Homes for Sale By Owner in Colorado What You Should Know

A Realtor walks into a listing appointment on a home for sale by owner in Evergreen, CO at a price point of about $4,000,000 to $5,000,000. This is not the beginning of a bad real estate joke, it really happened recently. The Realtor thought he would discuss with the for sale by owner (FSBO) owner and see if he could help the seller out. You know do the job a real estate professional does all day everyday. So this luxury Realtor familiar with the area and his team mate go into the for sale by owner’s home. The Realtor has an advantage going into a FSBO because the home is already on the market for a certain price. The real estate agent already knows what the seller believes their home is worth. Sometimes this is good but sometimes bad. In this certain story this was bad for the agent.

For Sale By Owner and Pricing a Home for Sale

The home was absolutely beautiful. Just amazing. Only problem was the seller has it listed for $1,000,000 more than any home in that neighborhood has sold for in the last 24 months. The comparables the real estate agent has found do not support the value of this luxury home. It is in a beautiful neighborhood with amazing views but still the real estate agent that works in the luxury market can still not justify this as the most expensive home to hit the market in the area in the last 2 years especially by a 25% more value. While speaking to the for sale by owner people he gathered information on how the custom home was built and how the sellers came up with the magical number. He expecting them to say “well we know the neighbors home sold for X amount we we calculated the price per square foot and came up with our number”. That is a very fast, easy but not accurate way to find an approximate value. The real estate agent was also waiting to hear “well the Zillow Zestimate was X amount so we used that”. What the agent heard was an even less accurate method than either of those two. The for sale by owner seller said “well the empty lot next door sold for X amount, a good rule of thumb is 80/20, if the lot sold for X we just used the two numbers and came up with a price”. The real estate agent was left pretty speechless. Knowing this is a formula investors use for costing new builds to see if it is financially sound to invest in the land and with the final build price. This is not how you value pre-existing homes. This formula is not at all a way to find value in a home. There is a reason why a bank uses an appraiser and not this type of calculation. A seller needs to find comps! There is no other way to find value in a home. The market does not care what you want or what you need to get out of your sale. The market certainly doesn’t compare your existing home to the empty lot next door and value it that way (unless you were selling it as a scrape).

The real estate agent changed the subject off that one because how does a Realtor explain to someone that their way of pricing their luxury home was about as accurate as asking the mailman what he thought it was worth?

Paying the Buyer Agent When You List For Sale By Owner

The next topic was the willingness to pay a buyer co-op. Meaning if another Realtor brought them a buyer that was willing to $1,000,000 over what the home was valued, how much of that cash would the seller pay to the agent? The seller simply replied “I’m not paying the buyer’s agent, the buyer can pay for his own agent”. This brought up an interesting fact that the agent thought most people would know. There is a little box on the buyer agency contract. This box says something to the affect “if seller does not pay commission, buyer will pay”. In 8 years of writing buyer agency contracts this agent has never, ever checked that box or ever even thought about it. This agent has never heard of any agent checking that box. The agent even called around to his broker friends and asked if any of them ever checked that box. None of them have. It is not often that a buyer pays the commission. Technically the buyer always pays the commission because it comes out of the money that he brings to purchase but the FSBO seller basically stated this money would not come out of the purchase price even at a full price offer.

The way it works is let’s say a home sold for $1,000,000. The seller gets a full price offer. Not including closing costs and such, to keep it simple, if the total commission for both agents in 6%, 3% goes to buyer agent and 3% goes to seller agent. This for sale by owner thinks that the buyer should pay $1 mil plus $30k for a total of $1,030,000 for the home. That is simply not how the real world of real estate works.

For Sale By Owner with Luxury Homes

This is why people thinking about selling their home for sale by owner in Evergreen or Denver should really think twice. If it is a luxury home that it takes a professional real estate agent an average of 200 days in this market to sell your luxury home then you should really think twice. If a seller prices their home without even looking at existing home sales comps, you should contact a luxury real estate agent. If a FSBO is unwilling to pay a buyer co-op, and almost all buyers have representation because they know it doesn’t cost anything, you should talk to a professional real estate broker. If a seller knew that on the average a for sale by owner home sells $190,000 and a home sold by a real estate broker sells for $240,000 then they would most likely not sell their home without a real estate agent.

Safety Issues with For Sale By Owner

One more issue regarding FSBO, how does a seller vet the buyer? Is this person coming to look at your $5,000,000 home just coming to case the place? Are they even qualified? Are they just wasting your time? If you are only bringing in people that don’t have a broker because most brokers aren’t going to show your home if they aren’t going to get paid, and most buyers aren’t going to want to pay their broker to buy your home since there are other homes out there that aren’t as difficult to by as that FSBO.

For Sale By Owner and Contract Issues

There are also many problems that might arise during the buying and selling process with the contracts and legality of multiple issues. These issues are things that a seller would never know as far as disclosures, LBP, wells, septic and about a hundred other things that could arise that they do not know how to address since it is not their job to know. Everyone thinks selling a home is the same as selling a bicycle and it is not. You could end up costing yourself a lot more money in the long run by leaving yourself open to a lawsuit or damages just because you didn’t understand the contracts.

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