Monday, February 18, 2013

How to Sell Your Home Without a Real Estate Broker

Not long ago, I'd have told anyone to think long and hard before trying to sell her or his own home without using a real estate broker. Nearly everyone shopping for a home looks online, and the local MLS's (Multiple Listing Service) have feeds and links to national and international websites that dwarf anything an individual owner has access to.

But I think the world has changed. Websites like ZillowTrulia, and others--especially my favorite, Redfin--have evened the odds. Why? 

Buyers look for homes by price and location, and these websites show every home for sale in a given location. Redfin is a licensed brokerage and thus has access to the Multiple Listing Services where Redfin has locations, allowing it to update in real time. Redfin and Zillow are also very good at posting For Sale By Owner homes, which MLS's do not.

The bottom line is that it's become pretty easy for you to make sure every buyer out there knows your home is for sale.

Moreover, these websites help you price your home. I've never thought much of "Zestimates," but they're a place to start. Redfin is even better better (more on that below).

Why should you DIY your home sale? Easy--the commission. While brokerage commissions are negotiable, a $300,000 house costs the seller 5% or 6%, on average. Can you recoup all, or part of the $15,000 to $18,000 fee by going it alone?

If you decide to try, what problems will you face? Here are several:
  1. Contract forms. Realtors have well-developed, lawsuit-tested forms to handle just about any part of the transaction and protect the parties. Lay people don't.
  2. Opening yourself up to total strangers coming into your home. Are you comfortable allowing someone into your home who called off a Craigslist ad?
  3. Real estate practices: How much earnest money should you ask for? How do you determine who gets it? How do you handle inspection contingencies? What if the potential buyer needs to sell an existing home?
  4. How to determine your price.
  5. How to advertise your property.
As to forms, some state real estate commissions or departments, such as my current state of Colorado, have approved forms online that anyone can use, licensed broker or not. Office supply stores usually have real estate forms, although they're pretty generic. Sites such as Legalzoom or Rocketlawyer may be of help. I also strongly recommend the use of an attorney. A few hours of an attorney's time is well worth it (and far less than a brokerage commission).

A comfort level with safety is a personal choice. Do not take this lightly, and be sure to use every precaution.

Real estate practices on earnest money, inspection and other contingencies vary by region. As for earnest money, be aware that many Realtor-approved forms, while often termed "sales agreements," primarily serve as contracts describing the distribution of earnest money, and outside that are pretty much agreements to agree. My attorney in California even called them "deposit receipts." What this should tell you is that real estate association attorneys consider earnest money to be extremely important. Many sales agreements fail, and disposition of the earnest money can get contentious.

Another item is very important. A contract must have a closing date--the date certain when the buyer funds the purchase and the seller transfers the deed--for the contract to be valid. The date can be extended by mutual agreement, if necessary.

How much earnest money (earnest money indicates how "earnest a buyer is) to ask for? Ask around in your area. I generally used 1% of the purchase price as a baseline when I was licensed in Oregon (and a similar amount was customary in California and Nevada), but other areas ask for more. The home's price point matters as well. For a seller, the more earnest money, the better.

Most sales agreements have contingencies, where performance is contingent on another event or action, such as the buyer being able to get financing, or the home passing a home inspection. As a general rule, a contingency should have a "trigger" and a consequence. For example, an inspection contingency should also have a deadline for completion, e.g., ten days from the date of signature. This date is the trigger. It triggers a response--say, the seller must repair the furnace by a date certain--and a consequence: The seller either repairs the furnace by that date, or the contract is void.

Side note, here: An inspection contingency should describe the nature of the inspection, i.e., pest and dry rot, whole house, roof, etc., and who pays for it--buyer, seller or both. Repairs must be negotiated.

The most common contingency is the buyer's financing contingency, which should also contain all necessary trigger-consequence language. Buyers need to describe what loan program they're applying for, how soon, and should assure the seller that if the buyer's loan is not approved, the buyer will notify seller right away, usually within two business days. Most state Realtor associations' forms handle the financing contingency very well. It's also an area where a lawyer's service is very important.

Don't consider an offer without a pre-approval letter from the buyer's lender. It's best if the letter is attached to the offer, but sometimes, they're provided within a day or so.

Real estate brokers are familiar with terms such as escrow, closing date, trust deed, title and title insurance, easement, and other terms in the real estate glossary that lay people aren't familiar with. If you DIY your home sale, you'll be hearing these a lot, so it's good to understand them.

Redfin has a tool for pricing your home, allowing you to not only see comparable sales, but add or subtract values for, say, age, condition, square footage, room count and other metrics. I used it in pricing an offer for a short sale home in Denver, and it was almost as good as the data I had when I was licensed.

Warning, though: Adjustments are tricky, and people often do not see the deficiencies in their own homes. A new kitchen or bath remodel, for example, will not give your house a commensurate dollar-for-dollar price increase. Remember, you are probably not an expert in the housing market any more than you are than in some arcane financial market, but with serious work, you can come up with a reasonable asking price.

You will need to take as many photos of your home as possible, keeping in mind that the photos you publish need to be of rooms and places buyers most care about. Hint: They don't care about closeups of a toilet in a second bathroom.

Take as many pictures as you can and upload them to Postlets.com, which is owned by Zillow, but syndicates to many other websites, including Craigslist, where buyers look for homes. And do a video, with you as the star, saying what you like best, and least, about the home. Buyers appreciate this kind of authenticity.

If you really want to go all out, build a website on your house. For about $100, you can have a gorgeous site on Wordpress.com (not Wordpress.org) with your street address as the URL. The site can have video, many more pictures, pictures of the neighborhood and a blog. Wordpress.com sites are very easy to do, and you can link them to Zillow, You Tube, Vimeo and other sites to increase your traffic.

Consider whether you will pay a broker representing a buyer. In my personal experience, DIY home sellers usually offer payment to buyer-brokers. How much? Brokers will ask for around half of what the total commission would have been, but the fee is negotiable. 

Most buyers use brokers, by the way, to help navigate the unfamiliar terrain of home buying. The broker will have done, and will continue to do, a good bit of work for the buyer, and it will be to your benefit. And I also think most buyers don't like dealing directly with owners, though I have no data to support this idea.

Want to go half way? Most locales have brokerages offering a flat fee listing service at $500 or less, and your home will appear not only in the local MLS, but in all the sites that feed off it. You'll have to agree to compensate a buyer's broker. Then, there are the venerable Help-U-Sell- and Assist-To-Sell-type firms who offer a menu of services.

Individual brokers often advertise that they will list your home for 1% or 1.5%. Check around. Redfin offers a full-service listing package at 1.5% for homes priced at $200,000 and up. And for sure, check out sides like Owners.com and ForSaleByOwner.com.

If your home is underwater and you need to do a short sale, I would urge you to use a broker trained in short sales, especially one who employs a short sale negotiator or service. These waters are quite complex and enormously frustrating, which is why U.S. Treasury short sale guidelines specify using a broker.

In 2013, it's easier than ever to sell your house without a traditional broker, as long as you're willing to educate yourself and do some serious work. Even a partial savings on the commission can be significant and worth your time.




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