The first of a three part series exploring an owner’s options when they decide they want to sell their real estate. Today’s featured property is part of a trend toward WTF listings in Quail Hill.
Irvine Home Address … 111 PAGEANTRY Irvine, CA 92603
Resale Home Price …… $1,449,000
Hey look me over
Tell me do you like what you see?
Hey,I ain`t got no money
But honey I`m rich with personality
Hey,check it all out
Baby,I know what it`s all about
Before the night is through
You will see my point of view
Even if I have to scream and shout
Baby, I’m a Star — Prince
Every man’s home is their shining star. Some dress it up with elaborate pretense; others pare it down with sublime beauty, but every owner adores their star just the same.
Whenever you are parting with a superstar they should be yanked from your grasp by an aggressive bidder who recognizes the regal beauty of your magnificent gem….
Channeling the fantasies of sellers everywhere….
Sellers almost universally believe their properties are more valuable than comparable properties if for no other reason than it is theirs, and they are entitled to a premium. You can imagine that pregnant moment for a listing agent when the seller is about to blurt out a price they want to offer… is it going to be reasonable or 40% over comps? Yikes!
Sell a Home Series
Today is the first of three parts where I examine the conditions, circumstances and options owners face when they want to sell their homes:
What Do Sellers Want to Accomplish?
The answer sounds easy: sell their house, but there is more to it than that. The terms and conditions of the sale matter greatly, and when examining a seller’s deeper motivations, we see they want to accomplish three important things:
- Sell their home and maximize their net gain
- Get through the process with a minimum of effort and stress
- Avoid legal and financial liability for problems with the transaction
When sellers ride off into the sunset cash-in-hand, they want to believe the transaction is complete and they got the most money with the least stress and effort. If they believe that, they are happy; if it is true, even better.
Sell their home and maximize their net gain
The net is what matters. When the seller gets his check from closing, he has no ties to the property, and the check is the sum of his remaining equity after all fees and costs have been paid, including the hefty realtor commission. Commissions are high enough that sellers are motivated to search for alternatives to eliminate the 6% fee coming out of the closing check.
In the end, agents must justify their fees to remain in business. Apparently, for all its flaws, this business model endures. Someone somewhere must be obtaining some benefit, so let’s see what those benefits are.
Get through the process with a minimum of effort and stress
Nobody wants to work or have any stress. If people could sit at the pool sipping Margaritas while someone sold their house and came back with a check, most people would chose to do that (have you been to a Lexus dealer?) To the degree sellers are willing to engage themselves in the process — work — they can save themselves money.
Many sellers have special expertise, they may have a real estate license, or they may just be brave and smart and know they can do it themselves. Sellers will find comfort (or stress) to the degree they have expertise in marketing and sales of real estate. If they have never done anything like it before, there is much to learn.
Avoid legal and financial liability for problems with the transaction
Nobody wants to have long-term financial liability. When a seller has that closing check in hand, they want assurance (or insurance) that the buyer cannot claw back at the money in that closing check later on.
Most people do not think about the liability involved because the transactions are usually handled through licensed brokers who have standardized forms they know how to fill out to ensure the transaction is proper. Brokers carry errors and omissions insurance to make sure an insurance company with deep pockets is there to step up if a serious problem occurred, and brokered transactions are generally financed transactions which will also have property liability and title insurance in case there are hidden claims on title (a big problem for trustee buyers). With the layers of liability protection in most transactions, sellers are secure. When they go FSBO, they need to figure out the insurances and liabilities on their own.
What prevents sellers from accomplishing their goals?
Sellers face four main obstacles achieving their objectives:
- Finding a buyer who will pay the most money
- Capturing the interest of motivated buyers who find the property
- Conducting the negotiation in a way that maximizes revenue
- Managing the documents necessary to properly complete the transaction
I will go over each of these goals as we explore an owner’s options. Real situations illustrate these obstacles best.
What are owner’s options for selling their property?
There are (3) main paths owners can take when they want to sell their properties:
- For Sale By Owner (FSBO)
- Cash Listing Service (MLS access)
- Conventional Brokerage Listing
For Sale by Owner is much maligned by realtors for a simple reason; each FSBO is a commission lost. They see an FSBO as a failure; I see them as someone who used their skills and talents to their advantage.
When I worked for a homebuilder in Florida, I designed and general-contracted my own house. I suppose I should be hearing from the American Institute of Architects and the Building Industry Association for cutting them out of a transaction, but I doubt they care. When I built my house, I saved 10% or more because I used my industry training to my advantage. Why shouldn’t FSBOs?
Eliminating the brokerage commission is tempting, and many people explore that option (like you today). If they did not already know, FSBOs soon discover the range of tasks and responsibilities that befall them acting as their own agents.
The Six Challenges of FSBO
There are six major obstacles an owner must overcome to sell their own home:
- Selling property is time consuming
- Marketing is difficult
- Negotiation is difficult
- Escrow is difficult
- Offers/buyers tend to be bottom fishers
- Buyers are difficult to find
Any of these six challenges cause owners who consider FSBO to either (1) change their minds or (2) attempt FSBO and fail to sell their property. The latter outcome is a complete waste of time and energy — which many owners go through before they explore some level of agent assistance.
Selling property is costly and time consuming
What is the value of a seller’s time? There is a time requirement to complete the tasks necessary to sell a property. Some FSBOs think that all they have to do is put up a Craigslist ad and wait for competing offers over their asking price to be emailed to them within hours, probably not going to happen.
When sellers decide to work with an agent, sellers still must (1) keep the property clean and (2) staged to a reasonable degree and (3) be flexible with showings; however, the marketing, negotiation, and paperwork tasks are handled by the agent — at the agent’s expense. If a owner goes FSBO, all the tasks related to the sale must be performed by the owner — and paid for by the owner.
If the property is staged and professionally photographed, and possibly even maintained at the expense of the agent, it is an expected part of doing business, but when owners are faced with these same tasks (the ones that cost money), few FSBOs do what is necessary to present the property at all much less do it well.
Marketing is difficult
Whether a task is easy or difficult depends on the talent and experience of the individual, but in social environment, the difficulty of a task can be noted in the results it produces. Have you noticed FSBO presentations are uniformly bad? Some of the awful ones I have profiled are not outliers. Go to Redfin and look for the little pink houses and see for yourself. Marketing is a major challenge for most FSBOs.
Negotiation is difficult
Some people are skilled negotiators, and others consider it conflict to be avoided. This is an area where a good agent really can make a difference, but it is a challenging thing to get sellers to believe. Sellers all want to believe they are great negotiators who will obtain top dollar; unfortunately, most sellers are far too emotional about their own property, and they fail to close the deal because of it. Some get offended by a buyer’s comments about their questionable taste and refuse to negotiate — the list goes on. After a few deals fall apart, the emotions of fear creep in, and FSBOs often succumb to a lowball offer below price levels they rejected earlier.
Most sellers are not seasoned negotiators who handle these transactions routinely and are trained not to let their emotions get the better of them (many agents aren’t either). Part of the advantage of routine handling is access to and familiarity with standard forms. Agents have standard forms parties recognize that helps facilitate negotiation by calling attention to important deal points and simultaneously providing escrow instructions that make the transaction close quickly.
Escrow is difficult
Many FSBOs get a deal with a handshake, and they are shocked when it does not close. There are many pratfalls that prevent deals from closing, the most important of which are financing and inspection. There are a myriad of details and disclosures most FSBOs know little about. Without assistance in preparing the documents, even preparing escrow instructions will be difficult as key terms may be missing or contradictory.
Services are available to help sellers with the three difficulties listed above, but this assistance often comes at a price. Sellers who go FSBO do so because they want to make more money. Few recognize where there is a need to spend a few dollars efficiently, so they spend nothing at all, and they do not get the help available to them to close the deal.
Offers/buyers tend to be bottom fishers (and FSBOs are the bottom)
Because FSBOs rarely present themselves well, they actually become targets for bottom fishers. Professional flippers in particular are fond of buying from FSBOs. The flipper reasons the seller has 6% more they can drop the price and still close the deal (which using the FSBOs own logic, they do); therefore, FSBOs are perfect targets for lowball fishermen. A patient flipper can catch a frustrated FSBO with an offer just before they give up; they know the FSBO is more likely to take the deal in the hand rather than two in the 6%-off bush. Professional flippers and bottom fishers make a living off FSBO frustration among other opportunities they exploit.
Buyers are difficult to find
By far the biggest problem faced by FSBOs is the difficulty in finding buyers. If they are not on the MLS, nobody sees them. The odds are long of finding the buyer willing to pay the most money by marketing a non-MLS property on Craigslist or with a printed flier. This is the primary reason FSBOs fail.
Once FSBOs realize nobody willing to pay market value is finding their property, they explore ways to get onto the MLS.
Cash Listing Services
Tomorrow, I am going to explore the good and the bad of cash listing services and discount brokers.
FSBO is a good option
I may be overselling the bad case, but I want to be clear and
accurate about the perils facing sellers trying to sell on their own. There is money to be saved here, and if owners
have the expertise to sell a property and save the extra money, they
certainly should do so; I know I will when the time comes again, but I
suppose since I am a broker now, that doesn’t count as FSBO anymore.
Today’s featured property was not effected by the bubble, and it has appreciated at 5.4% per years since 2004… WTF?
Irvine Home Address … 111 PAGEANTRY Irvine, CA 92603
Income Requirement ……. $298,665
Downpayment Needed … $289,800
20% Down Conventional
Home Purchase Price … $1,064,500
Home Purchase Date …. 2/27/2004
Net Gain (Loss) ………. $297,560
Percent Change ………. 36.1%
Annual Appreciation … 5.4%
Mortgage Interest Rate ………. 4.96%
Monthly Mortgage Payment … $6,195
Monthly Cash Outlays ………… $8,130
Monthly Cost of Ownership … $5,900
Baths 4 full 1 part baths
Size 3,700 sq ft
($392 / sq ft)
Lot Size 7,800 sq ft
Year Built 2004
Days on Market 5
Listing Updated 11/26/2009
MLS Number S597065
Property Type Single Family, Residential
Community Quail Hill
This rare, CUSTOM Plan 1 has been ENLARGED to 5 bedrooms–THREE of which are HUGE bedroom SUITES–with one suite + retreat down–4.5 baths, an upgraded tech center, situated on a PREMIUM CORNER LOT w/unparalleled PRIVACY & peek-a-boo views on one of the highest streets in Sienna w/a direct access 2-car garage + long driveway. The chef’s kitchen has a center island breakfast bar + nook, stainless steel appliances with a six-burner gas cooktop, granite counters, full designer tile backsplash, under-cabinet & recessed lighting, double ovens, microwave, a built-in fridge & walk-in pantry. The great room has a fireplace w/brick surround, built-in media center & an added 6 ft. picture window. The opulent master has a built-in media center & sitting area. The ENORMOUS BACKYARD includes a built-in BBQ w/Viking grill, covered patio, flagstone hardscaping w/a raised outdoor seating area, a fountain, & children’s play area. Quail Hill offers award-winning schools & a multiplicity of amenities.
rare, CUSTOM Plan 1? Do those words put together seem incongruous to you? Get your rare, custom tract home here….
My data source shows a couple of HELOCs on this property, buy nothing else. It may be owned free-and-clear and the HELOCs are emergency access to equity funds (a good arrangement if you limit it to true emergencies). These owners have plenty of room to negotiate, if they really want to sell the house, the price will need to come down significantly.