Selling “By Owner”

It’s a hot market.  Many people want to go the For Sale by Owner route.  I have no hard feelings towards them.  It is their house after all!  They can do with it whatever they want.  My only real problem with this whole For Sale By Owner process is that the buyers who look at these properties and the sellers BOTH want to save the commission that would be paid to a Realtor.

Okay, the seller is thinking, hey, I can save as much as 6% if I do this myself  The buyer is thinking, hey, I can make a low offer on this FSBO house since they don’t have to pay a Realtor!  That is where the fun begins.  Both parties are viewing the savings as THEIRS!!!!!!!

And let me stick this little bit of trivia in now.  Usually the seller thinks their house is worth more than it is.  Often, they interview several agents who all tell them their house is worth about the same amount.  The seller of course disagrees and puts their house on the market for way more money because you know, they think their house has some magical aura that adds value.  I often call FSBO sellers for my buyers.  Their interest usually ends the moment I tell them the seller’s list price.

Usually the buyer writes an offer than insults the seller.  The seller then says something like, “But I need to get this much out of my house so I can buy my next house on the terms that I want!”  The Buyer then tries to justify their offer by saying something like, “Well, we just can’t pay any more for your house since we are going to have to repaint your baby’s room and replace that ugly carpet in your family room.”  By this time both parties have gotten away from the fact that the goal is to change who owns the house, not to win a battle.  While I did exaggerate things a bit, this type of thing is what keeps agents in the business.  I think this is more the norm than a pleasant FSBO experience.

I have always said that the day people can negotiate without taking things personally, when they can see how the other party thinks, when sellers realize that their house may not be the best one in town, and when buyers realize they don’t have to put the seller in a chokehold, that it will be the end of the road for realtors.   I use to worry about this, but now I know that day will never come.

My own “First Time Buyer” experience

Back in the late 90s, we didn’t have zillow and few people had the internet.  Searching for a home was about driving around neighborhoods calling the number on the sign, or getting a Sunday newspaper to see which houses were open that day.

I was working with a realtor, but I found a for sale by owner and never thought to call her first.  I was in the car and called the number from my 4 pound cell phone that was 2 inches thick.  I could see the seller get up to answer his landline phone.  Next thing I knew, I had bought a house.

Like a lot of people, I never thought of all the time the realtor had spent with me.  I also never realized how the sum of all the little decisions that she had input on had lead me to THIS house.  I still feel bad about that.

However, I wish she had been involved in the sale.  This was looooong before I became The LEXpert.  I thought “How hard can this be?”  While none of real estate is what I call hard, there is a lot that experience can do to make it a smoother, better process.  I’ve loaded boxes at UPS in the middle of the night.  That was hard.

The seller and I kind of just made up a contract with the help of my mom.  I wish I still had a copy, because I doubt it covered things like if all the appliances stayed, when the seller would move out, what happens if things get sideways and the seller and I need to break up.

I did have a home inspection.  Kind of.  I was a broke twenty-something so a friend of my mom’s did it.  The roof was originally wood shakes with two layers of asphalt shingles over them.  It is a house that today, I would tell my clients to run from.  While we were there, my mom looks at the house two doors down and asks the seller “Is that the house where the shooting was last week?”  The seller told us that that guy only shoots at people he knows.  This is why I keep up with crime and tell people to look at the crime map online.

I had no idea that it was typical to negotiate with the seller to do repairs.  I just thought since I wanted the house still, I would have to deal with any issues.

The seller moving out didn’t go that smooth.  They kind of never fully moved out.  I kept calling him to come get his stuff.  He eventually brought a trailer over to clear out a shed.  As he was loading all the junk, he would occasionally ask if I wanted any of it.  He had several cast iron weights from old windows.  He said they would make great anchors for my boat.  I joyfully told him I did not have a boat, so he could keep them.  This is why I tell clients not to close until the seller is out.  Sometimes I have to be the bad guy and tell the listing agent or seller that they aren’t done moving out and no, they cannot come back later…..we close AFTER we see the place empty.  I’ve had to do that twice this summer.

While this house was a total dump, my wife and I loved it.  We brought both of our boys back from the hospital to this house.   Lots of great memories were made there.  We have since moved 3 times and life has taken me in a direction I always hoped it would.  I’ve been a realtor now for almost 12 years.  The experience of buying this house has helped ALL of my clients because it was one step towards becoming The LEXpert.

SI Drive? Level Side walks? Curtains that Convey? Really??

About a year ago, my wife decided she wanted a Subaru Outback.  We looked at a few on used car lots.  I did a lot of research to find out what trim level we had to get for her to have the sunroof and heated leather seats that she wanted.  There really weren’t a lot of used Outbacks in or around Lexington at that time.  Then, one day, I found a classified ad that said “2008 Subaru Outback, SI Drive” with the price and the seller’s phone number.  Not a lot of info to work with.  Definitely nothing to make the guy’s phone start ringing.  But to me, this car having “SI Drive” told me a whole lot more about it.  Having done a lot of research, I knew that was only offered on the top trim level, having the giant sunroof, heated leather interior, and the bigger engine.  When we went to see the car, all the seller kept talking about the “SI Drive”.  I could tell it was very important to him.

A lot of home sellers are like that too.  They want to focus on what is important to them when selling their house, rather than focusing on things that are important to the buyer.  I see it a lot in marketing remarks of For Sale By Owner houses.  I once read a flyer where the seller spent a lot of space talking about how level the sidewalks are and never mentioned that his model of house had an open floor plan, which is something that is important to most buyers these days……especially since anybody picking up the flyer can see what is outside of the house, but knows nothing about the inside yet?

I sold a house to a family that I have since become friends with.  They found the house by driving around the neighborhood.  They would have never come to see it if they had only seen it online.  Why?  Because of the marketing remarks.  Instead of mentioning the hardwood floors, instead of mentioning that one of the upstairs bedrooms was huge, or that there were bedrooms on both levels of the house, or that the backyard was an awesome park-like oasis, the agent used that space to tell you that the exterior was maintenance free, that the curtains stayed with the house, and that there was an allowance for water-proofing the basement as well as mitigating radon……..Hardly anything to make somebody fall in love with a house that had a leaking basement and a high radon level!  The marketing remarks could only have been better if they said  “Must see!……You get to keep the seller’s curtains AND fix some major problems with this house, but at least you’ll never have to paint the outside!!  NOT a drive by!”

The hardest thing about real estate is getting sellers to think like a buyer and a buyer to think like a seller.  I think if that ever were to happen, I’d probably be out of a job!  Being a realtor these days is as much about mediation, negotiation and understanding differing perspectives as it is about houses.

BTW, “SI Drive” is a feature that has 3 settings for throttle response and transmission shift points.

Why buyer’s don’t make offers on an over-priced house

 

Often, when talking about pricing a house with a seller, they say something like “Couldn’t we price it at this and won’t people just make an offer if they like the house?”  Makes a lot of sense when viewed through the seller’s mind, but doesn’t when you look at it through the buyer’s eyes.

Why?   Let’s say a buyer is pre-approved for $190k.  You have a house that is worth $170k, but are asking $190k because somebody will make an offer if they like it.  So, the buyer goes out and looks at every house that is priced at $190k, most of which are really worth about $190k.  To that buyer, your house seems like the worst house he has seen.  Why?  He is comparing it in HIS mind to the better houses that are worth $190k.  The buyer is either going to get a better location, a bigger house, or one in better condition……They are never going to like your house enough to make an offer.  On the flip side, the person who is going to spend $170k is never going to see your house because they aren’t looking that much over their price cap.  So, you have a situation where the people looking at your house aren’t going to buy it and the person who would buy it isn’t going to see it!

Here are some tips to keep this from happening:

1) If you must price on the high side, never go more than 5% over the comps.  Once you get up around 10% over people won’t even come to look at it.  Sometimes an over-priced house will get a lot of showing, which makes the seller think they are priced right.  You can still get a lot of showing on a slightly over-priced house, but no offers.  When you get showing and no negative feedback, it means you have a price issue.  See, agents are afraid to tell another agent that they priced the house wrong, so they say nice things about the house and hope to get off the phone with you.  I know because I often ask what agents thought of the price and they seem a little nervous to answer.  So, the advice is that if you have a fantastic $170k house, it needs to priced around that number.

2)  Avoid the temptation to have a high price and have your agent tell people you are motivated.  When I see a steep asking price and the agent says the seller is motivated, what comes to my mind is that they are motivated to get their price.  A truly motivated seller will price his house at or less that what it is worth.   The days of testing the market are a thing for the history books now.

3)  Realize how the market works.  You have so many buyers and so many houses.  The buyer gets to pick whichever house he/she wants……and they always pick the best one.  Even in this sloooooow market, I have been in more multiple offers than ever.  It is human nature to want the best.  The buyer is comparing all the houses available.  Make your house the best one by pricing it right.

Trust me on this….There is no magic in real estate.  Rarely do I ever see a house sell for more than it is worth.   Even if you do find a buyer who will pay too much, you are going to have to convince their realtor too.  If the buyer is going to have a mortgage, their lender is going to insist on an appraisal.  If the house doesn’t appraise, no loan, no sale.  So, the formula you need to get more for your house than it is worth is to find an ignorant cash buyer with an equally ignorant or careless realtor……and I have only had that happen once with one of my listings!

Real Estate Catch Phrases….EXPOSED!

Ever hear folks say things that just make total sense when they say them…..but then you get to looking at it beyond face value and realize that it doesn’t always apply 100% of the time?  Back when I was a kid, people around here would put bags of sand in their trunks for the winter.  The logic was that it would add weight to the back of your car and help with traction in the snow.  That is very true…..if you have a rear wheel drive car.  I remember in the 80’s when front wheel drive was starting to become common.  In the late fall you’d hear people with front wheel drive cars say it was time to get their sand bags.

Same thing happens with real estate.  We’ve all heard some of the following thoughts that in general are true, but don’t really apply to all situations all of the time.

1)  Location Location Location:  While generally true, I’d like to see this one replaced with “Location, Price, Condition.”  Why?  I’ve seen too too many houses in a prime location sit on the market because the price and/or condition weren’t right.  You just can’t price your house in a prime spot equal to others in your neighborhood if it isn’t an equal house.

2)  You can get a good deal with a For Sale By Owner:  I hope I am not offending anybody here, but in all the FSBO houses I have ever seen, all of them have been grossly over priced.  Let’s face it, people go the FSBO route because they want to save themselves some money.  For somebody who thinks they can pocket the commission savings, it is easy for them to think a buyer should also pay what they feel their house is worth…….But it is the buyer who always gets to determine the value of a house.  You’d think seeing houses in some parts of the country go for 30% of their previous value would testify to that fact.   That is why sellers usually end up listing with a realtor.  The day sellers figure this out is the day you’ll start seeing a lot of realtors lined up to give plasma.

3)  Go Neutral:  I must admit, I generally tell people to paint bold rooms beige, and when they remodel, go neutral.  The reason is that if 10 people come to your house when it is for sale, 10 people won’t be offended.  However, 10 people probably won’t fall in love with it either.  If you have something with some character and 10 people come in, 9 won’t like it at all, but that 1 that does will probably buy your house and give you top dollar.  I have cherry floors and slate in the bathrooms.  I polled my Facebook friends to see how they reacted to slate.  About half loooooved it and half didn’t.  Same thing with my friends.  Some see it and want to touch it and keep looking at it.  Then some give me a look like they are trying hard to not ask why I picked slate!

4)  It’s better to have the cheapest house in an expensive neighborhood than get a nicer house in a cheaper neighborhood:  This one can bite you on the bum.  The problem is that the buyers who will be looking in the nicer area will probably expect more than the house has to offer.  Also, buyers who will be looking in that price range may elect to get more house and skimp on the location.  Going this route is best for somebody that plans on improving the house to the standard of the neighborhood since it gives them a better chance to recoup their money.

5)  You’ll get your money back out of an improvement when you sell:  I don’t hear this as much since the market slowed.  Even when the market was super dooper hot, you never got 100% of what you spent back, and you certainly don’t today.  Another thing to remember is anything you do to your house has a life span.  The more of its useful life span you pass on to the buyer, the more you get back.  A good example?  Carpet.  It only really adds value if it is new.  Imagine if you saw a house for sale and it said “New Carpet in 2005!!!!  Not gonna get your blood boiling is it?

6)  You need wiggle room in your pricing so buyers can think they got a good deal:  I just blogged about this one, so I won’t spend much time here.  Think about this though…..Do you think pricing your house without wiggle room will get you more showings than the sellers who have their house overpriced?  Buyers are online looking at houses they want to see in person.  A realistic price makes your house stand out in comparison to the others and they come out to see it.  You need showings to get an offer.  I have never had a buyer tell me to make an offer on a house they haven’t been in. 

That’s it for today and my “Deep Real Estate thoughts by John Rice.”