For Sale by Owner - an Opportunity?

by : Steve Gillman

With "FSBO" real estate, or property for sale by owner, do you need to take advantage of the seller to get a good deal? Absolutely not. It is true that many who sell their own homes end up selling for less than they would have gotten through a broker. It is true that they often net even less than they would have after paying a sale's commission. But this doesn't mean that someone took advantage of the seller.

Seller's often think that they can save the commission and walk away with more money if they sell on their own. Some of then certainly do net more money going the FSBO route. More often, though, a seller spends hundreds if not thousands advertising, misses out on most of the market (those looking in the MLS listings), gets only bargain hunters to look at the house, and then doesn't know how to negotiate. The result? Lots of expenses and trouble and a low sale's price.

The supposed savings from not paying a commission disappear. This isn't the fault of the home buyer or investor who picks up the home cheap. The mistake was made by the seller, the moment he put up the sign in the yard that said "for sale by owner."

FSBO Investing

Of course this IS an opportunity for an investor. After months of trying to sell a home, and realizing that even if he lists the home with a broker he can never get back the time and money spent, the seller may be happy to sell the home for less. His goal, previously to net more money on the sale, may now be just to get the property sold as soon as possible. Your goal is to help him in a way that helps you.

Before getting into how to find these desperate sellers, I should mention that there is one other kind of FSBO real estate that can be very profitable for an investor. This is property that is priced too low. Once you have a firm grasp of prices in your area, scan the ads in the newspaper classified daily, and watch for these under-priced properties as they come onto the market.

This deals won't be common, but it takes little extra time to watch for them. And don't worry about taking advantage of anyone. It isn't your obligation to educate a seller on pricing, and he may have his own reasons for pricing a property low (like needing to move fast).

Now, back to the desperate FSBO sellers. Look for ads in old newspapers, which you can find in most public libraries, or look through old classified ads online. Often a seller gives up advertising (at least for a while), but the property is still for sale. If you call on two-month-old ad and a house is still for sale, you can bet that this is a seller more willing to negotiate.

Suppose, for example, that you call on a house for sale by owner, from an old ad. The seller sounds motivated, so you go to look at the house. The asking price is $136,000, down from $140,000 but you estimate that the market value is closer to $141,000. Your plan is to buy the home cheap and then sell it on a lease-option contract to get a higher price, somewhere around $150,000.

You listen carefully to the seller and ask questions to get more information. You discover that he has already moved, and the house is costing him $1,200 per month to hang onto. He has been trying to sell it for seven months, and he is tired of the process. When you ask what he's planning to do if the house doesn't sell (always ask this), he admits that he is ready to list it with a real estate broker.

After you get the whole story, you tell him up front that you are an investor, and so you have to buy at a price that makes sense to you. You agree that the home is worth the $136,000 he is asking. You take out pen and paper and write this down. You mention that a 6% real estate commission on that price would be about $8,100 - and you write that down. You suggest that an agent might take two or three months to sell it, during which time he'll still have the costs of holding onto the property. You write down, "holding costs for two-and-a-half months: $3,000.

"So if you get a full price offer," you tell him, "You'll really only get about $125,000." He knows that it will be even worse if no full-price offers come in. You suggest that he can save the months of trouble and worry and sell it to you for $125,000 this week. He likes the idea of being done with it all, and agrees. Investing in real estate that is for sale by owner can be profitable - and without taking advantage of anyone.