Tools For The Best Life Possible^TM

If you can read this article you can sell your house without using a realtor.

(Warning: Long Article)

I’m doing it now and its taken 2-4 hours a week to keep the sale on track.

Selling without using a realtor will save you 4-7% on the sale price. The median priced home in the US in 2008 is $212,400. A 4-7% commission on the sale is $8500- $15,000!

That’s a lot of money.

How long would it take you to save $15K after you pay your mortgage, food, clothing, children’s school, insurance, car payments, income taxes, state taxes and pizza on Fridays?

This is the story of what I did to sell my own house; how it happened, what worked, and what didn’t. I’ll tell you what I would do differently the next time, problems that had to be solved and tips I would offer other sellers who want to sell their house without using a realtor.

Worse Time to Sell, Ever!

There has never been a worse time to sell a house than now (10/8/2008). Truth be told: I had the ability to avoid selling at the wrong time, but, got caught for reasons beyond the scope of this article. I’m not complaining: At least I was able to sell, to find the buyer myself and for what I know to be the highest price possible.

The excess inventory of houses on the market is huge, prices are down 30% and the average house is on the market for 11.2 months before being sold or taken off the market. What made the process harder for me was the constantly falling prices throughout the sale.

If I can sell a house in this market, without a realtor, from three thousand miles away without even showing up for the closing then every seller has good reason to be optimistic.

Help-U-Sell Wouldn’t Return My Calls

The first thing I did was look for a company I saw on 60 minutes called Redfin. I liked their philosophy on breaking out realtor services into parts and giving the seller the option of choosing which services they wanted. Ssince I was selling from a distance I thought paying for the help would be a wise tradeoff.

There were no Redfin offices in Boca Raton, Florida.

So, I looked for a local Help-U-Sell since they break out their services, too. My wife used them to sell her house in California and had a good experience. She believes it saved her a lot by using them instead of a old-school realtor. They added her to the MLS, advised her on price, did several open houses which eventually produced a buyer.

My first call to Help-U-Sell was not returned. My second phone call to Help-U-Sell was not returned. My friend David called a third time and they didn’t return his call, either.

This is what lit my fuse and got me thinking about selling it myself. If they won’t return my calls maybe they won’t return calls from potential buyers, either? And after my wifes experience I didn’t want to have to pay the whole 6% commission to an old-school realtor.

Brief Summary of My Sale

I live in California and will be closing on the sale of my house in Florida, this week.

I hired a friend to prepare the house for the sale, set the price, found the buyer, arranged for a Title Company to handle the escrow and the paperwork and will not be present at the closing. The title company is sending all the documents to me in California to perform what they call a ‘mailaway’ closing.

I’m not bragging. It’s a description of what happened.

My friend David spent two weeks at the property preparing the house, painting, putting up the sign, hanging a lockbox on the door, gathering info on the local market and fixing up the kitchen and bathroom.

Excluding David’s work, its taken 2-4 hours per week to find the buyer and keep the sale on track.

The Steps

These are the steps you’ll be going through to sell your house:

1. Preparing the House
2. Setting the Price
3. Finding a Buyer
4. Negotiating the Details
5. Doing the Paperwork
6. Solving Problems
7. Closing

If you’re like me you may think you need a realtor to help with every step. What I’m going to explain in this article is that realtors help you mostly with Step 3.: Finding a Buyer.

I was worried about all the paperwork. All those contracts, disclosures and escrow forms. Don’t realtors handle all that?

No, they don’t. The Title company does. Your realtor just calls one and turns it over to them. You can call one, just as easily. They make the paperwork a breeze.

You have to manage all the other steps, anyway, whether you use a realtor or not. With a little extra effort you can find your own buyer (Step 3), too. If you do, you’ll be paid handsomely by saving yourself a large commission.

To put it another way: Finding a buyer is the most expensive part of the process to outsource.

Warning: This Article Could Be a Book

Some books have one thing to say and take a book to say it. This article has a books worth of things to say and will take an article to say it.

Searching amazon reveals that people have written books it. I haven’t read these books, so, can’t vouch for them.

Searching Google turns up many articles about this topic. I found these articles to be encouraging, but, not conclusive. They don’t seem to be written by actual sellers who went through the whole process of selling their own house. The next time you search for articles you’ll find this one. Problem solved.

The goals for this article are:

1. To document and guide you through every aspect of one sale: My own.
2. To be complete enough that you could make a decision to use, or not use a realtor for your own sale.

I’ll be as brief as the subject allows. When you’re selling your own house it won’t seem too long. Hopefully, it will be saving you time, effort and some money, too.

Terminology

A broker holds the licence for a Real Estate office. They are the only legal party eligible to receive the entire commission. It is harder to become a broker than an agent in that there are more tests involved and more legal requirements to keep the license active.

An agent works for a broker and receives a percentage of the commission for conducting the sale.

A realtor could be either an agent or a broker.

This article will use the term Realtor, in most cases. It does’nt matter whether you’re working with an agent or a broker. They’re both realtors and, therefore, working for a commission.

Real Estate Commissions – The Last Dinosaur

The internet has destroyed or brought into the new millennium every commission known to man. Every commission, that is, except for what realtors take for connecting sellers with buyers.

Realtors Make More than Architects?

My brother was an architect. Architects earn one of the hardest BS degrees taking five years of college, not four. When they graduate they spend 5 years preparing for the boards. During that dues paying period they make half as much as a good waitress. When they finally get their board certification they still have to work another five years for another architect because its so difficult to establish a practice. Yet another another 5-year dues-paying phase.

Architects design, draw, code, change, every aspect of material and space and attend to every imaginable detail to bring a building into existence. Their exposure to liability is insane to the point that many can’t afford the insurance.

If an architect does manage to have his own practice the costs to run the practice dwarf those of a brokers office.

What’s the architects commission on a building after this lifetime of preparation, exposure to liability and detailed work on the building, itself? Six percent.

That’s right, the same commission a broker gets.

How would you compare what an architect does for a building to what a realtor does for it? How would you compare the cost of education and training of an architect to that of a broker?

Case closed.

I’m not criticizing Realtors, agents or brokers. I’m criticizing the size of their commission. It’s disproportionately large for what they do compared to an architects work on the same building.

How much work does it take you to earn the money your about to turn over to the realtor for finding a buyer?

The Biggest Deal of Your Life

Selling your house is the largest deal most people will ever do. Optimizing the 6-7% commission on that transaction should be a priority. I say ‘optimize’ instead of save because, if you do pay a commission, you should get the best service you can and pay only for the services you get.

Many people would say they want to use a realtor because it’s the biggest deal of their life. After all, if you pay 7% to an agent that’s still leaves 93%. If you feel this way I still think you should try selling yourself for the first 30-days.

What About the Other Transaction Costs?

Can you save on them, too?

Yes. But, why talk about them before you’ve gone after your biggest cost? The other transaction costs pale in comparison.

DIY, Not!

Just because I want to save the 6% commission to a Realtor doesn’t mean I want to conduct the whole sale, myself. No, thank you! These two things are not the same thing.

Enlisting the talents of other people is a smart thing to do. And its a brilliant thing to do when selling your own house. I received (And paid for) an extensive amount of help on each step of the process.

Several things motivated me to attempt the sale without using a Realtor:

• My opportunity cost is currently low.
• I’ve read a lot on the subject and am familiar with the process.
• I’m an experienced buyer, but not seller.
• I wanted to see if saving the 6% commission was possible.
• I have another house for sale and could save 6% on that one, too.
• If successful I could write this article and help others save a chunk of money in bad economic times.

And, like I said above, Help-U-Sell wouldn’t return my calls. Too bad for them.

Real Estate Expert, Not!

The subject of Real Estate is vast. One could devote a lifetime to all the various aspects to become an expert. Even then, a true expert would have to specialize because there are so many fields of knowledge involved.

So, what?! I didn’t have to be an expert to sell my house, expertly. And, neither do you.

A mere play on words? Not in my case. I’m selling a house, not running a business or a career. I suspect my perspective is more useful to other sellers because I’m not an expert.

You don’t need to be an expert to have each step of your sale be expertly done.

Don’t Become an Agent

Becoming an agent to sell your own house is like “Burning down a house to make toast”. Total overkill. Not needed.

In fact, being an agent is probably a liability, see below.

Don’t become an agent just to sell your house.

Liability, Not an Asset

In 2002 I studied to become a real estate broker. I enjoy the subject, read all the prep material and thought about taking the tests. But, working as a broker or agent did not fit my personality so there was little point in getting the license.

One of the things I learned is there’s a downside to being an broker: They’re held to a higher legal standard of performance. In practice, this means you’re exposed to more legal liabilities because its easier to accuse you of negligence if you have a license proving competence.

So, why not just be competent without a license? I’m more interested in having knowledge and understanding than in having a license saying I do. Dishonesty at any stage of selling a house is more likely to blow the deal than anything. But, the law can often be an ass. Let it be an ass to someone else.

Don’t get me wrong: I’m not claiming to know as much as a broker or an agent. They have their focus and I have mine. Theirs is to run a business and earn commissions. Mine is to sell my house for the optimal price and keep as much of the proceeds of the sale as possible.

Those two areas of focus are not the same.

John T. Reed – Thumbs Up

Much more helpful than reading the material for the brokers license was reading John T. Reed’s books on the subject of Real Estate. I read all 20 of them and they’re the best survey of the field of Real Estate I’ve ever found. Each of his books describe a different aspect of Real Estate mostly for the benefit of investors, specifically. However, taken in total, the reader is given a practical overview of the subject like no other.

What’s great about John’s writing is his readability when writing about a complex subject. He will tell you in two pages what would take another author an entire chapter if they had the knowledge to say it. In my opinion that makes John an expert’s expert.

Although I highly recommend all of John’s Real Estate books I don’t think reading them is a prerequisite to sell your house without using a realtor. However, there is no doubt that you’ll do a better job of it if you do. You’ll have to decide that based on your goals and time available. It should go without saying that the cost of buying all of his books is nothing compared to the deal you’re trying to optimize.

(NOTE: This article is a report from the battlefield of my sale. Don’t blame John for mistakes I made and write about in this article. At some point, we all have to stop reading and start doing. I read until I was blue in the face and still made mistakes. That’s just the way it goes when you’re in the ring and have to get the job done. Rest assured I made less mistakes, and lost less money, by learning from others experience and writings.)

How Do You Handle a Hungry Realtor?

By understanding what they do, what they charge, how they talk and what motivates them. You may even end up hiring one. If you do I hope you’ll be able to put their role in perspective and limit their service to the help you need to conduct the sale.

Realtors Want Speed, Not Price

Brokers use price when deciding what state, region, city, neighborhood or type of property to specialize in selling. After that its all about speed. Any broker in their right mind values speed over price.

Brokers make more money if they sell more houses in less time. Even if they’re only selling one house it’s a better use of their time to sell it quickly. No problem, so far. Why tell you the obvious you may be wondering.

Because the higher the price the slower the sale. In fact, if you know the fair market value (FMV) for your house and take 5% off that price John T. Reed refers to it as the ‘Quick Sale Price’. Its called that because you can sell it within a week if the market is efficient.

Doesn’t Higher Price Means More for Them?

Sure, their commission, based on percentage, goes up with the price. But, the amount the commission goes up as the price rises is small compared to the commission on the whole deal.

Sure they’re supposed to represent your interests and a lot of that is getting the highest price possible. But advising you on the highest price you can get will almost always add time to the length of the sale. That may be ok with you, but, it is not in the realtors best interest.

Even worse, setting too high a price is the most common reason for a deal not going through, at all. And setting the price, even for the ‘experts’ is not an exact science. Why take any risk at all, the realtor may conclude.

I’m not making a blanket accusation of realtors, here. I’m merely pointing out there’s a natural tension between getting the highest price you can and the time it takes to sell. And you should know that the realtor cares a lot more about speed than you do about price.

There’s little to no incentive for the buyer or sellers broker to hold out for a higher price. A realtor will probably tell you if what you’re asking for is too low for the area. But, its more likely a broker will need to talk a seller down in price. Some of that may be to correctly adjust a sellers unrealistic expectations, fine. However, be on the lookout for the suggestion being offered merely to increase the speed of the sale. If it is, make sure that’s what you want to accomplish.

Unfortunately, its always to the brokers advantage to lower the price . . . to increase the speed.

6-7% and The Seller Pays It All

Realtors say they only charge 3%. But, there are two realtors: The buyers and the sellers. They each charge 3%. That makes realtor fees 6%. Most of the time the seller pays it all.

The marketplace has decided the seller has more to gain from the sale than the buyer. I don’t like that, but, it makes sense when you realize the seller has one house to sell and the buyer has many houses to choose from.

Why would a buyer pay broker fees if they can buy the same or similar house and negotiate those fees away? This has become standard behavior so sellers know they have to pay all the broker fees and most of the other closing costs, as well.

The exceptions to this are when the buyer doesn’t have competing choices for the house or has decided they must have a particular house. Any situation that would inspire these feelings in the buyer have the potential for the seller to get the buyer to share in the broker fees.

Do I Have to Pay the Buyers Broker?

Not, at all. But, don’t blow a good deal over it.

Even if you don’t use a realtor you may get a call from a realtor who has ‘found’ you a buyer. As with all people interested in your house I recommend you show it to them.

Don’t Let Them Screen You

Don’t let the buyers realtor screen your position on paying their commission before they show their buyer the house. If they don’t like what you say they may not show their buyer your house even if your house is perfect for their buyer. This would be a violation of their ethical code as a realtor. But, I don’t recommend you risk losing a buyer for your house by relying on their broker adhering to their own ethical code.

On the initial phone call just tell them the truth: You’re willing to consider any offer, agreeable to all parties, that will make the sale go through.

Your Options

If their buyer is interested in making an offer you have the following options for paying the commission to the buyers broker:

• Recommend the buyer pay since the buyer benefited from their service.
• Agree to pay them a commission, but, you only pay X% to buying brokers.
• Tell them you’ll pay if the buyer increases the sales price (Same as buyer pays).
• Don’t pay them and leave the choice to the buyer (Probably resulting in splitting it).

It’s possible the buyer signed a contract with their broker. That’s got nothing to do with you. Don’t interfere with a contract the buyer may have signed with his broker.

In other words, you have options, but not obligations, if a realtor shows up and wants money from you for a buyer.

Offers to Help With the Sale

When they find out you’re not using a realtor they may offer to help you conduct the sale in exchange for a commission. You should already be prepared to handle the sale, yourself. Tell them no thank you. They have enough to do helping their buyer find a house, a loan and guiding them through the sale. You’ve already got a Title company handling everything and don’t require assistence.

Be Prepared For Intimidation Tactics

You may get all sorts of intimidating advice from Realtors, at this point. All of it is aimed at trying to get you to use a realtor instead of finding a buyer yourself:

• They may threaten to ‘take away’ their buyer (Which violates their professional obligation to act for the benefit of their buyer).
• They may imply you’re a fool and know nothing about real estate and should let the experts handle it.
• They may claim you’ll never sell the house if its not on the MLS, which they can generously put you on (For 3%).
• They may throw escrow terms around in the hopes that you’ll be intimidated.
• They may try to confuse you on the steps of the process.

Hopefully, you’ve read my entire article by then and don’t fall for any of it.

Divide and Conquer

This is how ‘experts’ do it: They talk fast and confidently, using terms you havn’t heard, about a subject that’s new to you. Your wife, or you, get nervous and says, “Maybe we should stick with the professionals”. The remainder of the conversation is you pitting your instinct up against their ‘expertise’ on a subject you haven’t yet studied.

Even if you ‘win’ the argument they change the subject and say another misleading 50 words to start over again.

Since you’re going with instinct and it appears the agent is going with ‘facts’ you get in an argument with your wife because she wants to go with the ‘experts’ because the deal involves so much money.

I truly hope this article helps you with that situation. I will give you one example, and how I would handle it, below. However, I can’t address everything that may come up. If you do decide to talk with a realtor I recommend studying up on all the potential things that might come up before the meeting. Especially if your meeting as a couple. Why not print out a copy of this article for your wife?

Heck, at the very least you can show the realtor this article and say, “Why can’t I do what this guy did?”. Maybe it will change the subject into a service you might want to purchase from the realtor. Something costing less than their entire 3%, I would hope.

One Example and How I Would Handle It

Here’s one example of the kind of misleading advice brokers give out. Its from an article on the web written by a Realtor named Elizabeth Weintraub on about.com. The title of the article is Who Pays the Real Estate Commission? How Does an Agent Get Paid?

Elizabeth writes:

“It can be argued and, quite rightfully so, that the buyer always pays the commission. Why? Because it’s typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered. And therein lies the appeal of buying homes through unrepresented sellers because, given the same logic, those prices should reflect a net sales price without a commission. But those sellers haven’t quite figured this out yet which causes potential buyers of those listings to be consistently disappointed.”

Ms. Weintraub’s advice is wrong, misleading, insulting to sellers and meant to intimidate potential buyers and sellers of FSBO (For Sale By Owner) properties. Let me explain why:

“It can be argued and, quite rightfully so, that the buyer always pays the commission. Why? Because it’s typically part of the sales price.”

The fair market value of a house is not set with any reference to the realtors commission. Real Estate commissions vary from 0 to 7% of the sale price. How would you know which of those percentages to use? There’s no way to know in advance what yours will be. Even if you did know you don’t use it to set your price.

“If the seller did not sign an agreement to pay a commission, the sales price might have been lowered.”

No seller builds in the cost of realtor commissions into the price of their house. It simply is not in their power to do so. The sellers price is predominantly set by the local market price for comparable houses to the one they want to sell. Whether you sign an agreement with a realtor or not you have to set your price using the same method.

“And therein lies the appeal of buying homes through unrepresented sellers because, given the same logic, those prices should reflect a net sales price without a commission.“

To repeat, sellers do not set their price with any reference to Realtor commissions so it would be impossible for them to lower them by the same standard. If they tried to, what percentage commission would a seller use to lower their price? 0,1,2,3,4,5,6 or 7%? Just a rhetorical question because sellers set the price of their house at what they think is fair market value and that’s all there is to it. Any lowering of the price would be done for reasons other than setting a “net sales price without a commission“.

“But those sellers haven’t quite figured this out yet which causes potential buyers of those listings to be consistently disappointed.”

On behalf of all sellers, thanks for the insult, Elizabeth. What I have figured out, and what any buyers of FSBO properties should figure out is that your advice makes no sense. I’ve never encountered any disappointed buyers of FSBO properties and neither have you. Any seller, whether represented by a realtor or not, will set the price by what they gather to be the fair market price. If they raise or lower that price then it will be because their first price was wrong or they want to increase the speed of the sale.

What’s Really Behind Elizabeth’s Comment

A realtor like Elizabeth may advise you to inflate the sales price of your house claiming it will pay for for their commission. By doing that, they claim that their cost to you is zero.

However, that inflated price will be quickly knocked down as buyers discover the prices for comparable houses in the area, or, the fair market value. When they do you’ll be forced to correct your inflated price to make the sale. But, by the time you discover this you will have already signed a contract with someone like Elizabeth to pay a full commission. And Elizabeth probably won’t be willing to pay for the inevitable downward adjustment out of her commission, will she?

Using a Realtor is never free and sellers do not, and cannot, adjust their sales price with any reference to realtor commissions.

Three last points will complete my comments on Elizabeths bad advice:

1. None of my potential buyers knew or even asked whether I was using a realtor. They were not disappionted over something they didn’t know. It was completely irrelevant to the sale.
2. If Elizabeth really believes sellers should lower their price if they don’t use a realtor then she must not believe that she, herself, should be compensated for finding me a buyer. As a seller, if I find my own buyer then I’m performing the same service for myself that she wants to charge me for. Aren’t I entitled to the same commission she would charge me since she believes her commission should all come out of the sales price? If I don’t ‘pay myself aren’t I working for free? If I’am confident I can find my own buyer how do I adjust the sales value to reflect that?
3. The seller is selling a product at the fair market price. In order to do so they had to either build it or buy it from someone else, pay the mortgage, property taxes, insurance, fix it, repair it, maintain it, upgrade it, improve it and take care if it in every way. When they sell they also have to pay exhorbitant transaction costs the largest of which is the realtors commission. So, no, it can’t be argued that the buyer pays for either the commission or any significant portion of the transaction costs. They only do that if they foolishly overpay for the property.

It took me 8 paragraphs to separate the lies from the truth in 50 words from one realtor. Its unlikely you’ll have read or prepared as thoroughly as I have before attempting to sell your own house. And you don’t need to, by any stretch of the imagination.

Step 1. Preparing the House

If you’re selling your car you take it to the car wash before the buyer comes over to see it. You clean out the trunk, remove lose papers, detail the inside and vacuum the rugs, etc. You don’t have to do any of these things. But, if you don’t your chances of selling the car are reduced. The work involved in preparing a house for the sale is similar in that the cost and effort is insignificant in relation to sale value.

The flip side of this reasoning is that you have a lot to lose by not preparing your house properly for the sale.

Three words: Paint, paint, paint! Painting is the most cost-effective way to prepare your house for a sale. Paint anything that needs it: Inside, outside, roof, doors, patio floor, driveway, anything.

I hired my friend David for three weeks to prepare the house for the sale. David flew from Texas to Florida, stayed in the house, made a long list of the work that needed to be done and bought the materials himself. David hired a handyman for three days to help with the fix-ups and did the rest of the work himself. The house was rented for the last four years and needed the following work:

• BATH
  replace toilet seat
  loose medicine cab door
  possible new door
  new curtain rod
  touch paint on towel rack
  chrome toilet roll spindle
  light bulbs 40 watts
  new showerhead
  fix wall above window
  paint
• KITCHEN
  no pads under fridge
  spray faucet not connected under sink
  stove lower drawer doesn’t work, bent
  cupboard over sink needs adjusting
  fridge water runs for ice but pours into recepticle and freezes into block
  paint
  cleaned, not replaced.blinds 2 x 30 inchers
• LIVING ROOM
  patch small holes
  paint
  replace front door, lock and bolt,
• SMALL BEDROOM
  closet doors need adjusting
  molding inside closet needed
  cleaned blinds 2 x 30 inchers
• LARGE BEDROOM
  closet door adjustments
  molding inside closet needed
  patch small holes
  paint room
  cleaned blinds 3 x 30 inchers

Other work David performed to help with the sale while he was in the local area:

• Put a sign in the front yart with my cell phone
• Showed the house while he was painiting
• Talked with neighbors about the sale
• Asked neighbors and looky-loos about the local market
• Fielded calls from realtors declining their services
• Put a lock box on the door so the house could be shown when he left
• Put the electricity in my name
• Put the water in my name
• Arranged to have a 70 foot tree cut down before hurricane season

Thoughts on Decluttering and Decorating

There are shows on TV teaching people how to de-clutter and decorate their houses to help them sell. I think these shows are terrific. Especially when you see how clueless the sellers were before the decorater showed up and gave them a clue. If you’re in this category then maybe you’ll need this kind of help. However, I think decluttering is common sense. Decorating seems to me to be too much work and unnecessary. Even in this hard time to sell I didn’t find it necessary. I should point out, though, that David did paint some accent walls to emphasize room separation and add dimension to the inside of the house. Its a small house and we think that helped. We also showed the house empty, without furniture. I don’t think it matters.

Step 2. Setting the Price

This is where most sellers will fail.

When realtors say they help you set the price they are correct. What they don’t tell you is the help you need is psychological. Its only partially related to knowledge of the market for your house. Everyone thinks their house is worth more than it is. That’s because it is, to you. As the seller you need to do enough research to put your house in perspective in relation to the market. Once you get your mind right there are plenty of sources to help you find the best price.

Too Low

If you set the price too low you may never find out. You’ll sell the house and forfeit the difference between the the fair market value and the price you set. You’ll most likely sell the house, however, and it will take less time to sell it.

Too High

If you set the price too high you’ll find out because the house will sit on the market and you’ll get few, if any, offers. Some buyers may tell you how much they think you’re overpriced. Listen up: They are a valuable source of information. Just make sure they’re not the only source.

Just Right

I had challenges setting the price for my house because the market I’m selling in is falling and it was hard to find comps. My house is very small (800 sq ft) but is on a large lot (15,000 sq. ft). There were not many house like it in the area and even fewer recent sales. Because of these problems and a low appraisal that came in from my buyers lender I hired my own appraiser. I found the appraiser with a quick web search, called them, placed a deposit and received the report by e-mail three days later.

I’m not a big fan of appraisers and would not have bought one if it weren’t for the problems, above. However, one of the advantages of having an appraisal is that you have something ‘real’ to point to that can move the sales process along if it gets bogged down with price speculation (Like my sale did).

I also used the same sources all sellers should use to learn about the market for their house:

• zillow.com. Using their estimated price for my house and houses in the neighborhood. They also show all the houses sold recently in the area and what they sold for.
• Asking potential buyers as they inquired. (After giving them my price).
• Asking the neighbors what they think and have heard.
• The MLS. You can probably find someone who has access to the MLS if you think you must. Either a friend who is a realtor or you may simply walk into a real estate office and ask to see it.
• Calling the number listed on the for sale signs of other sellers in the area.

Anything and everything I could do to inform myself of the reality of the current fair market value of my house.

Price is the Starting Point of the Negotiation

The house price you’re setting at this stage is the starting point for the negotiations, later. The price will be adjusted downward by the following factors:

• Buyer Negotiates A Lower price, within reason
• House Inspector Points Out Flaws Worthy of a Discount
• Buyers Lender Appraises a Lower Price (This happened to me)
• Seller agrees to cover buyers closing costs

American Psychology

Its American psychology to not feel they’re getting a good deal unless the price goes down after they ‘negotiate’. Rather than fight the battle of convincing the buyer that you don’t operate that way it might be quicker to just add a little to the price to account for this. I hate this kind of thing, but, I’m tired of fighting these kind of thankless battles. I’ve tried stating an great price on smaller things I’ve sold before. The buyer ends up thinking I’m a prick if I don’t give a little on the price even though the price I set was a great deal for them. I could have set an outrageous price, adjusted downward to a price too high and they would have felt better about the deal. I didn’t have to play this game in this sale, thankfully. I did factor this into the initial price, but, it didn’t factor in on the negotiation because there were bigger items at play.

MLS Monopoly – Irrelevant

The MLS (Multiple Listing Service) is the big ace-in-the-hole realtors use to intimidate you into using them.

You don’t need your house to be on the MLS to find a buyer. And you don’t need to even see the MLS to set the price. I sold my house without it being listed on the MLS and without even seeing one for my area.

You read that right. The long held Broker monopoly over the MLS is officially irrelevant. I list it as a potential help in setting your price, but, you don’t really need it, anymore.

Zillow is the New MLS?

That’s only half true. You can get a working estimate for your house on zillow along with estimates for all the houses in the neighborhood. These are handy, but, not necessarily the price you should set for the sale. Zillow also has a “Make Me Move” feature. If you can verify that you own the house you can set a price and it will be shown when people view the house, for whatever reason.

Prior to the internet It would be foolish to not list your house on the MLS. And you couldn’t get it listed if you didn’t use a realtor and pay their commission. You also needed the MLS to set your price because gathering enough prices to guage the market was difficult without it.

If you’re willing to do minor research you can gather all the price information you need to set the best price. More on this in the section “Setting the Price” in this article.

Buyers Market, Sellers Market – Irrelevant

A so-called Buyers Market happens when more sellers are competing for fewer buyers. Even then sellers have a hard time acknowledging the reduced price for their house. The sellers that are quickest to acknowledge the reduced price are the most likely to get their house sold.

A so-called Sellers Market is where more buyers are competing for fewer houses on the market. Prices rise quickly and buyers need to be careful they don’t overpay although that’s a difficult thing to know as prices get bid up due to the buying competition.

The terms ‘buyers market’ and ’sellers market’ don’t help you as a seller. The market is whatever the market is at the time your selling. If the price you can get makes you not want to sell then don’t. Before you decide you should do enough research and properly adjust your expectations. If you have illusions about the price of your house now you’ll have the same illusions later. And, it’s cheaper to get perspective sooner.

If you set the price, correctly, you’re selling the house at the fair market value for the current market. That’s all that matters. If you don’t want to sell at the current market price, then don’t. But, don’t blame the market by calling it silly names.

Step 3. Finding a Buyer

This is the primary job you have to do, yourself, to replace the realtor.

In fact, doing everything in this article 100% correctly will not save you very much money unless you can find the buyer yourself since all the other costs of the sale have to be paid by you, anyway. If you fail here you’ll just have to use a realtor and pay them for finding you a buyer.

Here’s what we considered and did:

• Redfin – They had no office in the area so we couldn’t use them
• Help-U-Sell – Didn’t return our calls.
• MLS – The above companies will put you in, for a fee, but we did’nt do it.
• FSBO Sign – For Sale By Owner (This is what got us our buyer)
• Craig’s List
• Word of Mouth
• Web ad on my website, although it wasn’t promoted

The Best Thing You Could Ever Do to Sell Your House!

is . . . . to purchase a good one.

Most of the pain of selling is avoided by purchasing a good house in the first place.

That’s where the money is made, too: On the purchase. You should have some idea of the range of profit you expect to make figured-in to your purchase price.

If you made a bad choice when buying the house you may have already botched your opportunity find a buyer without using a realtor. Or, maybe you only botched the amount of profit you can expect to make on the sale and can still find a buyer, yourself.

A Desirable House Markets Itself

Realtors boost your own marketing efforts to find a buyer. You’ll need them the most when your house needs the most marketing. A great product still needs marketing, but, far less than a crummy one. And the number one contribution you make to marketing your house is to have a good one to sell in the first place. If you do, you probably won’t need a realtor to boost your marketing efforts, at all.

The marketing you do for a great product consists mostly of letting people know about it. You have to let fewer people know about a great product before one of them is interested.

The danger, here, is that you haven’t exposed your ‘product’ to enough people to figure out what the highest possible sales price is. The second most important component of marketing is deciding on the optimal price. This should be done before you start letting people know the house is for sale.

The House I Sold

The house that I’m selling was not purchased. I inherited the house from my brother when he died in 2002. Luckily, I was reading John T. Reed’s books at the time and was prepared to view my brothers house objectively. What I read enabled me to feel confident that I could manage the maintenance and rental of my brothers house, remotely, from 3000 miles away. It also gave me the confidence to know that the $30,000 I invested into the house would be a reasonable risk to take and probably return more than a quick sale of the property.

Showing the House – Remotely

David showed the house to about a dozen potential buyers while he was fixing it up. I offered him $1000 if he could found a buyer. We had no buyer by the time David’s work was finished so he flew home.

We put a lock box on the door with a key to the house in it. My cell phone was on the sign and we put our flyers in a box describing the house. I also uploaded that flyer onto my web page and David listed the house on Craig’s list.

When buyers wanted to see the house they called my cell phone. I didn’t tell them I was 3000 miles away, just that I couldn’t be there to show it. However, if they gave me their first and last name, cell phone and address then I could give them the combination to the lock box and they could let themselves in. This worked perfectly and the house was shown to another dozen people before I finally had a buyer.

Step 4. Negotiating the Details

If you’ve done your homework when setting the price then negotiating the details will be easier. Remember, the house price you’ve set is the starting point for the negotiation. Try to keep your negotiating friendly, reasonable and informal. Once you decide on the price the rest of the negotiating has to be formalized in the paperwork. The less changes you have to make to the final paperwork the faster and smoother the deal will go through.

Over the course of the sale process you and the buyer will need to agree on the following:

• Price prior to inspection.
• What is the amount of the deposit for the Sales contract?
• Who is paying for the inspection, the appraisal, the cost of escrow, the title search, title insurance, loan costs.
• What deductions from the price, if any, will be made as a result of the inspection.
• What work, if any, will be done by the seller as a condition of the sale.
• How long will the escrow last?
• What is the date of the closing?

Playing Multiple Roles

If you’re not using a realtor you’ll be playing the roles that would normally be played by the buying and selling brokers. Since you’re also the seller and have the most at stake in the sale you must be able to keep things in perspective at every point of the negotiation. There will be items that need to be discussed that could easily set you off as the seller. But, those same items shouldn’t set you off in your role as the realtor.

Its really not fair to the buyer to have to be delicate with you just because you own the house. Don’t be overly emotional or get touchy over anything the buyer may say. Take time out, if you must, and get back to the buyer when you’re ready to lead the next step of the sale.

Lead the Sales Process

You should also be familiar enough with the steps of the sales, escrow and closing processes that you are leading the sale. I suggest taking this article and summarizing the steps for yourself in shorthand. That way there’ll be less surprises and you can have the answers needed for the next step of the process before they come up in conversation. If the buyer asks whats next you should be able to tell them the next three steps, what needs to be done by who and when and what needs to be decided on this phone call.

Don’t leave any conversation without a clear understanding of the very next action that needs to take place to keep the sale moving. Each party should know what action they need to perform and when before ending the call. Preferably, you should follow up with an e-mail that summarizes these next steps.

Step 5. Doing the Paperwork

This was the most pleasant surprise of the whole process. I found a Full-Service Title Company to do all of the work for me! Patch Reef.

This was the one area I thought would prevent me from being able to sell the house without an agent. As it turns out, its not the agent that handles the paperwork in a sale. It is, and always has been, the title company. And they are perfectly willing to sell their services to you. When you think about it they always were selling their services to you. But, you didn’t know that because it seemed like they were working for the agent selling your house and the relationship was with the agent and not you. They were really working for the seller directly the whole time.

Here’s a list of what the Title company handled completely for me:

• Drafted the Initial contract for the sale
• Coordinated the signing of the contract by both parties
• Advised on particular clauses in the contract and potential gotcha’s
• Resolved issues that came up between the buyer and seller and incorporated the solution into the contract
• Handled the escrow account for the sale
• Handled communications between the buyers lender and escrow
• Performed all the normal Title work like searches and issuing title insurance for the new owner/buyer.
• Handled the closing on my behalf in what they call a ‘mailaway’ closing.
• Received the funds from the Lender, closed the escrow according to all the laws of the state and arranged for funds transfer directly to my bank account

Even if I knew how to do all this I wouldn’t want to. And even if I wanted to the buyer would probably not trust the seller to be handling all the money directly. If I insisted on doing all this work the buyer would probably back away from the sale thinking that the potential for getting ripped off was too high. Its much more appropriate for a third party to handle these tasks and the money on the behalf of the buyer and the seller.

And I was very pleased to let them do so.

Step 6. Solving Problems

Like every property sale since the beginning of time there were problems that came up in the course of the sale. Would you really expect to conduct the biggest deal of your life and not have even one problem? Well, it just doesn’t work that way so you might as well adjust expectations accordingly as soon as possible.

The sale was supposed to close this Friday, but, will probably be pushed out a week because the buyers’ lender came back with an appraisal lower than the sales price the buyer and I had agreed on.

But, the problems don’t happen because you’re not using a realtor. The problems happen just because of the size of the deal. The buyer, seller and bank have a lot at stake and the final sale represents the solution hammered out into the appropriate language and contracts of all parties involved. As the seller you have your viewpoint on what the price should be and how things should work out. Well, the buyer has his viewpoint, the bank has theirs and the state has theirs. The ‘problems’ that come up are a result of these four parties attempting to translate the sale into their language and execute the contracts and transfer according the their policies and laws. Its very unlikely that no friction whatsoever will appear from the time you decide to sell the property to the time the sale is finalized, funded, contracted, prepared, funds disbursed, recorded, all parties paid and the money hits your bank account.

But, these problems are the result of the nature of the deal. Unless your specific problem is with finding a buyer the presence or absence of a broker is not going to influence the number of problems that come up.

In other words, there’s no need to pay 6% for a wet blanket to listen to all your concerns as problems come up and need to be solved.

Solve them yourself, like your going to have to anyway, and save the 6%.

The appraise from the buyers lender came in at $167k and the contract sales price was $200k. That means the buyer could only get $150k from the bank. The buyer was unphased by the appraisal and was convinced that the property was worth the agreed upon $200k.

I did a quick search on zillow to verify their latest price for the property. More importantly i clicked on the ’see comparable’s’ button to see a list of the last 41 properties in the area that had been sold.

The difficulty in appraising the propriety is that the house is small and the land area is huge. There were no other comps in the area that were, well, comparable

I recommended the buyer submit an application to lendingtree to get competing lenders who might appraise differently.

Because of the much publicized sub-prime mortgage crisis this sale has been more difficult. The buyers lender is taking their time on a re-review of their original appraisal. A call to Patch Reef and Lorri says its a normal part of the process when the agreed upon price varies too much with the lenders appraisal. She mentioned it could take up to two weeks to complete the review.

Waiting Is . . .

I recommend that you take matters into your own hands, quickly and positively, when problems come up. As the seller, you have the most at stake in the sale. You should also be leading the sale almost like a project manager. No party involved should be wondering what the next step is or when its expected.

However, after you’ve introduced, negotiated and executed a solution or the next action is dependant on someone else you’ll be faced with a whole lot of waiting.

In fact, a lot of the process of selling is knowing how to wait, patiently. If you have done everything you could there’s not much use in calling everyone every four hours for the latest status. Too many calls will demotivate the parties involved. You’ll be waiting when:

• You’re getting calls from potential buyers on weekends, but, not many on weekdays.
• The Contractor you hired to fix-up the house is taking longer than you thought
• The buyer is submitting documents to qualify for the loan.
• The buyers’ lender is dragging their feet on the appraisal (Or reappraisal).
• The buyers’ lender is dragging their feet on funding the loan.
• The inspector can only come out next Tuesday.
• The buyers lender insists on a minimum escrow period.

After you’ve done what you can to move the above situations along you might as well:

• Get another buyer in the pipeline (If you suspect the problems may be insurmountable).
• Figure out what you’re going to do with the proceeds of the sale. I don’t mean count your chickes before they’ve hatched. I mean the proceeds of the sale may exceed the FDIC protection amount for your bank account or you have bills or expenses that could be prepaid with a discount or something like this.
• Work at your day job (In my case, writing this article).
• Anything it takes to keep you mind off the sale.

Banks Make More Than You Think

As I was waiting for the buyers lender to re-evaluate their first appraisal I started to wonder what’s in it for the bank. The actual numbers are so astounding I thought I’d include them in this article.

The sale price for the house is 183K. The buyer is getting a loan for $150k at 5.875%. So, at the closing the bank will credit the escrow account (Or Fund the loan) for $150K and the buyer will give me $33K for a total of $183K. That will cost the buyer $33K at the time of the closing and whatever the amount of his payments add up to over the course of the loan.

So far, so good. But, what did it cost the bank to ‘fund’ the loan?

Through Fractional Reserve Lending the bank is authorized to ‘lend’ $9 for every $1 they have on deposit. That means the bank only needs to have $15K on deposit in their bank in order to ‘lend’ or ‘fund’ a $150K loan. Therefore, their initial ‘investment’ is $15K. I put investment in quotes because they are investing the money of their customers, not their own.

Are you wondering where the other $135K came from?

The answer is so disturbing it may cause you to toss your cookies: It comes from nowhere. It doesn’t exist prior to the ‘funding’ of the loan.

Most people don’t know that lending money into existence is the modern day version of ‘printing’ money in todays banking system. That’s bad enough if what you’re multiplying by 10 is your own customers money. But, what if the money you’re multiplying by 10 comes from a ‘loan’ from the Federal Reserve?

Whenever you hear that the Federal reserve has lent a bank $1 you have to multiply that number by 10 to figure out how much the money supply, or M3, has increased. And, in this case even the original $1 came out of thin air. Incredible!

So, the banks ‘investment’ is $15K because 9 X 15K = $135K. 135K + 15K = $150K.

At the end of the first year the buyer will have paid the bank $1,885.45 in principal and $8,762.27 in interest. $8,762.27 / $15K is a 58% return for the bank in the first year!

The second year the banks return goes down to 57% and keeps going slightly down until the end of the loan period when it goes to zero.

Averaging out the loan for 30 years the numbers work out to a 38% per year average return to the bank for the life of the loan. The bank recovered its initial ‘investment’ by the 9th month of the second year. After that they get a 38% return for the next 28 years on money that has already been paid back to them.

Wow, what a racket!

And here we are like dummies working for a living.

Step 7. Closing

I haven’t close, yet, so will hold off on writing this section. I want to make sure everything I say is accurate and my first-hand experience.

I can tell you already that you don’t need to be there. And, whether you need a lawyer or not varies by state. Either way, it doesn’t appear to be much of an obstacle.

More to come.

Try Selling It For 30-Days

You have nothing to lose during this period.

You have to prepare the house for the sale, anyway. Why not put a for sale sign in your own front yard in the meantime?

If you’ve purchased wisely most buyers will see past the cosmetic repairs you think are necessary to prepare the house for the sale. Even if they are concerned they will see you working on the house and know that you’re addressing the problems. If they are truly interested in buying your house then talk with them about any recommendations they may have for your repairs. The fact that you’d be open to their suggestions should set them at ease and set the tone for the sale.

Reduce Price and Let Them Do the Work

Even better, talk with them about what they think the repairs they want are worth and just deduct it from the price of the house. Why do all the work when you can just deduct the price and have them do the work. They might even think they’re getting a better deal if THEY do the work. Meanwhile, you get out of the job, are seen to be flexible on price. Most people underestimate the cost of repairs. Why not use that to your advantage as long as your not taking advantage of anyone.

The Buyer Might Be Your Neighbor

I still remember my father being angry when he found out the buyer the realtor ‘found’ for our house lived on the next street over.

That’s a big price to pay for not putting a sign in the front yard while your painting. Perhaps he’d feel more at ease that his son never forgot the lesson.

Are Realtors Necessary?

Yes, if you can’t find a buyer yourself.

Yes, if you won’t find a buyer yourself.

Yes, if you need your hand held during the sale or to have someone to talk with while you’re waiting (Because so much of the process is just waiting).

It will be hard(er) to find a buyer if your property is:

• Hard to Find
• Atypical
• Overpriced
• Undesirable

You can fix overpriced and, to some extent, hard to find. However, atypical and undesireable are going to make it rough to find a buyer even if you do use a realtor.

You may need a realtor to get your house in the MLS to get broader exposure for an undesirable, remote or inaccessible house. A house that is off the beaten track and not accessible by busy roads or out in the country. Even then why not use Craig’s list or a newspaper ad, setup a web page for it or even pay redfin to add it to the MLS?

All the other costs and work have to be managed, performed, outsourced and paid for by you, anyway. You have to pay to prepare the house, you have to pay the closing costs, you may have to pay for some of the sellers closing costs, you have to pay taxes to the county on the sale, you have to pay the escrow fees, blah, blah, blah.

Didn’t Use a Realtor for our Purchase, Either

I read, somewhere, that the average buyer sees five houses before making a decision to purchase one of those five. Unless you begin your search already intimately familiar with the area and local market this is insanely low.

My wife and I found the house we live in without using a realtor.

That was mostly because I was unfamiliar with the area. By the time we were familiar with the area we had seen 75 houses. We were then well informed about prices and the current market. As luck would have it the seller-occupant was also a realtor who waived her commission. Even so, we hired our own inspector and were involved in the paperwork in the same way a buyers broker might be.

I was able to negotiate a substantial discount off the selling price because we knew the market well by the time we started to negotiate. This feels like even more of a blessing, in hindsight, because we purchased in December of 2006. Prices had already fallen, significantly, by then. We were able to take advantage of the already fallen price and get an additional price reduction, from there. This would have been impossible if the seller was not more motivated to sell than normal, due to a divorce. Still, our nervousness with the housing market, in general, motivated us to get a price lower than we thought possible. This would normally give us a jumpstart with the equity in the house. As prices continued to decline, however, it only protected the 20 percent we put down on the purchase.

Web Resources

www.zillow.com

www.Redfin.com

www.HelpUSell.com

www.johntreed.com

For Articles written by others checkout Making Money Carnival.

In South Florida I highly recommend the excellent mortgage broker services of:

Henry Ugartechea & Kim Baber
United Home Mortgage Center, Inc.
(561)929-8100-Mobile
(561)208-4600-Office
(561)208-4601-Fax
(754)367-7600  (Kim Baber)

Tweet This Post Facebook

Tags: Agent, Broker, DIY, Finince, House, How-To, Marketing, Real Estate, Realtor, Selling

This entry was posted on Wednesday, October 8th, 2008 at 5:54 pm and is filed under DIY, Finance, House, How-To, Marketing, Real Estate, Selling, money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.