November 14, 2017
How Does For Sale By Owner Work?
For the majority of Canadians, the first step towards selling your home is to contact a licensed real estate agent. The person will be your go-to through the process, someone who will guide you through the journey of selling your home and advocate on your behalf. But for about one-quarter of Canadians, a real estate agent is not their first call, and instead, they’ll opt to sell the home themselves, a technique called For-Sale-By-Owner (FSBO).
Going the FSBO (pronounced fizz-bow) route is not easy, and the homeowners that do it put up with the extra work in the name of saving on listing agent fees. Typically, when you sell your home, your real estate agent charges you a percentage of the sales price as a commission for their services. In Toronto, that percentage is around 2.5 per cent, which can add up in a city where the average home price in September was $775,546. In this example, a 2.5 per cent listing fee means selling your home will require you to pay $19,388 to your real estate agent.
Since the main motivation for selling a home yourself is to save money, this technique has developed a reputation for attracting emotional homeowners who overprice their homes, cover up defects and refuse to negotiate. That’s why if you are considering selling your home yourself, you should take the following key considerations into account – otherwise, you may find your home sitting on the market for a very long time.
How to Prepare Your FSBO
The first and most important job of a real estate agent is preparing your home for sale. For the agent, that means recommending important upgrades to improve your home’s appeal, such as fresh paint in a neutral pallet or yard work. Then the real work begins. Your agent will photograph your house from top to bottom using a specialized wide angle camera lens to capture more of each room in a single photo. Then each photo will be retouched and optimized to make the home seem as bright and inviting as possible. Finally, an agent will research recent home sales in your area and determine the correct listing price for your home – which may be more or less than you think it’s worth.
While technically you can do all of these tasks yourself, you won’t have the years of experience dealing with Toronto or Hamilton real estate listings that your real estate agent does, which means you’ll likely make some mistakes. For example, if you price the property too high, it could result in your home sitting on the market for much longer than it needs to.
A Smaller Buyer Pool
Selling your home yourself also means you won’t have access to the large buyer pool a traditional real estate agent does. Many buyer’s agents refuse to work with FSBO sellers because they are also compensated from the commission of your home’s sale. When you eliminate this incentive, you dramatically reduce the number of potential buyers.
To compensate for the smaller buyer pool, you’ll need to make a concerted effort to market your home. You’ll need to advertise on local listings, publicize open houses through social media, and let friends and family know you are looking to sell. When you have a real estate agent, all of these activities are handled for you, and you simply need to wait for the offers to come.
The Legal Ramifications
Finally, let’s not forget that buying real estate is a legal transaction – often the most expensive one you’ll make in your lifetime. The ramifications can be very real and expensive, which is why so many first-time homebuyers opt to use a real estate agent to show them the ropes.
If you are selling your home through a real estate agent, the offers, negotiating and contracts will all be standard documents handled by your agent. When you are on your own, you’ll need to find your own contracts and ensure you are following the letter of the law.
Brush up on provincial rules
Here’s where it can get dicey because every province has different requirements to execute a sale. You’ll need to do your research to determine what is required to sell a home in your province. For example, do you need a land survey or a Seller Property Information Statement?
In most cases, you can retain the services of a real estate lawyer to look over the contract, perform a title search and purchase title insurance on your behalf, and make sure all of your i’s are dotted and your t’s are cross. But problems and hiccups in the process will cause delays and cost money. When you use a real estate agent who is familiar with the regulations in your area, the process will just go smoother.
Overall, selling your home yourself might seem like a good way to save money, but in reality, it’s a time consuming and inconvenient route that – if the worst happens – could end up costing you thousands of dollars. If you’re very concerned about high real estate agent commissions, but you still want to use an agent, you could consider negotiating a lower commission, which has become more common in recent years. Negotiating your commission would help you save money while still taking advantage of the services of an experienced professional.