For Sale by Owner: Disadvantages and Why You Shouldn’t Do It
Posted: November 10, 2018 by Michele Schaack
In a traditional real estate transaction, sellers and buyers rely on real estate agents to find potential real estate investment properties and close the deal. However, some sellers forego the help of an agent and do a FOR SALE BY OWNER (FSBO for short). Many follow this approach because they enjoy benefits like not paying commission to the real estate agents, making their own decisions, and having more control of the sale process.
Despite these benefits, for sale by owner has several disadvantages as well. It is important that real estate investors, or other property owners, know these drawbacks and consider them before making such decisions. Below are five disadvantages of for sale by owner and selling investment properties yourself.
For Sale by Owner Disadvantage #1: No Professional Help
Typically, real estate agents charge 4% of the sale price as a commission. The fact that real estate investors don’t have to pay this commission to a real estate agent when selling homes as FSBO is perhaps the only advantage of this approach. However, property owners are not as well informed as real estate agents. If you are a first-time seller, you’ll make a number of mistakes when doing for sale by owner,which could be avoided with the help of a real estate agent.
Seller real estate agents pretty much do all the paperwork regarding a real estate transaction from start to finish. A real estate agent helps you review sales offers, write counter-offers, etc, which otherwise you would have to do on your own or hire a real estate attorney. In addition, some for sale by owner sellers make the mistake of overpricing the investment property. Meanwhile, the real estate agent has experience in how to correctly price investment properties.
Not only that, but a real estate agent will also help real estate investors in preparing and showing the investment properties to potential buyers. For sale by owner sellers may not be available for a showing when a buyer is, which limits the property’s exposure and hinders the sale process. Therefore, the best thing to do is to work with a real estate agent who will take care of coordinating open houses, schedule appointments with other agents, meet with potential buyers, and conduct showings of the property.
Moreover, according to the National Association of Realtors, for sale by owner sellers lose 28% of the price they could have gotten if the property owner worked with a real estate agent (taking commission into account).
For Sale by Owner Disadvantage #2: Less Knowledge of the Real Estate Market
The second most important reason why you shouldn’t consider for sale by owner is related to your knowledge of the real estate market. Most property owners and sellers (especially first timers) don’t have the sufficient knowledge and experience in the real estate business that ensures a successful sale. Moreover, some are not good at negotiations or don’t possess the knowledge and skills to smoothly and successfully close the transaction, which means they could be taken advantage of. Some real estate agents don’t even deal with for sale by owner sellers as they prefer working with another professional agent. If you’re not knowledgeable about the real estate market, don’t do for sale by owner!
In addition, first-time for sale by owner sellers don’t know how to correctly conduct a real estate market analysis that helps in pricing the investment property. Some just assume that because an investment property was recently sold for $200,000, then this is also their home’s worth. This is not necessarily accurate. When selling an investment property as for sale by owner, conducting a real estate analysis is a must. However, conducting a real estate market analysis is not an easy process for those with insufficient knowledge or experience in the real estate business. You don’t want to overprice the property (which leads to getting fewer offers), and it’s obviously not to your advantage to underprice it.
For Sale by Owner Disadvantage #3: Limited Marketing
Another disadvantage of being a for sale by owner seller is that, unlike real estate agents, most property owners have limited contacts. As a result, marketing can be very challenging. Having limited contacts means you won’t be able to expose the investment property to a large number of people and attract as many potential buyers as possible. In addition, marketing and advertising can be very expensive. Listing your property on FSBO.com or Zillow.com with some pictures doesn’t necessarily result in getting good offers.
On the other hand, real estate agents have access to the best marketing technologies that are not available to average real estate investors or property owners, such as the Multiple Listing Service (MLS for short). Only licensed real estate agents have access to and can list investment properties for sale on MLS. Buyers’ agents search the MLS for potential investment property to show their clients. For sale by owner sellers only have a few options to attract potential buyers, and, as a result, will miss out on showings. This single real estate tool can foster interest in the investment property, result in more showings, and lead to a faster sale. Unfortunately, it’s not available to for sale by owner sellers.
For Sale by Owner Disadvantage #4: Time-Consuming
Based on all the responsibilities of real estate agents which we’re previously mentioned, you can clearly tell that the traditional process of selling investment properties is time-consuming. For sale by owner takes much more time and effort! Simply putting up a for sale by owner sign is not nearly enough to get the property sold. Real estate investors need to check and inspect the investment property for anything that might need repair, prepare and stage the property, market and advertise it, handle all the paperwork and showings, and not to mention spend the time to learn how to conduct a market analysis and familiarize themselves with all legal and financial issues. For sale by owner sellers must be prepared from start to finish!
For Sale by Owner Disadvantage #5: Attachment to the Property
Finally, the for sale by owner process can be emotionally difficult for real estate investors who are attached to their homes and could have a hard time letting them go. This is, in fact, a reason why property owners overprice their investment properties when selling them as FSBO, as for them their homes are obviously very valuable. Moreover, it might be awkward for you to show your home to a potential buyer (who essentially is a stranger). Some property owners even change their minds at the sudden realization that they’re going to lose their home with all the memories it holds! For this reason, working with a real estate agent guarantees a successful real estate transaction.
Thus, before you sell your investment property as for sale by owner, consider the following questions: for sale by owner
- Can you handle all required documents and paperwork?
- Will you be available for showings whenever a potential buyer is?
- Can you negotiate with potential buyers and smoothly close the transaction?
- Do you have enough knowledge and skill to conduct a real estate market analysis?
- Do you have contacts or marketing strategies that will attract potential buyers?
- Are you prepared to spend the time and effort needed for the success of this process?
- Are you able to make reasonable investment decisions regarding your home?
The Bottom Line
Real estate agents are very helpful in a real estate transaction as selling a property is a complex process, and it can be overwhelming for property owners following the for sale by owner approach. FSBO will definitely allow you to save more, but you can lose the offers and potential buyers that a real estate agent will guarantee. In addition, real estate investors learn more about the real estate business by working with a real estate agent.
Don’t be discouraged by these disadvantages if you’re still interested in selling your property as for sale by owner. All you need to do is to go into the process well informed, do your market analysis, and prepare for the pitfalls.