Friday, April 2, 2010

A FSBO Shopper's Guide

If you are a determined do-it-yourselfer, you may think you can find that special bargain by shopping the FSBO dot coms, or driving around looking for a FSBO. You need to know that over 2 in 3 FSBOs price their homes over market value, some by as much as 20%—or more—in the San Antonio market. Some examples are:
  • A 1448 sf 3/2/2 in a bedroom community NE of San Antonio—$144,900.
    —Its value according to a CMA is $112,217, about 29% above market value.
    —Its value to a FSBO shopper is likely no more than $108,850.

  • A 1870 sf 3/2/2 in a bedroom community NE of San Antonio—$179,900.
    —Its value according to a CMA is $158,208, about 13.7% above market value.
    —Its value to a FSBO shopper is likely no more than $153,461.

  • A 3317 sf 5/4/2 in a subdivision NW of San Antonio—$339,000.
    —Its value according to a CMA is $297,670, about 13.9% above market value.
    —Its value to a FSBO shopper is likely no more than $288,739.
Real estate professionals often take listings for sellers who want to price their homes above what the market will bear. The advantage to those who are savvy enough to retain a buyer's agent is that they will not likely pay the inflated price for it. Some do-it-yourselfer who drives around calling on signs may, and professionals love getting both sides of a transaction—while serving their seller client. This rarely happens though.

Some sellers price their homes too high because they owe more than its value in today's market. Many FSBOs simply do not know their property's value—or as much as you are about to learn about property values. All of them want to net a larger bottom line by eliminating the agency commission.

Do not believe for one second that any of them want to save you any cost that you and they may mistakenly believe to be associated with agency commissions. A property's value has nothing to do with agency commissions—unless you are buying a FSBO.

To understand this, consider the definition of value: Value is the price agreed upon by a willing seller and a willing buyer. Whether I list a property at 6% or 8% commission, I cannot sell it for more than its value on the market.

When you are shopping FSBOs, you first need to decide on why you are doing so. If you think you can save the cost of the agency commission, you will likely also have to allow the buyer to net a bottom line that is equal to half the commission more than they believe they would have netted through an agency. A good agent could likely help you do much better with either a FSBO or an agency listed property, but you can make your best deal with a FSBO by doing the following:
  • Determine the property values in the FSBO's neighborhood—
  1. Go to, and find other properties in the same neighborhood—not the zip code, the neighborhood. Zip codes can encompass several neighborhoods with widely differing property values.
  2. Divide the list price by the square footage for each. Make sure that each property you use has the same features (fireplace, swimming pool, tile or wood floors, the percentage of brick in the exterior etc.).
  3. Discard those properties that are obviously priced too high—they will likely not sell at all—and average out the price per square foot for the rest.
  4. By multiplying the average price per square foot by the square feet in the FSBO, you will have arrived at an average list price—not its value. It's value will likely be as much as 2% to 3% below list price.
  • Determine the property's value as a FSBO—
  1. Find out how much agencies charge in commissions in your area. In San Antonio, most agencies find that they can compete well by charging a 6% commission on sales. Commissions will range from flat fees charged to FSBOs for listing them in the MLS to 10% or more.
  2. To get your savings on the FSBO, while allowing the FSBO to net their savings, subtract the portion of the commission you want to save from the value you came to in the preceding step. This will be the value to you.
  3. If that value is 10% or more below what the FSBO is asking, you will likely not be able to negotiate a price you will find acceptable.
  • Make your offer & get ready to negotiate—
  1. When you make your offer, you will likely have to subtract another 3% to 5% from the value you came to in the preceding step to get your price. Don't be surprised if your offer is rejected outright—especially if your offer is more than 10% below the asking price.
  2. If your offer is rejected outright, don't waste your time.
  3. If the FSBO's makes a counter offer that does not come down to the value you determined, make that value your final offer with an explanation of how you arrived at the value.
  4. Negotiation is not a matter of wearing a seller down. Your options at this point will be to move on to the next FSBO, or to accept the FSBO's final offer.
Good luck—but don't leave it to luck. There is much more to buying a home than finding a bargain. Read this story about how important it is to have an agent (the right agent) represent you.

See the Buyer Info page of my Web site for more information about buying a home.

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