Common Pitfalls to Avoid When Selling For Sale By Owner

Common Pitfalls to Avoid When
Selling For Sale By Owner (FSBO)!

by Brian Bagnall

For Sale By Owner – FSBO for Short

Property Disclosures
Check your state law about property disclosures. Some states require them and some states don’t. A property disclosure deals with the condition of the property or facts about its location, including:

  • The age of the house and its components
  • Whether problems exist with any components

• Whether you (or a neighbor) have built something (fence, shed, road, pool) that extends past property boundaries

  • If the house is in a flood zone
  • If the house is on an earthquake fault
  • Changes in zoning or potential changes in zoning

• Other issues important to your specific location that might affect the value

Lead Paint Disclosures
Federal law requires that you disclose that the house could contain lead based paint if your house was built prior to 1978. The law also requires that you give buyers details about past tests conducted for lead paints. Buyers must also be offered the opportunity to do their own lead paint testing. You must also provide your buyers with a lead paint pamphlet.

Your transaction is only as strong as your contracts. Sometimes the buyer will provide the contracts but sometimes the seller will be expected to. Wherever you get your contracts from, you should always have them reviewed by an attorney to make sure that they are state specific and that they cover all issues that are important for your location. Don’t cut corners here. Neglecting to get advice from an attorney or other knowledgeable person will cost you money, not save it. For most people, selling a house is the most expensive thing you will ever sell. You would hate to have it fall apart or even worse to get involved in a civil or criminal legal battle because you used weak contracts.

Fair Housing Laws
The Fair Housing Act prohibits discrimination on the basis of race, color, religion, sex, disability, familial status, and national origin.

Showing the House
It doesn’t take a rocket scientist to walk people around your house and point out the good points.

Pre-Qualified or Pre-Approved?
Typically, real estate agents verify a buyer’s financial status before he shows them property. When you sell by owner you’ll deal with many people, including those are qualified to buy your house and those who couldn’t but a 99 cent pack of gum on credit.

People who know they cannot buy sometimes think that for sale by owner houses offer a better opportunity because they’re hoping to find a seller that is desperate in some way. They are usually hoping for a seller who will finance the transaction.

Ask these questions to get a feel for the level of seriousness:
1. Have you been pre-approved or pre-qualified by a lender for an amount in this range?
2. Can you provide proof?
3. Can you buy a house now, or do you have to sell your current home first?

It’s a good idea to have anyone that puts in a purchase offer submit a letter or pre-approval (or pre-qualification). If your buyer can’t purchase until he sells his house, you’ll have to decide whether or not you want to wait for that to happen. If you do decide to wait until the buyer sells his house, be sure to insert a kick out clause in your contract with the buyer.

Earnest Money (Buyer’s Deposit)
A purchase contract is not valid without some type of consideration and this is usually offered in terms of a deposit. This deposit is also called earnest money. Your contract should address what happens to the earnest money if the deal falls through:
* Under what conditions would the buyer get it back? (unable to secure financing, unfavorable inspection, etc.)
* Under what conditions would you expect to keep it? (buyer backs out without cause)

Please remember that the earnest money does not belong to you until the house is actually sold or the buyer defaults. The earnest money will be credited to the buyer’s funds at closing. Usually earnest money is held in an escrow account. In some cases, the funds might need to be held in an interest-bearing account. Check your local real estate law to be sure you are in compliance.

Pricing Your House
This is probably the most important thing to deal with when it comes to selling your house…pricing. If you price it too low, you could end up losing money. If you price it too high, you could end up sitting on the house for a long time and having a negative stigmata associated with the property. Having a negative stigmata attached to a property because of a high starting price some time ago will even prevent the property from being sold when the property is priced reasonably.

Remember…you shouldn’t determine price on personal factors or the money that you may have put into the house recently and expect to get back. The only important fact to look at is what buyers and willing to pay for the property at that time.

Protect Yourself
Take pricing research seriously The financial loss often exceeds the extra mortgage payments paid and goes beyond the uncompensated hassle factor of trying to keep a home spotless during showings. Don’t let it happen to you.

A Picture is Worth a 1000 Words
Make sure that the pictures that are advertising your property are good ones. Bad pictures (on FSBO websites, brochures, flyers around the neighborhood) could be preventing people from even making the visit to see how great your house really is. If at all possible, avoid using pictures of the outside of the house that were taken in the winter.

It’s Hard to Sell a Dirty House
This is so important. Buyers don’t expect your house to be spotless, but it should look presentable. Buyers understand that you actually live in your house so there is some leeway. Try and keep the kitchens and bathrooms in better shape than the rest of the house. Kitchens and bathrooms sell a house. Keep clutter off of the floors and open the drapes and let the light in.

Curb Appeal is the Pits
Potential buyers like to do drive by a property before making an appointment to see it. It’s understandable that the inside of the house isn’t always in tip top condition (when buyers aren’t walking through of course) but you always need to keep the outside looking great. Make sure that the yard is manicured, the windows are clean, and the flower beds and gardens are in order.

If the curb appeal of a house in horrible, most buyers won’t even make an appointment to go inside. Make your curb appeal all it can be before your first potential buyer has a chance to view it.

Outdated, Worn Out Components
Buyers are picky. Plain and simple…and whether we like it or not, we need to try our best to deal with it and make them happy. You may see things like outdated appliances, an out-dated kitchen, and an ugly bathroom as practical and efficient. A new buyer might see it differently. Try and look at things from a prospective buyer’s view. How can you make improvements? Ask buyers for feedback about your property. Do something about the criticisms that keep coming up and do something about them even if you don’t agree with the criticism. Also keep cost recovery in mind as well. You don’t want to be ripping out the carpet or tearing out a bathroom if the money isn’t going to come back to you at closing.

Make sure actually let people know that your house is for sale! Put a prominent sign in the front yard. Make sure that it can be seen when driving from both directions on the street. Put out directional signs at busy intersections surrounding your house to direct potential buyers to your house. These signs can be obtained at your local hardware store.

Have the Information
You would be surprised how much people just don’t know about their property. Make sure you know answers to common buyer questions, as well as the not-so-common questions. Know when the things were replaced like the roof, refrigerator, furnace, air condition, etc. Know how much the taxes are per year and have recent utility bills ready for inspection. Provide potential buyers with all of the tools that they will need to purchase your house instead of the one next door.