Friday, April 14, 2006

FSBO (For Sale By Owner) Pointers


So, you’re going to sell your home in the For Sale By Owner arena. First… remember, whether you’re going enlist the services of a
Semi-Assistance Real Estate Company such as “Buy Owner” or “Help U Sell” or “Seller 4 Less” or any number of alternate FLAT FEE companies, to get your home advertised in the local MLS computer or you’re going to handle all of the promotional efforts yourself, you may well be a For Sale By Owner (FSBO) Seller.

So… where do you go next? What’s the next step?

SECURITY AND SAFETY

The first and most important part of your project will be establishing a “Safety Net” around you, your family and your home. You don’t know anything about the folks who will barge into your home, announced or unannounced, invited or uninvited. You don’t know if the stranger who has called you to view your home is an honest buyer or a person with nefarious and ulterior motives. You don’t know if the stranger has arrived on site to case your home for a potential heist as part of a gang of individuals who target unwary FSBOs, or if the stranger is truly in search of a new house they too can call home. You only have you and your wits to try and glean the factual intents of your prospect.

Here are some tips that could be helpful… And remember… your best defense is a strong offense.

  1. Every time you agree to allow someone to come into your home, let your family and/or friends or neighbors know what time you will have a stranger in your home.
  1. Let your family and friends know when you intend to have your home open for showing to the public.
  1. Let your local police department know that you will be offering your home open to the public for an Open House and give them the date and time.
  1. Establish a safety plan. Here is an example:
    1. Never let yourself get cornered in your home when showing your home to a visiting stranger.
    2. Never let any stranger into your home if you are home alone, particularly if the stranger is accompanied by one or more strangers.
    3. If you have small children, you may want to prearrange with a neighbor to babysit your children while you are showing the stranger your home.
    4. Never let the stranger leave his/her car running in front of your home or in your drive way.
    5. Stay out of small rooms like bathrooms, pantries or the garage while the stranger previews your home.
    6. Always keep your body between the stranger and an exit door.
    7. Always keep your cell phone or a cordless phone in your hand.
    8. Never lead the way, always follow the stranger.
    9. Establish and share a Secret Code Word or Phrase with your family or friends. Here is an example of how that might be used. For our example we’ll use Red Crock Pot as our Secret Code Word. Let’s assume that you feel uncomfortable with the stranger that is in your house. When you began the process of becoming a FSBO you told your family or friends that you will call and give them the Secret Code Word/Phrase if you feel you or your family or your home are in jeopardy. Here’s the way our scenario might play out.

    10. i. While touring your home with the stranger, say something like this, “Oh my goodness. I just remembered I have a pot luck that I’m part of tonight. I need to get a crock pot from my sister. Would you excuse my phone call… just for a moment?

      ii. Call your family member or friend and say something like this, “Hi Jane… do your remember that RED CROCK POT that you have under the cabinet? Would you mind bringing it over? (or… “would you mind if I borrow it tonight”)

      iii. Your sister knows this is the Secret Code Phrase, RED CROCK POT, and she might say, “Do you need it now?” Of course if you need her to come right now, you would say, “Yes, Please”

      iv. Or… if your answer is No… she might follow up the Q&A with, “Do you feel you’re in danger?”

      v. Your response will alert the person you have called about the nature of your showing and of your concern about that particular stranger in your home.

      vi. Play these scenarios out with your family and friends/neighbors. Preparing your family for visits from strangers does not have to be a traumatic experience. Simply use a little common sense, keep alert and you should be fine.

    1. Put all of your valuables out of sight. If you have weapons, be sure to have them locked or out of sight and/or reach by anyone but you.
    2. Put your medications in a safe and locked area. Over the counter or prescription drugs can be a temptation to even the most earnest buyer prospect.
    3. If the stranger calls to arrange a viewing of your home, ask the stranger to fax or eMail you a copy of his/her Loan Approval Letter and the name and phone number to his lender. It might even be wise to not allow anyone into your home who cannot produce this simple information and document. The better Realtors® in the industry do not take anyone into a home unless the Realtor® has confirmed the buyer’s ability to secure financing. Do you think you should do the same?
    4. These are only a few suggestions… but they should get you started on the right foot. Remember… it does you no good to be a FSBO seller if you also are the biggest and brightest target on the shooting range.

MARKETING YOUR HOME

This is perhaps the second most challenging aspect of the real estate industry. Market places change in a pretty predictable pattern, although not in too predictable of a time line. The real estate industry is cyclical. By that we mean that the ebb and flow of the buyer vs. seller tug-of-war swings back and forth like the pendulum of a Cuckoo Clock. At one point in time there may be more buyers than there are properties to buy and at another time there may be more properties for sale than there are buyers to buy them. The real estate market also has its calm seas where there are a good mix of buyers and sellers at any one given time.

The Arizona real estate market has cooled quite a bit since about July/August 2005. For about 30 months preceding the July/August 2005 slowdown, homes sold in mere weeks; then in only days and then from about July/August 2004 through July/August homes sold within minutes of being posted to the MLS system. Anybody who had a beating pulse could call themselves “Real Estate Marketing Professionals”. It took no talent, no skill, no luck and no real estate experience at all to find a buyer for a home. Any monkey on a chain could do that. That is no longer the case.

Today’s real estate market is facing many forces that are working against sellers. In the $250,000 to $600,000 price range builders, who… in our opinion… are one of the major reasons we have seen such a dramatic shift in market trends, are offering incredible buyer incentives. For example, Richmond American Homes in Surprise has offered discounts off the list price of their SPEC homes of up to $80,000 and offered to pay as much as an ADDITIONAL $11,000 of the buyer’s closing costs. Continental Homes/DR Horton in Goodyear has offered discounts ranging from $35,000 and more and also has included an ADDITIONAL incentive of $10,000 toward the buyer’s closing costs on their SPEC home inventory. Centex Homes in Goodyear has offered $30,000 and more in the way of builder discount incentives to buyers who want to have a home built. All of the builders in the Marley Park subdivision, just to the north and west of Luke Air Force base are offering unheard of discounts; Randall Martin Homes is offering $30,000 to $40,000 off of certain SPEC homes and Element Homes is offering anwyere from $80,000 to $100,000 discounts and more off of their SPEC Homes This kind of competition is difficult to compete with, thus requires a very intense marketing strategy.

The Investor Buyers who purchased their properties between December 2003 and July/August 2006 are beginning to dump these properties back on the market. This is having a profound impact on the market place inventory. To demonstrate this; in July/August 2006 the total inventory of homes, priced between $100,000 and $10,000,000, listed in the Arizona Regional Multiple Listing (ARMLS) system hovered right around 7,000 to 7,500 residential resale properties. In just over 300 days, that number has grown to just over 45,000 residential resale properties. Each day between 600 and 800 more homes are introduced into the ARMLS system. That does not even take into account those homes that are launched into the FSBO market without MLS exposure.

The Buyer pool has all but evaporated. The hundreds of buyers who stood in endless lines at new construction sites in hopes of having their names drawn from a hat for one of the few lots released each week have disappeared. Where did they all go? Could they simply have been priced right out of home ownership? The rest of the buyers who tried to make purchases of residential resale homes, competing against other buyers or investor purchasers are also gone. Could they too have met with the same fate as the prospective new home buyer? The buyers who use to drive around looking for open houses to attend are also missing. Open houses are not producing the traffic they did years or even months ago. The National Association of Realtors’ statistics sites that over 70% of all buyers are heading to the Internet before they ever venture out of their homes, in search of their next or first home. Of that 70%, it is estimated that over 95% of them will enlist the services of a Real Estate Professional Buyer’s Agent to help them through the process. They are all too aware that they are not prepared to examine or interpret the reams of paper containing disclosures and other documentation that will be part of their transaction.

So, where do today’s buyers for today’s inventory come from? What’s a FSBO to do? Here are a few tip:

  1. First and foremost… don’t toss out the old stand by staple of a good attractive For Sale Sign in your yard.
  2. For the diehard buyers who are still driving the streets, looking for a new home, be sure to have flyers of your property in your Information Box that is hung on your For Sale Sign. But… you may not want to publish your asking price. There are two reasons for adopting this strategy. The first centers on security and the second on negotiating strategy.
    1. SECURITY: It is not necessarily the most practical policy to publish your family’s monetary worth.
    2. NEGOTIATING STRATEGY: Keep them guessing. Keeping your price close to your chest, as if it were your “Hold Card” in a poker game, is a good idea. If you give them no reason to pick up the phone to call you for more information then… they won’t! Another tried and true posturing method for negotiating is to never be the first person to speak and always be quite after you have asked for the sale. Remember… the first person to open their mouth, is usually the one whose negotiating position is compromised.
  3. If you have hired a Semi-Assistance Real Estate Company, be sure they put your home in the MLS in the correct MLS Area and Grid; a Type-O during data entry could cost you thousands of dollars. Ask for a copy of the MLS datasheet so you can review it and request any necessary changes.
  4. Make certain that your home has maximum exposure on the Internet. The majority of today’s buyers are not produced from print ads, open houses or radio and TV ads, they are the product of Internet exposure.
  5. If you are going it alone, take advantage of the public FSBO web sites offered by all the major Internet search engines such as Google.com, Yahoo.com, AOL.com, MSN.com, Excite.com, AZCentral.com, RedZee.com, AltaVista.com and any number of other Internet ad space you can find. Check out ForSaleByOwner.com. This is one of the most popular FSBO tools on the market today.
  6. If you have hired a Semi-Assistance Real Estate Company insist that your home be published on Realtor.com but not simply published on Realtor.com but published with not less than 6 photos and with a Virtual Tour and… most importantly, published on Realtor.com’s Enhanced Listing Pages. Realtor.com statistics show that the first homes passed over by visitors to their site are those homes without any photos. Next on the Hit List are homes without multiple photos and next to be introduced to the DELETE KEY are homes without Virtual Tours. Properties that are displayed in the Realtor.com Enhanced Property Listing Pages are the FIRST homes to pop up in the Realtor.com search list. It does you absolutely no good to get your home published to Realtor.com if you’re at the bottom of the list.
  7. If you have hired a Semi-Assistance Real Estate Company, insist that your home is published on the real estate company’s corporate web site.
  8. If you have hired a Semi-Assistance Real Estate Company, insist that you be informed of any prospects who might call their office or the real estate agent so you can follow up on the call.
  9. Here’s a bit of pricing strategy. Many agents might suggest that you offer a bonus to the Buyer’s Agent if the Agent can get their Buyer to purchase your home. We find this logic a bit flawed. Remember… the Buyer hired the Buyer’s Agent to represent his/her best interest. Do you think it would be just a bit… self-serving… if the Buyer’s Agent began to bear down on the person he owes his allegiance and fiduciary to, to try to force the buyer to buy your home? Not to mention… do you have… even… just a little problem with the moral ethics or caliber of an Agent who might even entertain such a suggestion? Why not offer a cash incentive to the Buyer? Why not offer the Buyer some money toward his/her closing costs? All the builders are doing it! Obviously… you’re a little fish in a big pond and can, by no stretch of the imagination, offer tens of thousands of dollars in cash assistance, but… I gotta tell ya… $3,000 to $5,000 could go a long way when the buyer is ready to cast his/her swing vote between your home or a competing home.

Bottom line… Internet Marketing and Buyer Incentives will take you a long way in helping you find a buyer for your home.

WRITING THE CONTRACT AND WHAT IF THE BUYER BREACHES YOUR AGREEMENT?

You will need to have a Contract handy. It’s a good idea to have a few of them on hand. It is also a good idea to have a few pages of Addendum forms and Counter Offer forms. You can pick these up from your Title Company or you might be able to buy a few copies from your local Board of Realtors®. You will also need to pick up a form called Seller’s Property Disclosure Statement (SPDS for short). You will also need a few other forms: Loan Status Report (LSR), Loan Status Update (LSU), Cure Period and a Home Owner’s Association Disclosure Addendum and, depending on your price point a HUD Form called HUD-92564-CN, “For Your Protection: Get a Home Inspection and… again depending on the age of your home a Lead Based Paint Disclosure form.

Today’s real estate Contracts are pretty complex. The Arizona Association of Realtors re-wrote the Contract and released it for use in May of 2005. The old Contract was only 9 pages long. Even though today’s base Contract is 9 pages long, the boiler plate of the Contract is prefaced by a disclosure page entitled Disclosure Attachment as the very first page of the document set. Within the body of the Contract, the FINANCING portion of the Contract REQUIRES that the Buyer produce a Loan Status Report (LSR) with the offer, making the actual root Contract 11 pages long. If the home is located within an HOA community the Contract requires a Home Owner Association Addendum and Disclosure now making the Contract 12 pages long. Add to this the state statutory requirement of Seller’s Disclosure of Material Facts about their home by use of the 7 page AAR Seller’s Property Disclosure Statement (SPDS) and the 9 page Contract quickly grows to a staggering 19 pages. Page 5 of the Contract REQUIRES the seller to provide to the buyer a copy of the Arizona Department of Health Services approved private Pool Safety Notice. This is, at a minimum 2 pages and could be 3 pages, depending on where you acquire the document. Your Contract has now grown to 22 pages in total!

Any number of conditions or instances or additional required documents could increase the number of pages your Contract could grow to. Simply be aware of your state statutory required disclosures to the Buyer and follow the instructions in the Contract and your transaction should move along just fine.

The Contract does not allow an immediate cancellation of a Contract if one or the other party breaches their Contractual obligations. The Contract provides the party who failed to comply with his/her Contractual obligations an opportunity to correct the breach issue. When a party has failed to complete some portion of their Contractual promise, the non-breaching party MUST issue a Cure Notice. The Cure Notice allows the breaching party to revisit that task or obligation and give him/her 3 days to make the correction. If the correction can be accomplished and documented then there is no breach and the Contract continues in full force and affect. On the other hand, and depending on how the Cure Notice is worded, if the breaching party cannot make the required repairs to the failed Contractual obligation, the Contract could die. However… keep in mind… it is nearly impossible to retain the Buyer’s earnest money as damages to the Seller if the Buyer uses his/her inability to secure a loan as the escape portal from the Contract. Such posturing, by the Buyer is perfectly legal and available to the Buyer in the boiler plate language of the Contract.

FINANCING
CAN THE PROSPECT EVEN AFFORD MY HOME AND MORE IMPORTANTLY, IS HE/SHE APPROVED?

The Contract provides the Seller with a tremendous amount of clout in this area. First, the Contract makes the production of an LSR a Contractual obligation of the Buyer. That is, the Buyer must present that document to the Seller at the time he/she makes an offer on the property. Without an LSR the Seller has no information at all as to the Buyer’s ability to “make it to the finish line” I.E. close on the property and on time.

Even more exciting is the Seller’s control over the Buyer to force the Buyer to manage and be responsible for the Buyer’s lender’s competency or incompetence during the escrow period. In the boiler plate language of the Contract, the Buyer is instructed to instruct his/her lender that the Buyer’s Lender is to deliver the Buyer’s closing documents to the Title/Escrow Company not less than 3 days prior to the actual date of scheduled closing. If the Buyer’s lender fails to do so, the Buyer is placed directly in the line of fire and the Seller can, and should, serve a “3 Day Notice To Cure” this failure to perform upon the Buyer.

Just as important as the Buyer’s ability to close on the property is the Buyer’s Lender’s ability to perform. All too often, when the real estate market slows, the quality of lenders and loan officers also becomes a big problem. It is not unusual to encounter a Buyer who has engaged the services of a loan officer who has very little loan experience. When this happens, closings can be delayed or even worse, not occur at all. This is another reason the Arizona Association of Realtors developed the AAR LSR (Loan Status Report) form. This form requires that the Buyer’s Lender include not only his/her phone and fax numbers, but also their eMail address, snail mail address and most importantly, their Mortgage Broker Number. This information allows the Seller to research the Lender on the Arizona State Banking Commissioner’s web site. Here you can learn how long the Lender has been in business or if he/she has any pending complaints being processed by the Banking Commission or if his/her license has ever been suspended, revoked and/or any number of additional helpful bits of information that could give you an indication about the quality of the lender.

If you have a banking relationship with a favorite lender or loan officer that you trust, it is not uncommon for Sellers to insist that a prospective Buyer, even though the Buyer has produced an LSR from the Buyer’s Lender, qualify for their loan with a lender that the Seller has confidence in. This posturing is not a requirement upon the Buyer that the Buyer must use your lender… that would be a violation of the Real Estate Settlement and Procedures Act; this is simply one more tool you can use to assure yourself that the Buyer will be able to make it to the closing table on time and at no additional cost to you.

DABBLING IN THE REAL ESTATE BUSINESS

Here are some check lists that you might find use for:
  1. Contract Process Flow Chart
  2. List of systems and components in your home that MUST be maintained and repaired by the Seller
  3. Information about termites and what roll they might play in the successful closing of your transaction
  4. Questions to screen Buyers with
  5. Questions to screen Buyer’s Lender’s with
  6. Critical Date Check List that includes almost all of the types of conditions that would trigger a Cure Notice.

If you would like any of these helpful check lists for your For Sale By Owner efforts, please feel free to send an eMail to us at Lori.and.G-II@RealEstateInPhoenix.net. We’ll see that you receive a link to them right away.

FOOT NOTE:

On March 19, 2006, Linda Water Nelson of the Memphis Business Journal/MSNBC wrote:

National Association of Realtors statistics show that of those unrepresented Sellers who are successful in the sale of their property, 40% say they wouldn't do it again," she says. That's because do-it-yourselfers are unaware about the time commitment for showings, open houses and other events, or the cost of advertising.

Don't become a NAR (National Association of Realtors) Statistic

FSBO Methods Used to Market Home:

Yard Sign . . . 61%
Friends/neighbors . . . 46%
Newspaper ad . . . 37%
Open House . . . 29%
Internet . . . 17%

Most Difficult Tasks for FSBO Sellers:

Getting the right price . . . 14%
Understanding paperwork . . . 17%
Preparing/fixing up home for sale . . . 16%
Attracting potential buyers . . . 9%
Having enough time to devote to all aspects of the sale . . . 8%

Of course… it is never our intent to let you get dragged under a bus, so if at any time you feel like you have taken on an alligator with Lockjaw or a Lion by the tail, we would be happy to interview with you for the job of getting your home sold. To reach us, you can either eMail us at Lori.and.G-II@HomesInPhoenix.net or CLICK HERE to complete our CONFIDENTIAL Seller Information Form. YOUR PRIVACY is always our most sacred trust. Remember… any monkey on a chain can bring a Buyer to the front door; it takes a seasoned professional to bring qualified buyers to the door and to manage the transaction to and through the closing process!


If you think it’s expensive to hire a professional…

Wait till you pay for an amateur!

Bye for now… Lori & “G-II” ... til our next posting... Happy Easter to all!

1 comment:

HomePriceMaps.com said...

www.HomePriceMaps.com integrates how much homes SOLD for nationwide using the google mapping technology. Simply select city and state from the city menu and click search. If you don't see data for your area simply email HomePriceMaps@gmail.com with your zipcode and or address and they'll update the site with your info and email you within a few days.