For Sale By Owner Mistakes ? Real Estate Chat by Melinda

A long-time client of mine called me the other day and said, ?Melinda, you need to write something about why it?s a stupid idea to go ?Fsbo? (otherwise known as, ?For sale by owner?)?.? I guess she has seen quite a few failures?in her time, and was a little frustrated that someone she loved was possibly making?a similar?mistake.

Be sure to have a good Realtor on your side.

Well??? There are?thousands?of articles?out there in Web-World about the fallacies of attempting to sell a home yourself.? I really don?t feel much like repeating these easily attainable?facts and statistics.? Instead,?I think I would like to share one thing that?might impress upon you, the reader,?the benefit of hiring a professional; a Realtor.? It?s called expertise.? Here is just one example:? Since this scenario is based?on a true story, I have?changed the names (and numbers)?to protect the innocent .

Barbara and Ken called me to?list their home.???It?s?was a?gorgeous little house that has been well-loved and maintained.? Unfortunately, they had only bought the home a few years ago,?and the market?values were higher at that time.??Subsequently,?the home?was barely worth what they originally paid for?it.? Their only hope was to sell the home and not?owe?any money at closing.

Looking carefully at the numbers, I determined that the market value of the property was somewhere between $115,000 ? $120,000.? ?Nevertheless, this home was very well-maintained, and I could see that aesthetically, it would be very appealing to a prospective buyer.? I suggested a list price of $124,900 taking into consideration that my seller may have to negotiate, as well as the likelihood that I could push the value up slightly due to the appeal of the home.??We were hoping to sell it for about $122,000.? My question wasn?t ?if? I could sell the home, it was ?if? I could get it to appraise.? My biggest hurdle was?the numerous homes in the?neighborhood that had sold for less (many foreclosures).? I only had a couple of homes that had sold that would assist me to $115,000, maybe the?$120,000 range.?? Unfortunately, in today?s market, a home must appraise for the sales price or you are likely back?on the market with a whole lot of wasted time, effort, and money behind you.? Correct pricing is essential.

Amazingly enough, Barbara and Ken received an offer immediately.? Literally, the first day.? The offer was for?$124,900, however the buyer wanted the seller to pay a portion of their closing costs, approximately $4000.00.? This all sounds pretty good, right?? Basically the offer was $121,900 to them.?? I was concerned that if the buyer didn?t?have enough money to pay their own costs, and the home didn?t appraise, Barbara and Ken would be left making a very difficult decision.? Therefore, after quite a bit of discussion and feeling very confident,?Barbara and Ken decided to counter this offer?reducing the amount of closing costs to?only $1,500.? What would the buyer say?

First of all, the buyer?s agent immediately called and stated that she didn?t think the home would appraise.? My comment?in return was that if she was worried about it appraising, why would the buyer want to raise the price by rolling in closing costs at all?? Take the closing costs out of the equation.? Before I could hear back from this agent, I receive?another call.? Another agent was sending me an offer.? The decision was made to inform both agents that they were?in a ?multiple offer? situation (did I mention that I?love when this happens?).

When the second offer arrived, it was for $130,000 with the seller paying $5000.00 in closing costs for the buyer.? In Barbara and Ken?s eyes this was fantastic!? They just received a more than full-priced offer!?? It was $1,600 better than their counter offer to the first buyer!

While we waited for a response from both parties,?I received a third offer.? The third offer was much less than the previous two.? Again, the decision was made to inform the?agent?that he was in a multiple offer situation.? However, I assume since he did not respond, that his client did not want to adjust their offer.?? therefore, they were not considered any further.? Finally, the first buyer returned with an offer that was equal to the seller?s original counter to him; $124,900 with the seller paying $1,500 in closing costs.? What would they do?

Here is where the expertise comes in:

Barbara and Ken now had two good offers on the table.? The first was $124,900 minus $1,500 in closing costs.? The second was $130,000 minus $5000.00 in closing costs.? Obviously, the second offer was more money to them.? Nevertheless, here are a couple of facts they had to take into consideration:? #1) The comps in the neighborhood did not bear out a value over $120,000 ? $122,000.? $124,900 was already stretching the envelope.? #2) The offers presented were their ?best? offers.? This indicates that both buyers needed the closing costs they requested.? Without them they would not be able to close.

Due to these facts, several scenarios were played out across the dinner table.? What would happen if the home did not appraise for the full sales price of $130,000?? What if it appraised for the more likely price of?$124,000?? If the second buyer still needed $5000.00 in closing costs (which they most likely would), this would reduce the price to the seller to $119,000.? Using these same numbers, if the seller accepted the first offer and the appraisal came in at $124,000, the price would actually be $122,500, a loss of only $900.00.

Was the possibility of gaining $1,600.00 worth the risk of possibly losing as much as $3,500.00 ($122,500 ? $119,000 = $3,500)?? Since the likelihood of the home not appraising was high, Barbara and Ken decided to accept the first offer.

So, you may be asking, what does this have to do with ?For Sale By Owner Mistakes??? Accepting to over-inflate the?price for?a home that is well-over the actual market value is a common error.?? I sometimes feel like the stated ?sales price? somehow?impresses the seller and makes him feel like he?s getting a better deal than he actually is.? Yet, the worst part?is?that when the home doesn?t appraise for the sales price, the deal often falls apart.? Even if the seller is able to rescue the deal and reduce the price to meet the appraised value, he may have already given other concessions to the buyer that he ordinarily would not have given, except that he thought?it was such a good deal.? As mention before, time, effort, money, and sometimes even other good offers, are lost due to this mistake.

On the other hand, I often have the seller of a property in this situation ask me, ?If the house doesn?t appraise,?can the buyer pay the difference himself??? Let?s think about this.??It?s not rocket science.? This is really about common sense.? Are we asking ?can? the buyer do this, or?will the buyer do it?? Yes, the buyer could pay the difference.? Yes, I am sure that in the past, a buyer has?wanted a property so badly that he was willing to pay more for it?than it?s appraised value.? However, in nearly 20 years of selling real estate in the DFW Metroplex, I have only had this happen once.? The difference was $1,000.00 and the buyer determined that he would lose about that same amount if he didn?t do it.? He, of course, had the money.? More often than not, however,?the seller has had to either reduce his price,?take his house off the market, or attempt to resell the home at the appraised value.

I don?t know about you, but when I go to the grocery store, or I?m shopping for a car, or even when I?m looking for a hotel room, I?m looking for a good deal, but I?m willing?to pay a fair price.? Rarely, if ever, would I?deliberately choose to pay more for something than I know it?s worth.??If there are two bars of soap, of equal size, shape, smell, and feel, I?m not going to pay $1.00 more for one, just?because it?s already in my cart.

Nevertheless, I digress?.the point of this story is that sometimes wishful thinking will over-rule good common sense.???Your Realtor is the professional.? It?s their expertise that will guide you to success, and steer you far away from sure failure.

You may be wondering now, ?So, what did it appraise for??? The final appraised value was $124,900; and the appraiser commented that it was all he could do to get that value.? Whew!!

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Filed under: Selling A Home, Negotiating Tagged: | appraisal, closing costs, price

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