Saturday, April 17, 2010

Caveat FSBO Emptor: Buyer Beware

While researching for sale by owner (FSBO) properties on a popular FSBO Web site, I got curious about one of the listings with a "sold" sign on it.

$184,500 Estimated Savings: $8,302
?? Ferris Creek
San Antonio, TX 78254

At first, I thought, "did the seller really save that much?"
—so I decided to do a comparative market analysis (CMA) on the property. While doing the CMA, I discovered that the property was listed in the MLS at $184,500, but had sold for only $174,250! "Aha," I thought as I proceeded with my investigation, "that's $10,250 below list price, and a 6% commission would only have come to $10,455 on the sales price."

The question of whether the list price was reasonably within the value remained though.
The results of the CMA revealed nothing about the house justified its price. The interior features of the property were not remarkable when compared to other two story homes on the market, and it was no more lavishly landscaped than the comparable properties. In fact, two of the comparable properties had features worth from $3,000 to $5,000 more that the FSBO.
  • 16 Sweetwood—Slate & Hardwood on first floor & carpeting in Bedrooms * Ceramic tile in kitchen and Breakfast room * Study/office through French doors off entry has high ceilings and built-ins * H20 softner [sic]* This home sits on a well landscaped lot with a deck overlooking the treed backyard
  • 24 Canterview—Large deck in the back with Sunsetter awning, . . . soft water system, . . . central vacum [sic] system
Every indication was that it should bring no more than $168,571, which would have been based on an average of the sales prices for the comparable properties—but it was a below average property! Assuming that the minimum $3,000 added value in the comparables was a fair discount from the average value, the property appears to have been worth only $165,571. I had just proven that my original hypothesis was wrong!

After calculating that they had saved
$5227.5 on commissions, paid for the "$629 MLS + for 6 months" to the FSBO site, and received $5,679 more than the house was worth, it's fair to say that they saved $10,277.50 by selling their own home—but the buyer got had!

If I had represented the buyer, we would have set a target sales price of $163,513 with the expectation that we may have to go as high as the average value.

There's really no way to know whether the buyers may have received any seller contribution to their closing costs, but it's a very common practice today. It's unlikely though that the seller would have accepted
$10,250 less than the list price and contributed to the buyers' costs. That would mean that the buyers paid $10,737 more than the house was worth. If the buyers had an agent, it may be that the buyers wanted the house badly enough to pay so much more for it than it was worth. On the other hand, the agent may not have been up to the challenge, or the buyers may not have had an agent.

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