Risks-For Sale By Owner

About 20 percent of homes sold in this country are sold without a real estate agent. Surveys show that the most common reason for buying or selling a home without an agent is to save money.

Real estate commissions are negotiable, but they usually range from 5 to 7 percent of the sale price for residential property. So, if you sell your home for $300,000 and pay a 6 percent commission, this will reduce your net proceeds from the sale by $18,000. On the other hand, if you list your home for sale with an agent and get broad market exposure, it might sell for a high enough price to offset the cost of the commission.


But, let's say that money is not the issue. Perhaps your Aunt Tillie passed away and you have the opportunity to buy her home before it's listed for sale. What should you be aware of before going ahead?

One of the reasons home buyers and sellers use an agent's services is to make sure that all compliance and disclosure issues are dealt with properly. If you don't have first hand experience with the ongoing changes in the residential real estate industry, you'll need to do some research or hire a real estate attorney to make sure that nothing is overlooked. Otherwise, you could face legal problems in the future.

Another issue for buyers and sellers who are dealing directly is how to establish the price. Buyers don't want to pay more than fair market value and sellers want the highest price possible. One solution is to hire a licensed appraiser to appraise the property based on recent comparable sales in the area. Be sure to use an experienced appraiser who knows the local area well. An out-of-area appraiser might not be familiar with the subtleties of local market pricing.

An appraisal, even if completed by the best local appraiser, may not be an accurate reflection of current market value. Appraisals are somewhat subjective and the real estate market is constantly changing. In a rapidly changing market, yesterday's comparable sales may already be out of date.

A benefit of listing a property for sale and exposing it to as many prospective buyers as possible is that it resolves the pricing issue. If the list price is lower than what the market will bear, the price is bid up by competing buyers. A home that's listed too high for the market will usually sit on the market unsold until the price is reduced to market level.

A risk you run buying or selling directly is that you pay too much or sell for too little. Although, under some circumstances, it may be worth the risk. One buyer who bought directly from a friend paid about $15,000 over the market price. But she's still living in the house 17 years later and loving it.

First Time Tip: Perhaps the biggest pitfall of representing yourself is that it's difficult to maintain the objectivity that's required to negotiate and execute the best deal for yourself. Unlike other business transactions, buying and selling homes tends to be emotional.

If you do decide to buy or sell directly, consider hiring a knowledgeable real estate attorney or real estate agent to oversee the transaction and to make sure that all the details are completed properly. Many agents will handle such a transaction for about half of what the normal commission would be.

The Closing: Don't underestimate the time that's required to successfully negotiate and close a home sale. If you're short of time, get help from a professional.

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