For Sale By Owner (FSBO)
Are You Sure You Want to Do This?
Before you start this process you should honestly evaluate whether you're up to the challenge. Your home is probably your largest single investment, and if you're reading this article it probably means you're not an expert in selling real estate. While some transactions come together quickly and easily, more often they are much more time consuming and complicated than anyone expected at the outset. For the majority of people there are lots of benefits to listing your home with an agent, including:
- Broader exposure in the multiple listing service (MLS) and other forms of advertising
- Expert advice on preparing your home for sale
- Experienced recommendations in negotiating price and other terms of the sale
- Availability to show your home when you're at work, or shopping, or at a movie or the soccer game
- Advice on reputable services to hire for inspections, repairs, etc.
- Assistance in dealing with other agents
- Assistance in screening out buyers who won't qualify for a loan
- The perspective of someone who's not emotionally invested in your home
If you don't have a lot of time and energy to devote to educating yourself and dealing with the seemingly-unending stream of headaches associated with selling your home, we recommend that you at least visit with two or three companies to talk about the services they offer and the fees they charge. You may find that a 6% commission isn't so much after all. If you're committed to doing it yourself, however, read on.
MAKING YOUR HOME MORE ATTRACTIVE
A Word About Curb Appeal
You've heard of the importance of "curb appeal." Studies show that most buyers' buying decisions are strongly influenced by their first impression of the home. Take a little time to make sure the grass and shrubs are neatly trimmed and plant some colorful flowers if the season is right. Consider taking down unusual lawn decorations; not everyone will fully appreciate the collection of gnomes in the garden. Clean the front door, put down a clean welcome mat, and sweep away cobwebs from the corners. Make sure the porch light and doorbell are in good working order, and that your house numbers are in good condition. Clean the windows and replace damaged or missing screens. Do some painting if necessary.
Spruce Up the Inside
On the inside your home should appear simple, spacious and clean. Get rid of clutter; stacks of magazines, hundreds of figurines, walls full of pictures, and dozens of chairs won't help sell your home. Pick up things lying on the floor. If you can't find room in cabinets or drawers consider renting a small storage unit or selling some items.
Thoroughly clean everything that's left. Hire a professional cleaning service if you have to. Pay particular attention to kitchens and bathrooms--nobody likes to look at filthy sinks, toilets, mirrors or ovens. Mold and soap-scum in the shower are major no-no's. Clean the windows and wipe the dust off the baseboards. Make sure beds are made and all clothing and towels are neatly hung.
Small repairs can make a big difference. Replace cracked wallplates, touch up minor cracks in the drywall, oil squeaky hinges, put new washers in dripping faucets, get rid of stains, and tighten loose screws.
Bigger repairs can be important, too. In most cases, though, major remodeling and home improvement projects do not increase the sales value enough to justify the cost. (Repairs that are necessary to preserve the home and make it inhabitable are an obvious exception.) However, you should consider a fresh coat of paint, preferably in light earth tones. Carpet that is badly damaged, stained, or smelly should definitely be replaced. (If the carpet merely shows signs of moderate wear but is otherwise in good condition, consider offering a "carpet allowance" as a sales incentive so your buyers can pick their own replacement.)
Have a friend or neighbor inspect your efforts. It's easy to become blind to objectionable conditions if you've lived with them for years. An objective opinion can help you see your home from a buyer's perspective.
Once all your repairs are done, you can fill out your property condition disclosure, which will be part of your sales contract. If your home was built before 1978, you might as well go ahead and fill out a Lead Paint Notice, too.
Making It Easy for Potential Buyers
Most buyers will need a loan to purchase a home, and most lenders will require that certain things be done before closing, including an appraisal, a home inspection, a pest inspection, and a survey. You can make your home more attractive by having these things done already. As long as you deal with reputable services, most lenders probably won't object and you can shave weeks off your closing time. In addition, having the inspections in hand at the outset will help you identify what repairs you need to make to the home before prospective buyers arrive.
You might also consider offering a homeowner's warranty. Such warranty programs typically cost between $300-$500, depending on coverage, and can make your home much more marketable-particularly if the appliances and systems are more than a couple years old.
Make a one-page flier that highlights two or three key features of your home and has a nice picture or two. Make sure to include your contact information. Have a stack of these fliers ready to hand out to potential buyers.
DEALING WITH BUYERS
Setting Your "Asking Price"
Setting a realistic value on your home is key to a successful sale. Some people think they should set the sales price high "just in case" they find a willing buyer, knowing they can always drop the price later. Studies have shown this is a mistake, and that overpriced homes tend to stay on the market longer even after they are re-priced to a more realistic level. All the while, the cost of insurance, maintenance and repairs, mortgage interest, and real estate taxes continue to erode the owner's bottom line. This is one case where time really is money.
How do you know your home's value? Check with neighbors who have recently bought similar homes. Ask a real estate agent to give you a comparable market analysis (CMA.) Check with your Chamber of Commerce for demographic data. Check the values on the tax rolls (especially in areas where the Tax District has been aggressively updating its appraisals.) Get your own appraisal done. Doing your legwork now will give you much-needed confidence in the negotiation process.
Finally, bear in mind that timing can make a difference: demand tends to be higher in the spring and early summer when families can move without disrupting their children's school year.
Know What You Need to Know
Download one of our contract information sheets. Once you reach a verbal agreement with a potential buyer, you'll need a written contract to make the agreement binding. We use this information sheet to collect the information we need in order to prepare such a contract. Having the questionnaire available during the negotiation process will help you cover all the important points.
Prepare Your Home For Visitors
Make sure cash, jewelry, firearms, prescription drugs, and other such items are securely locked away. Put on some relaxing music (very softly). Light a few candles or set out some potpourri, but nothing with a strong scent. Put some cookies or cinnamon rolls in the oven. Turn on the lights and open drapes and blinds. Have the kids take the pets and go for a walk. Greet visitors warmly and briefly introduce them to the home's highlights. Then let prospective buyers know where to find you if they have questions and get out of the way so they can speak freely among themselves.
Negotiating With a Prospect
If you've followed the recommendations above someone will make an offer on your home in short order, but unless you're unbelievably fortunate the offer will be too low. Thus begins the negotiation process.
If you have done your homework you have two distinct advantages: (1) you know exactly what your home is worth and can confidently reject "lowball" offers; and (2) you have a unique item that the prospective buyer wants. Knowing this, you can remind your prospect of the key highlights of your home and the incentives you are offering, and explain how you settled on your price. You then make a counteroffer.
If your prospect doesn't either accept your counteroffer or at least come up significantly from his original offer, ask him to explain why. Honestly assess his response. If he raises a valid point you should take that into account in your next counteroffer. If he doesn't have a good reason you may be dealing with someone who does not have realistic expectations and you should consider how much time you're willing to invest with such a person.
Assuming the potential buyer intends to get a loan, at some point during your negotiations you will need to ask your prospect if he has a "loan commitment" or is otherwise "pre-qualified" to borrow enough money to meet your price. This can be an awkward subject, but it is a necessary step to screen out the "lookers and wishers" who want to buy your home but just cannot afford it. Unless you insist that your prospect demonstrate the financial ability to purchase your home, you may find yourself helplessly watching many weeks and better sales opportunities slip away while your home is "under contract" and your buyer shops for a loan.
The back-and-forth offer and counteroffer process will continue until you reach a tentative agreement or one of you gives up. Bear in mind that there is some benefit to you in a quick sale, so if your offers get within $1,000.00 or so you should probably split the difference and call it a deal.
FORMALIZING AND FINALIZING
Once you have reached a tentative agreement on the primary terms it's time to get a written contract. (While verbal contracts can sometimes be binding, under Texas real estate law an agreement concerning real estate must be in writing to be enforced.) You may be tempted to use a "standard" contract such as the ones published by the Texas Real Estate Commission or sold by an office supply store. While these forms do meet the basic requirements for a valid contract, they really do not adequately protect your rights. For example, Texas courts have questioned whether such contracts fully disclaim all implied warranties, or provide you maximum protection from liability for environmental hazards such as asbestos, radon or biphenyls. A "standard" contract will probably also give the buyer the right to sue you if it turns out after closing that there was a defect in the title to your home, even if that defect occurred years before you bought the property!
To complicate matters further, we frequently see contracts prepared by inexperienced sellers that simply are not completed correctly. Common mistakes include setting unrealistic timeframes for performance, setting the earnest money too low, making inconsistent choices among alternative provisions, and leaving entire sections blank because the parties could not figure out what they mean. Such contracts also frequently fail to include required addenda. At best these contracts are ambiguous, which means that in the event of a dispute the parties will have to hire lawyers and go through a trial to get a judge to interpret the contract. In worse cases, such poorly-drafted contracts may be invalidated or result in your being sued.
Of course, no contract is "perfect" because language is imprecise and it is impossible to anticipate every possible problem that could ever occur. However, there is no question that a skillfully-drafted contract prepared by an experienced Texas real estate attorney and tailored to your specific needs will come closer to this ideal standard than a "standard" form. You might also be surprised to learn that the vast majority of residential sales contracts we prepare cost less than $150--significantly less than the average survey, home inspection, or appraisal. In a transaction involving one of the single most important assets you own, we think that's money well spent.
Working Up & Closing the Deal
Once the contract has been signed a copy of the contract and the earnest money are delivered to the title company. If the buyer is obtaining Title Insurance, the title company will then begin its title search and issue a Title Commitment. If not already completed, other services (such as the survey, home inspection, pest inspection, loan application, appraisal, and any agreed repairs) will need to be ordered at this time; typically these matters are handled by the buyer and seller, rather than the title company.
After the title search is complete and other necessary services have been performed, it is time to set a closing date. Usually the parties will contact the title company to arrange a mutually-convenient time.
About 24 hours before the closing the title company will prepare a "settlement statement" which lists all the bills to be paid at closing and shows the final disbursements of funds. The parties should obtain a copy of the settlement statement and examine it carefully for errors so the closing isn't delayed while waiting for corrections.
On the closing day the buyer will need to obtain "certified funds" (usually cash or a cashier's check) in the amount shown on the settlement statement, and the parties will meet at the title company to sign the documents necessary to complete the transaction. The title company will then disburse the sales proceeds and send certain documents for recording. This process, called "closing and funding," is typically the end of the transaction.
About the Firm
The Bell County lawyers of Roberts & Roberts provide legal services in the fields of real estate, probate, estate planning, and business law. If you have questions about the legal issues involved in buying or selling a home, or if you need a Killeen real estate lawyer, we would welcome the opportunity to assist you.