Five Things You Need To Know When Listing Your Home For Sale Without A Realtor
LONG ISLAND, NY / June 25, 2021 / You’re thinking of selling your home For-Sale-By-Owner? Great! When it comes to selling the largest financial asset you own; for some people the idea that they can do it themselves seems to pop into their minds. Maybe it’s because the market is hot and you think it might be easy, besides it doesn’t look like the REALTOR is doing much. They just open the door, walk the people around and talk about the home and then say “No, your offer has to be higher” or “there are multiple offers on the table.” Simple enough, right?
Well to the untrained eye, it might not seem like much is going on. And if you’re comfortable taking the risk of doing a good job with the biggest financial asset that you own then here are five important facts you need to know when listing your home for sale.
1. Be prepared to vet the buyer
Okay you found a buyer; now what happens? You might be living in a state where the REALTORS are the ones who draft the contract first or you might live in a state where your lawyer will handle the contract first. If you’re thinking you can just call your lawyer and let them handle the rest, you’re in for a surprise. Your lawyer is an important person to have in your corner but your lawyer doesn’t know anything about your buyer. They do not screen and qualify the buyer. They don’t have any conversations with the buyer; and if you wanted them to have a conversation with the buyer you’re going to pay them $450 an hour. Besides since it’s not something they do on a regular basis, don’t expect them to know exactly what to ask and look for. A good seasoned agent would not just rely on the simple pre-approval letter the buyer brought with them.
Very often buyers who have what they think is a pre-approval but turns out to be a meaningless piece of paper. The most important part of a pre-approval process is when the loan officer who issues the pre-approval checks to see the buyer’s credit score and full credit history, verifies their current employment, and checks for ATR (Ability To Repay.) REALTORS usually ask the Loan Officer a series of questions to determine the eligibility of the buyer before accepting an offer.
Now you as the homeowner need to call the loan officer and ask them what is the buyer’s debt to income ratio? (You should research DTR.) Has the buyer’s credit report been reviewed? Has the buyer’s employment been verified? What kind of assets does the buyer have? And keep in mind that the loan officer is working in favor of that buyer, not in favor of you. They want to get the loan approved and they don’t particularly care for what amount. So that loan officer might just want to tell you what you want to hear so a deal can go through and then they can put their buyer into the underwriting process and keep their fingers crossed.
If the buyer doesn’t get approved for the amount you’re looking for then you either have to start all over or accept a lower amount to not waste time or lose the buyer (keep in mind you pay your attorney by the hour.)
A realtor would also ask questions to get a look into any future thoughts the buyer might have during this process of purchasing the home. For example if they plan to purchase a car or lease a new vehicle while they’re under contract on your property, they might disqualify themselves from the mortgage. Or if your buyer has to sell their home before they can purchase your home now you have to hope that they get an offer that is not only well qualified but in an amount enough that they can close your deal.
Also the condition of the buyer’s property could determine the speed at which it sells. These are just some examples of hurdles you can end up facing while you are selling your home to this person. You as the homeowner need to look for as many potential issues that could pop up before signing a contract.
2. Know everything you can / can’t do in the transaction
Setting up contract terms seems like a simple enough process but do you know what you can and cannot do in a real estate transaction? Let’s say the buyer asks you for a concession, for those of you who don’t know what a concession is, it’s when you yield or grant money to the buyer to help them close the deal. For example giving them $10,000 out of their mortgage to pay their closing costs. Well it’s important to know that there’s a limit to how much of a concession you can give (which is 3-6% in most cases) and how the concession is going to affect the appraisal in the loan qualification process.
Before you give the buyer any concession you should research comparable closed sales in your area and determine if the sales price the buyer is offering you is going to appraise for the full amount needed with the concession combined; this is something that a realtor would do. Then when structuring the contract a realtor would likely put in some sort of contingencies to protect you as the homeowner which you might not know you can do. Some examples of these are: the realtor might negotiate the removal of an appraisal clause, or perhaps get a guaranteed “out of pocket” amount to cover the seller in event of a lower appraisal. There are plenty more options that can be done.
If your buyer came with their own realtor then you are now going to start negotiating directly with a trained professional who has performed a transaction of this type already multiple times in their life and has much more experience with what can and cannot be done. Make sure you do as much research as possible before going on market or trying to negotiate directly with a license professional.
3. Be wary of the home inspection
This might be one of the scariest parts of the process because that home inspector is going to walk through your property and start pointing out everything that needs to be fixed or checked out to that buyer. A realtor would prepare a seller before home inspection by walking through the property and pointing out issues that are likely to come up before going on Market. Anything the inspector finds is going to be used by the buyer as a reason to lower their price. And even if you say to yourself “well I’ll just go to the next buyer,” that next buyer is going to have a home inspection as well.
A realtor who has a lot of experience knows what common requests come up from buyers in the past and they can guide you and protect your interests. A buyer who came with their own realtor is going to be in the advantage because that Realtor is going to be able to argue a ton of repairs that might seem reasonable to you as the homeowner but another experienced realtor would know whether or not the market would still accept the property in its current condition.
You might want to do some research about what buyers are looking for in the homes in your Market. If you do no repairs you might lose everyone, including your backup offers. If you do too many repairs you lose money on the sale. You have to find the balance and you might end up losing a few buyers in the beginning and perhaps taking a lower offer than you expected in learning that balancing act.
4. The appraisal is the make or break point.
When the buyer is getting their mortgage the bank is going to send an appraiser to take a look at your property. That appraiser is going to tell the bank the maximum value they can lend for the property which is going to determine how big of a loan your buyer can get.
When a realtor knows the appraiser is coming, the realtor will look for comparables and pull data off the MLS to give the appraiser and argue the value of the property in your favor. You as the homeowner have to learn how to find comparables and study the market like an appraiser will.
Make sure you research the year properties were built, compare the school districts of locations, conditions of the property, livable square footage of all comparable properties and lot size of all comparable properties. If you collect all this data you have to submit it to the appraiser and explain why these houses are comparable to yours. The appraisal process can kill your deal if it’s not handled correctly so it’s very important if you’re going to sell your house for-sale-by-owner that you come prepared.
5. No one in the buyer’s team is on your side
Probably the most important fact to keep in mind in this process is the fact that everyone the buyer came with is not working in your favor. The buyer’s realtor, home inspector, loan officer, title company, and attorney are all doing what they think is best for the person who hired them. Now you are the homeowner and since you don’t have a professional in your corner, you’re relying on your own knowledge or maybe your attorney’s knowledge to defend against any financial losses. You have to understand something as well about your attorney, they are going to make an agreement written in a contract and then move on to the next client. They are not going to walk through your property and problem solve for you.
The attorney is not going to be there at the buyer’s home inspection and calm the buyer down about issues that can come up in a report that really are not cause for concern. When a first time home buyer is reading their home inspection report and the inspector marks things with red flags they might be marking important information for that buyer but that buyer might not know that some of those important red flags can be fixed with 25 or $30 of repairs. All the buyer sees is a book of problems when they read that report and a realtor would help them absorb the information and be a resource to them.
Your attorney is not going to call your loan officer and try to qualify the buyer over the phone because it’s not their job and they wouldn’t even know how unless they were a loan officer themselves or a realtor at one point.
A lot of the stuff is going to fall on you and if you think saving commission is worth all of this risk then you have to come into this negotiation prepared. It’s also a statistical fact that Realtors sell houses higher than “for sale by owners” every single time so they tend to pay for themselves when providing their services.
When the buyer sees a property listed with the realtor they expect to pay full market value or even above market value because the realtor is a trained professional. When a buyer sees a for-sale-by-owner sign on the lawn, they immediately think of a money saving opportunity. When someone tries to sell the home for-sale-by-owner, the buyer’s agent especially knows that they are going to have the upper hand in this negotiation simply because of the fact that they have more knowledge and experience on the subject, and have more tools to their disposal.
When you hire a realtor you’re not paying for someone to walk people through the property and say “give me more money.” You are paying for someone to solve problems and anticipate problems before they even happen. You are paying for knowledge and experience, and if you see a realtor sell a property fast and it looks easy you have to remember that’s only because they have years of experience and can handle a transaction much faster and more efficiently than anyone who has never done this before.
Think about the first time you drove a car; did you slam the door and put the pedal to the floor and start weaving between lanes right away? You had to get comfortable before you started to get confident with what you were doing. Think about the first time you’ve gone swimming; did you jump in the water and just know what to do? Someone had to teach you.
Think about the first time you wrote a bicycle or try to read a book. Every time you try to do something for the first time you always make mistakes, it’s part of the learning process. So if this is going to be the first time you sell your own home or even just the second time you sell your own home you have to be prepared for the fact that you can suffer big financial losses because this transaction is not a small one.
Why hire a realtor instead?
When you hire a realtor you are hiring a person for the certainty of the outcome. If you hired someone already and they failed at the goal of getting your home sold then that was the wrong person to hire and it’s okay. Find another one.
It’s illogical to think every realtor is going to do a bad job because one realtor did a bad job. That same logic would say every restaurant in town is going to screw up your dinner order because you went out to dinner one time and that place you went to screwed up your dinner order.
If you decide to take on this task yourself you need to come prepared, if it looks like it’s too much to do then find the right professional to get the job done.