in rougher shape and worth less, as comps. If so, that should be documented in the appraisal. Keim said it can help to show the lender's appraiser your own appraisal report before he or she begins.

Time to market
House hunting used to be driven by newspaper ads. Today, that search is online. In addition to MLS, Torchia stresses listings on such powerhouse real estate sites as Zillow.com and Trulia.com. Don't forget a for-sale-by-owner sign on your property and even a newspaper ad and Craigslist notice.

Related: 10 Markets Where Housing Prices Are Bubbling Up

When negotiating with a potential buyer, do your homework. Ask for pre-approval paperwork from the lender. If it's a cash offer, ask for a letter from the bank verifying funds. Don't tie up your house when someone lacks the necessary funds.

Prepare to become an active project manager -- another role an agent often plays. The buyer must meet multiple deadlines with a lender and may need prodding. "There can be a glitch in the credit that has to be fixed," Neumann says. "The appraisal can come back too low." Research what is legally required in a sale such as what you legally have to disclose and what taxes and procedures are a must. Paying an attorney specializing in real estate to walk you through the process could make sense.

Then there is negotiating the price and how you and the buyer split various expenses. You might have to do repairs that offer problems with safety. The buyer might push to have you take care of other things as well. This is when dickering gets difficult. If you've done everything else yourself and your negotiation skills need significant polishing, you might explore hiring an agent to close the deal for less than the full commission.

And remember, if things don't pan out, you can always hire an agent.

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