The For Sale By Owner (FSBO) concept is just what it sounds like; the owner represents themselves in the real estate transaction. In the Santa Rosa / Windsor area the FSBO approach is much more practical in a seller's market than it is in a buyer’s market. In a typical Seller’s market, there is a shortage of homes for sale. In these conditions there are plenty of Buyers and therefore Sellers have a lot less competition for a suitable Buyer. In a buyers market, the opposite is true. Today in the Santa Rosa / Windsor area we have a strong Buyer’s Market and in this type of market, you need every advantage you can find to position your house above the competition. And there is a lot of competition.
The first problem that most FSBO (For Sale By Owner) properties in the Santa Rosa area face is how to price their home. Over-priced or under-priced properties are the hall-mark of the For Sale By Owner property. For information on ways to avoid this read my article on “How to price your home for sale in Santa Rosa”.
The second important aspect of a real estate transaction in Santa Rosa or Windsor which most For Sale By Owners fail to take into account is the very high probability that their potential buyer already has a real estate agent. According to the National Association of Realtors© (NAR) research, 93% of all open-market transactions involved a real estate agent. It is the FSBO failure to try and work this buyer-agent reality into their selling plan that causes so many FSBO transactions to either sell below market price, or to not sell at all.
One reason For Sale By Owner properties in the Santa Rosa area tend to get a lower price is because many real estate agents don’t like FSBO properties. The obvious reason is when the For Sale By Owner does not offer a commission to the real estate agent. Agents don’t like to work for free.
But even when the For Sale By Owner DOES offer a commission, many agents still avoid them. This is because the buyer’s-agent knows that there will be far more problems and issues with a FSBO than the same property offered through a Seller’s listing agent. They know they will have to work much harder on a FSBO property and there is a much higher chance of a failed escrow. Many of the craziest stories I have heard about real estate transactions “gone bad” involve FSBOs. One reason for this high rate of problems is because a good listing agent would have been the seller’s expert, helping the seller understand the transaction, the deadlines, the inevitable problems and how to solve them.
Without this expert helping the seller, the buyer-agent will have to try and do much of the required education and hand-holding for the seller. Even when the buyer’s agent actually tries to help the FSBO seller, their advice is usually met with denial. This is often because the FSBO simply does not trust the agent; after all, the buyer-agent works for the “other side”. Many agents in the Santa Rosa area feel this leads to a higher rate of failed escrows than homes sold through the use of a Seller’s listing agent.
This “working for the other side” viewpoint is particularly evident if an unhappy Seller later files a lawsuit. If the Seller thinks the transaction on their home wasn’t fair or wasn’t done right, they can’t sue their OWN agent (they don’t have one), so the buyer-agent takes the hit. All this extra effort and time costs the agent money and effectively doubles the agent’s risk. Most importantly, the additional problems and increased time inherent with these FSBOs are also counter-productive to the Buyer’s best interests; buying a home at a fair price without a lot of drama. All this boils down to a simple fact; If a comparable property is listed down the street through the use of a real estate agent, for a similar price, the buyer-agent will almost always start with the listed property. I think many For Sale By Owners have gone unsold while they watched their neighbor get a sale only to wonder how they did it.
Because real estate agents in the Santa Rosa area may avoid For Sale By Owner (FSBO) properties, FSBOs tend to get much lower traffic than listed properties. While a Seller only needs one buyer, the truth of real estate sales is that to get this one buyer, you must expose your home to many, many POTENTIAL buyers. This means you must get a large volume of buyer-traffic through your house. In addition to offering an incentive for the buyer-agents to bring their clients, a For Sale By Owner will also have to find a way to off-set the lost traffic as a result of agents who do not bring their clients to their property. In a strong Seller’s market this is less critical, but in a Buyers market, this is a huge problem.
For Sale By Owners not only have to find a way to include the buyer’s agent in their plans, but you also have to understand the typical buyer’s view of a FSBO. From my conversations with hundreds of buyers over the years, the following paragraphs recount the most common buyer-perspectives on FSBOs that I have heard.
One of the reasons that For Sale By Owners in the Santa Rosa area get less for their home is because many buyers believe that they can be much more aggressive in their negotiations with a FSBO. They feel this way because they know the owner of the property is not paying a real estate commission. They look at For Sale By Owners as sort of a “wholesale” seller. They think their costs are lower than other sellers, so the pricing should be too. They therefore determine the correct price to offer, and then they subtract the agent’s commission. They do this because their logic tells them the Seller would only get this same amount if they DID have an agent. The result in this situation is that the seller of the property often agrees to sell the house for market rate minus a real estate commission. For many Sellers, by the time they eventually get to this point, they rationalize that even if they DO sell their home for this “market-minus-agent” price, their in-pocket amount isn’t any worse than if they had used an agent. The HUGE difference, of course, is that they had to do all the work an agent would have done for them.
As I mentioned above, FSBO (For Sale By Owner) properties are unattractive to real estate agents and therefore many agents do not bring their Buyers to the FSBO property. Therefore, the majority of potential buyers that actually visit the FSBO property are also people without a real estate agent. These are not your typical buyers. The most common reason that a buyer may decide to look at real estate without an agent is because they think they can save money. These are people cut from the same cloth as the person trying to sell without an agent; both are looking for the absolute best deal possible and are willing to negotiate very hard to get it.
For this reason, FSBOs are exposed to a much higher percentage of tough bargain-shoppers and they do not see a true cross-section of the buying public. The FSBO doesn’t know that there are buyers who think their price is just fine, because they often do not see those buyers. They don’ see these buyers because the agent did not bring them to the property. This skewed-perspective on the market is often the basis for a decision to sell the home for less than they would if they had received interested feedback from a true cross-section of buyers.
One of the problems Santa Rosa For Sale By Owners face in trying to get additional buyer-traffic through their homes is; How will they provide access to the home? Most buyers expect their real estate agent to be available and show them a home on a schedule that works for the buyer. Because every buyer has a different schedule, good real estate agents are pretty much available all day, every day to show homes to their clients. Most sellers, on the other hand, probably have other things going on in their life, and CAN’T be available to show their home all day every day. If you require potential buyers to visit the home only at certain days and certain hours, you significantly decrease the amount of buyer-traffic you will get.
FSBOs must be sure to determine a way that they CAN provide access to interested (and legitimate) buyers at the Buyer’s convenience. This access problem is compounded for FSBOs by not having a method to “pre-qualify” a potential buyer for them. Most real estate agents won’t waste time taking a buyer to visit houses if the Buyer is not seriously looking to buy a home. For this reason they always prequalify a potential buyer-client BEFORE they drive them around to see houses. For Sale By Owner (FSBO) sellers don’t have this pre-qualification process and often waste considerable time allowing people to tour their home that are not even thinking about buying. Often these are neighbors that are just curious, or bored, or whatever.
The old adage about real estate used to be; “Location, location, location”. Location is still very accurate, but these days, I hear “Disclosure, disclosure, disclosure” at least as often. Nobody wants the person to whom they sold their house, coming back at them years later with a lawsuit over some undisclosed or improperly disclosed issue with the property. Proper disclosures in Santa Rosa real estate are the first step in keeping that from happening.
The California Association of Realtors (CAR) publishes over 50 different disclosure documents, and these just cover the most common disclosures. The first issue is even knowing what disclosures are required by California law. Many people in Santa Rosa or Windsor may not be aware that legally required disclosures even exist for their real estate transaction and the consequences of not providing them. The second issue occurs from failing to disclose KNOWN issues about the house. This is more than just a question of honesty because required disclosures can extend to things that the homeowner didn't know about, however a properly diligent homeowner should have known about.
This failure to fully disclose seems to be much higher in the FSBO category. I think this occurs, in part, because of the owner’s emotional attachment to the property, combined with a lack of an impartial third party (the real estate agent) participating in and encouraging proper disclosure. If there's one dramatic impact the California laws have created on the real estate profession, it is a heightened sensitivity and awareness for proper disclosure.
Personally, I think that the complexities of California law and California disclosure requirements are part of problem as well. There certainly are licensed real estate agents in the Santa Rosa area that don’t understand many of the disclosures. If trained professionals don’t understand them, how can the Government expect the average person to do so? I honestly think it is a system out of control. Another problem I see with this is that because you have to “disclose” things that the vast majority of people should already know, you end up dumping a mountain of “disclosures” on the Buyer. Because the Buyers is buried under this landslide of paperwork, they sometimes have a hard time finding the few really important pieces of information that they truly NEED to know. I think the only people that win are the lawyers.
If you don’t feel comfortable working your way through the disclosure jungle, hire a lawyer or real estate agent to help with this, but DO NOT make the decision to “stick your head in the sand” and fail to comply. That works fine for ostriches, but unless you lay really big eggs, you probably need to disclose.