Property Grunt

Monday, October 24, 2005

The FSBO Wars: One seller's victory!

This was a recent article from Scott Wenger of the New York Daily News which was a five part series on real estate. It details his experience selling his own apartment.

'For sale by owner'
Thursday, October 20th, 2005

Here's the ultimate do-it-yourself home project: Sell it yourself.

Many think that's a job best left to the experts. But when it's time to sell your home, is turning to a professional real estate broker the smartest move?

Despite the endless hype, I didn't think so - and I was willing to put my one-bedroom upper West Side apartment on the market, "For Sale By Owner."

How did I do? The outcome was much different than I - and countless brokers - predicted.

From the time I advertised my open house, more than 60 brokers called, E-mailed or stopped by to try to talk me out of going it alone. Clearly, I was on to something. With real estate commissions as high as 6%, a slice of any deal these days amounts to a windfall. Why give away such a large piece of the action?

I felt confident about this responsibility, but naysayers tried to persuade me I couldn't possibly know what I was doing.

One broker mailed me a card with a picture of a distraught woman holding her head in her hands.

"Missy was certain she could make more money selling her home on her own," it read. "When she found out otherwise, it was too late." It's never too late, by the way. You can always change your mind - brokers will happily take your business.

The mailman also brought an envelope addressed in calligraphy. The card was on heavy stock, but it was no wedding invitation. "Hi, it's me, Vickey! I hope you're not disappointed in this not being ..." I didn't RSVP.

When I did a generous calculation of how many hours a broker might work on my behalf, I realized the payday could be $1,500 an hour - or more!

Keeping the hourly rate in mind was very motivating as my girlfriend, Joanne, and I emptied and reorganized closets, shelves and countertops. She bought a white duvet cover and white fluffy bath towels to brighten the bedroom and bathroom, and added a vase of lilies and a bowl of green apples to enhance the kitchen pass-through.

I plastered some cracks and made the windows sparkle. We set an asking price a bit higher than $500,000 and crafted ads for the Sunday paper and Internet that avoided exaggerated phrases we'd seen in our own search. We scheduled an open house for four hours on a Sunday afternoon (plus more time the next evening).

Why such a long open house? We'd always hated the rush brokers created for us. Even when we had a short list of places to see, we missed some showings on countless occasions.

Minutes after our open house began, an extraordinary cast of characters descended. I was their tour guide.

"Is this for the three of you?" I'd deadpan to prospects house-hunting with their parents.

"How noisy is the apartment?" others asked. "Let me show you," I'd say, turning off the requisite background jazz and opening the window wide each time. Everyone seemed to appreciate hearing for themselves.

A parade of neighbors came by, some checking the latest asking prices - crucial research I, too, had done. A parade of brokers also came by, some to pitch their services, many with clients. Would I abandon my strategy?

No, because I told them all I would choose the offer with the best bottom line for me. That meant I would pay a commission only if, after subtracting it, their client's offer still topped the others. Many brokers quickly agreed, while others protested but brought clients anyway.

We were pumped up but more relaxed for Monday's showing.

"We thought this was for sale by owner," two visitors told us. "It is," Joanne and I replied.

"You look like you're brokers." My head swelled, and I switched the music to The Rolling Stones. Joanne tolerated that for 30 seconds, insisting we keep our head in the game.

By the next day, I had multiple offers - ironically half from bidders with brokers, half without. All turned over financial data to demonstrate their ability to do the deal.

I debated the next step. I knew I had to move quickly because just as I had other bidders, they most certainly may have had offers pending on other homes.

One choice was a best-and-final blind auction. The high bid wins. But this process could shortchange a seller, and Joanne and I did it once trying to buy a home, and the blind part left me feeling manipulated.

Instead, I called each bidder or their broker. If they wanted to bid higher, I said, they should let me know - giving them the power to decide how much my home was worth to them.

At this point, it became clear to me there's another way brokers can shortchange sellers. If bidders have made offers, the incentive for a broker to push for an extra $10,000 doesn't seem very strong. Their commission would only go up several hundred bucks - breadcrumbs if existing offers put them on the verge of collecting tens of thousands of dollars. Their time logically would be better spent on the next deal.

Within a few days, two serious contenders remained. Neither used a broker! They counter-bid a few times; great news, but stressful - I had to tell each side more than once their considerable offer had just been topped.

Finally, one side went up significantly more, and that was the ball game.

So was "For Sale By Owner" a smart move?

A 6% commission on the deal I negotiated myself would have exceeded my initial down payment on the apartment. Better yet, with no brokers involved, I saved at least $30,000.

For a few dozen hours of work, getting paid like a broker was the best pay day I ever had.

Before you do it yourself

Are you sufficiently familiar with sales in your neighborhood to set the asking price? This is crucial. Call it The Goldilocks Rule ("It's gotta be just right.") If you ask too much, intimidated visitors might walk away without bidding. The Internet is a tremendous resource for checking asking prices of similarly sized homes. It's also easy to find sales prices of condos and houses, which are public record, on the Web. Co-op prices don't have to be disclosed, but a managing agent is required to tell apartment owners recent sales prices in their own building.

Do you have the time to prepare for an open house? Newspaper and Internet ads will have to be placed, and "show sheets" of your home will have to be designed and printed. And then there's the all-important, time-consuming chore of what brokers call staging: ruthlessly clearing clutter from closets and cabinets, scrubbing floors and windows (sinks, tubs and toilets, too!), and patching up neglected problems.

Resolve that you won't throw the lawyer out with the bath water. Jettisoning brokers could be a great idea, but a solid real estate lawyer is worth your money. There's a ton of details and fine print, creating countless pitfalls involving your life's savings. No doubt you'll be reminded of this on closing day, when you'll feel like a visitor to a country where you barely know the language as you sign several dozen documents involving your home and your money.

Scott has written an excellent article on the FSBO process and I do applaud his efforts and accomplishments. If you do a FSBO you will be experiencing many things that Scott has mentioned and much more. Some brokers can get quite nasty when it comes to FSBOs ranging from rude behavior to unfair yet legal business practices.

I do recommend following Scott's advice regarding how to price your apartments and examining yourself to see if you have the resources and wherewithal to do openhouses and sell your own home. AND FIND A GOOD REAL ESTATE LAWYER. WHEN I MEAN GOOD, I DON'T MEAN SOMEONE WHO WENT TO HARVARD LAW AND CLERKED FOR A SUPREME COURT JUSTICE. I MEAN SOMEONE WHO HAS A HAD A GOOD TRACK RECORD PUTTING TOGETHER CONTRACTS RELATED TO MAHATTAN REAL ESTATE AND CO-OPS AND CONDOS! DO NOT TRY TO DO THIS YOURSELF!

I know many of you are asking why as an agent am I even writing about this article. Well, first of all I believe in consumer's right to choose. And if someone can sell their home for more money without my involvement more power to them.

I also believe FSBOs are good for brokers. Unfortunately the public perception of brokers are wheeler dealer types who make money had over fist after opening a couple of doors. Behind that Gordon Gecko veneer is someone who works very hard getting the paperwork together, negotiating and coordinating every aspect of a deal. Brokers also act as buffers for the emotional aggravation that comes with selling a home.

Some sellers will simply concede to giving the reins to a broker after getting their asses kicked in doing a FSBO. Former FSBO sellers are often more patient and more malleable because of the beating they have recieved from the market making them a choice exclusive for any broker.

There is no doubt in my mind that FSBOs will have a bigger presence in the real estate market. Brokers need to acknowledge their looming existence and determine other productive methods to tap into this market. New business models need to be created and implemented that will allow brokers to help and benefit from FSBOs. The 6% commission is slowly becoming an archaic symbol of times past. Instead of fighting the FSBO, brokers should embrace it.