Lessons From a Bad FSBO Purchase
June 7, 2018
You and your agents may sometimes find it challenging to communicate the value of working with a REALTOR® to potential clients. There’s a good chance your agents will encounter a seller lead who decides to go the “for sale by owner” (FSBO) route ostensibly to save money. In fact, statistics from the National Association of REALTORS® show that about 8 percent of home sales are FSBOs. I’d like to share a little story that may help real estate pros clearly illustrate to buyers and sellers the benefits of working with an agent.
Some close friends of mine recently sold their house in less than 24 hours using a REALTOR®, and then they were under pressure to find a new home for themselves, their two small children, dog, and cat. With very specific parameters in mind, it was great news when they found the perfect new place quickly. There were just a couple catches: The home was a FSBO and it was slightly out of their price range.
The seller insisted that no real estate agents be involved in the transaction. At the time, it seemed logical to the buyers to save money (plus, they were a bit desperate in a tight market with a tight timeline), so they chose to forego the agent fees. They instead entered the transaction with the home seller using an independent, non-local mediator for help with drafting sales agreements and required paperwork. It was a decision they came to regret.
Their experiences provide a real-life scenario that show the stark difference between a REALTOR®-led transaction (their home sale) and a FSBO transaction (their home purchase). Here are just some of the ways that the FSBO transaction fell short, helping to illustrate the importance of using a licensed agent who’s a REALTOR® for any real estate transaction.
Negotiations: Agents are trained in the art of negotiation, not to mention their experience in drawing up agreements, contingencies, and other items. Individuals who decide to enter into a FSBO relationship are stuck with handling all the negotiations. In my friends’ case, most of these negotiations were made verbally, so there was no paper trail. If they had written documentation to reference, they likely could have saved several thousand dollars on the transaction.
In addition, negotiating repairs based on the home inspection would have gone much more smoothly if they knew how to ask for repairs, which repairs to ask for, and how to move forward when the seller refused to fix anything. An agent could have navigated these waters for them.
Connections: Real estate agents are often very connected in the real estate community, building bridges with everyone from their clients and mortgage brokers to real estate attorneys, inspectors, and stagers. This network can prove invaluable, especially if the agent is the one doing the communicating on the client’s behalf. People who decide to work on their own and deal with a FSBO property are stuck with completing these tasks, adding several hours a week of extra work to already busy schedules.
Ethics: Licensed agents who are REALTORS® are held to a strict Code of Ethics standard that buyers and sellers can trust implicitly. Those who work with an owner or seller who has not been vetted to uphold the highest ethical standards can find themselves dealing with someone who hides problems or issues with the property. As was the case with my friends, who experienced a seller who tried to downplay problems or flat-out lie at every stage of the transaction, causing them no end of grief before and after moving in.
Third-Party Expertise: While this trait can come in handy at many different points in the real estate transaction, my friends desperately missed this expertise during the home inspection. Not only did the seller not allow them to be present during inspection (ostensibly because they were not bonded and insured), but she “hid” some issues with the home that may have been caught if a real estate professional had been present. For example, two of the home’s three toilets were faulty, but the seller had turned off the water to them before the inspection and the inspector didn’t notice the issue. Now they have some expensive repairs.
It should have been a red flag for these buyers when the seller refused to let them be present during the inspection. In fact, most buyers (or buyers’ agents) are the ones to coordinate the inspection, as it is in their best interest to have the home inspected as part of the contingencies. But without the advice of an agent, these novice buyers trusted the seller and ultimately paid for it.
Your agents are basically the “spirit guides” of the whole real estate transaction process. They can help along every step of the way, working at all hours and with all the parties involved in the process. This not only saves time for the buyer or seller, but, in my friends’ case, would have actually saved them money in the end. Not to mention they’d have had someone to turn to as an informational resource or just a trusted advisor to talk to in order to feel at ease with the process.
So, next time you or your agents have a conversation about the benefits of using a licensed agent, this real-world story may provide some ideas to help people understand the importance of having a professional help navigate the buying and selling process.
Source: "Lessons From a Bad FSBO Purchase" REALTOR® Magazine (June 8, 2018) Kaycee Wegener