Saturday, July 21, 2007

For Sale By Owner (FSBO) Math

As promised, I wanted to delve a little deeper into this subject.

The first thing we need to get out of the way is the "Myth of 6%". Since the VAST majority of sellers that are going unrepresented (FSBOs) offer to pay 3% to a buyer's agent, we can cut that number down to 3% (the remainder).

Let's start with an average house, perhaps something around $250k. That 3% is $7500. The next thing we need to do is go after the listing fees that one might pay with a limited service broker or other broker through one of the popular FSBO companies. The MLS fees for metro Atlanta are generally $499.95 and then .25% ($625 for our example). So, let's knock $1125 off of the "profit" for a savings of $6375. Add a virtual tour, and a little advertising (if you want it to sell, you need advertise), and you will probably need to spend between $1300 and $1500. That drops our savings to $5000 (I like round numbers). You should be able to fit a home stager in there for that, too.

Are you familiar with Fair Housing Laws, and the trouble you can get into with the wrong words in any of your ads? If not, you might need to consult with someone. And, then there are all of those pesky papers, like Seller's Disclosures and the like. You'd better budget a couple hundred dollars for consultations on rules, regs and laws about getting everything listed properly. And don't forget to get appraised. You might still have $4500 left from the budget. You might have a little less.

Now comes the fun part. You have to show the house, have open houses, and follow up with prospective buyers, or their agents. For the NE Atlanta market we are currently seeing about 100 days on market for homes that are priced close to the right range. Don't plan on any vacations for the next three to six months. If you leave town, you won't be available to show your home. And, you will need to be able to make yourself available any time a prospect is able to view your home.

So, you made it through all of that...

If you are lucky, here comes an offer. You need to decide what to do. It isn't a seller's market any more, so you will likely not see a full price offer unless you priced way too low. So, you need to prepare the counter and begin the negotiations. Many companies offer this service for around $3000 (those savings are looking pretty slim). Those companies generally offer the support from offer through closing, so we won't cover the hounding to make sure the buyer's mortgage is coming along, and that everything else is lining up for a proper close.

Almost finally, remember that sellers know that FSBOs are unrepresented. They "know" that you are saving 3%, so they price offers accordingly. Never mind that you have chewed up all but a few hundred dollars of the savings trying to get to this point. Buyers that target FSBO homes are looking for a bargain. So, the commission is something that both parties are trying to factor to their side.

And remember that much of the money that you put out in order to save a few hundred (or maybe a few thousand if you have a more expensive home) is spent regardless of whether your house sells. But, if your agent is working off of commission, if your house doesn't sell, you haven't spent that money. You might be out a little for paint or other suggested improvements, but you aren't out thousands of dollars for advertising and listing fees and consultations.

OK, last thing. What is your time worth? As an avid "Do-It-Yourselfer", I can identify with those that want to save money by doing things themselves. But, as I get busier, and my time becomes more valuable, I have started giving up some of those tasks, and spending "Me Time" on things that I enjoy. I still work on the Jeep, but the mini-van goes to the shop. I cut the grass, but tree pruning is hired out. I have an accountant to deal with the taxes of running a business. That let's me spend time with my family, and out in the garage playing with a welder... you know, the important stuff.

No comments: