In the DIY era, FSBO Ain’t the Way to Go…
In the DIY era, FSBO Ain’t the Way to Go…
By: Michael Michetti, Esq.
In the height of season and a fast moving real estate market, sellers inevitably start thinking about trying to complete a “For Sale By Owner” (FSBO) They think…“Why should I pay a commission, I can sell this house myself?” Most homeowners believe their home is special and, therefore, easy to sell. Well, not so fast. This article shows there are numerous hidden pitfalls associated with the For Sale By Owner.
While the statistics vary depending on the source, the undeniable fact is that a small percentage of FSBO transactions close successfully. Some of the reasons are obvious: Buyers are less likely to learn about a FSBO property because it is not in the MLS and similarly realtors are less likely to show their clients a FSBO property for the same reason. Additionally, realtors worry they now have to negotiate the payment of commissions with FSBO sellers (who also tend to be more difficult to work with), and often steer their buyers away from FSBO properties. Additionally, FSBO sellers don’t have training and experience staging properties, showing properties, dealing with buyers, and pricing their homes, which they tend to overvalue. And these are the simple problems…
What about legal issues that arise during the FSBO transaction? Selling property involves the transfer of real estate in exchange for relatively large sums of money. The procedure is fraught with legal issues. Many FSBO sellers don’t even hire an experienced real estate attorney to steer a transaction through the legal obstacle course that is the residential purchase and sale from pre-contract through closing. Rather they rely on less expensive, less experienced and less “contract-aware” title companies to close to try to avoid these pitfalls. Let’s discuss a few…
Disclosure requirements vary by state and Florida does not require a seller to provide a disclosure form to prospective buyers. That said, Sellers are obligated to disclose known defects that materially affect the value of the property being sold. Listing agents are subject to this same requirement. FSBO sellers are less apt to disclose such defects for two reasons. One, they are not aware of the law (which has been emphasized to the licensed realtor over and over again) and, two, they don’t have the realtor, and many times legal counsel, advising them of this requirement.
Similarly, Florida law requires certain disclosures be made by a seller relative to condominium/homeowners association documents and assessments. For example, by statute which cannot be waived, buyers of a condominium unit have a three day rescission period from the date they receive the complete set of condominium documents. FSBO sellers are not only often unaware of this statute, but also often fail to provide a complete set of the documents to the buyer as part of negotiating the sales agreement. Imagine their shock when they receive a termination and release of deposit directive from the buyer’s closing attorney the day before closing based on the failure to provide the 1 page condominium governance form. A technicality? Sure, but also a valid loophole by which a buyer would obtain the return of its deposit when no other valid contingency might apply.
Utilizing and negotiating the purchase agreement becomes another issue with FSBO sellers. Most (and I stress most) FSBO sellers know better than to sign away the sale of their home on the clubhouse cocktail napkin. However, what next? Presuming they can get their hands in a realtor form contract, which one should they use? NABOR, FR/BAR and FAR all release different versions of their purchase agreements that can be found on the internet, but how does a FSBO seller know which form (as is, standard inspection, finance contingency, etc) is best for them if they don’t have a listing agent explaining the terms of that form to them. For example, would the average FSBO seller know the finance contingency in the FR/BAR contract protects a seller better than then NABOR finance contingency?
The inspection process tends to be the most common cause of failed real estate closings. The contracts all have different inspection procedures. Some, like the NABOR Standard D2 process, have a very specific set of time frames, processes and forms. Others like the FR/BAR as is have a strict deadline to be followed. For the FSBO seller, the problem remains the same. They have no realtor to guide them through the process and facilitate communication to the other realtor/buyer. They may miss a deadline or respond in a manner that opens up termination rights for the buyer. Most often we see FSBO sellers signing termination and release deposit directives because the selling agent said their buyer is terminating within the inspection period. Not realizing it is a standard inspection process and not an “as is” contract, the FSBO seller releases the deposit despite the fact they may have had other rights under the contract.
Many times the FSBO seller leaves it to the buying side to drive the ship. They have no listing agent to refer them to a closing attorney so they “piggy back” off the buyer’s selection. Often this can lead to the being easily manipulated to the buyer’s advantage. Listing agents tend to be a great referral source providing additional protection for the seller. On that note, scams happen. FSBO sellers are more susceptible to scams and fraud then those with listing agents. They do not have the wherewithal to screen potential buyers and a lack of knowledge about the process can result on the loss of money. There are numerous stories of wealthy “buyers” posing as important people to gain the trust of the FSBO seller and obtain access to the property, the personal information or the money of that seller.
Bottom line: listing agents, are lines of defense for the seller. A line of defense against lousy marketing, inefficiency, legal pitfalls and, of course, the advantageous and sometimes fraudulent buyer. Realtors are sellers’ allies, and sellers need to be made aware of this. Sellers should view their home sale from 20,000 feet not 2 feet and see the benefits of a listing agent and experienced real estate attorney.
WWMR attorney Michael Michetti is the founder of the firm’s real estate department and serves as General Counsel to B.E.R.