FSBOPrimer.com: Selling

Getting your property noticed is only part of the battle. This chapter explains how to handle questions, calls, visits, and offers.

Open houses

When I sold my Sacramento rental several years ago, I held open houses every Saturday and Sunday from 1 - 4 pm. I got much more traffic on Sundays. In Northern California, at least, there seems to be an unspoken rule that open houses are on Sunday afternoons.

There are several good reasons for FSBO sellers to host regular open houses:

It gives your house lots of exposure while it's nicely staged. During my open houses, I would bake cookies, light a roaring fire, and place bouquets of flowers throughout the house.
There's a chance that some agents will steer their clients away from FSBO homes. Since buyers usually tour open houses on Sundays without their agents, you'll get a shot at these buyers.
Often buyers will come who haven't yet begun working with a real estate agent. That gives you an opportunity to explain to them how they could save some money (and better afford your house) by making an offer through a discount broker or lawyer instead of a traditional agent. (Or you could hand them a copy of my pdf-formatted flyer, How to Buy a FSBO Property.)

FSBO sellers sometimes complain about neighbors and "lookie-loos" who come to open houses, but I love it when they come. I believe that if prospective buyers see a house full of people, they might worry about a rival offer and submit theirs more quickly.

Before holding an open house, make sure your home is safe and child-proof and that any small, valuable items are securely locked away. After the open house, check all the windows to make sure that none of the visitors unlocked one.
Provide a sign-in sheet so that visitors can give your their names and phone numbers. This will let you contact them to announce any price reductions. Many visitors won't want to give you their names, though. Don't press the issue.

Make sure you've hidden all your prescription drugs before you show your house. Thieves often look for these.

Staging your home

Here are some tips for making your home more appealing during an open house or personal showing:

Turn on all the lights, even in the middle of the day.
Open the curtain and shades to let sunshine in.
Light a fire in the fireplace (unless it’s very warm).
Play soft music.
Get kids and pets out of the house.
Put out fresh flowers or potted plants.
Bake cookies in the oven and share them with visitors.
Put down toilet seats and lids and put plush, colorful towels in the bathrooms.
Make sure the temperature of the house is comfortable.

Don't show your home to buyers--let them discover it on their own.

Handling phone calls

When I sell a house FSBO, I like to give out my cell phone number so that buyers and buyers' agents can reach me even when I'm out. If you use your home phone, be sure to change the answering machine message so that callers know they've reached the right number and that their call is welcome.

Buyers' agents

Real estate agents usually call before they show your home, but they sometimes don't give much advance notice. Indeed, it's common to receive calls from agents who are parked in front of the house with their clients. That doesn't leave a lot of time to pick up the dirty laundry.

Buyers' agents will sometimes call if they spot your house while driving clients around. They'll ask if you're "cooperating," which is code for "Will you pay me a commission if I find you a buyer?" If you are cooperating, be sensitive to the fact that the agent will want to know the commission rate but may not want to ask about it in front of clients. My standard answer to these calls is, "Yes, I am cooperating, and the commission is 3%."

After the showing, I make a note of the agent's name and phone number. Later in the day, you might want to make a follow-up call to thank the agent for showing the house and to see if the buyer had any questions.

Prospective buyers

When prospective buyers call, they often don't have many questions beyond, "Are you the one selling the house?" I usually ask them if they'd like to hear my standard sales spiel. If they agree, I say something like this:

"Well, it was built in 1948 and it's got three bedrooms and one bathroom. It's on a corner lot and has a recently remodeled kitchen. It's biggest asset is its location. It's surrounded by more expensive homes and about half a mile from some of the most expensive homes in the city. It's also close to a park and biking distance to downtown."

I then invite them to ask questions and urge them to visit:

"I'd be happy to arrange a personal tour or, if you want, you can come to an open house this Sunday from one to four."

I also give the internet address of the home, if I have a web page devoted to it.

Listing agents

In the past, selling FSBO meant getting an avalanche of phone calls from listing agents prospecting for clients. Fortunately, the Do-Not-Call Registry has put a stop to a lot of that, since agents can be fined if they call registered numbers to solicit listings. If you wish to file a complaint, make a note of the phone number where you received the call, the date of the call, and the name and number of the caller.

The Do-Not-Call Registry rules don't, of course, cover calls from buyers' agents. You want to receive those calls. Unfortunately, listing agents sometimes try to get around the Do-Not-Call rules by posing as buyers' agents.

The Do-Not-Call Registry rules won't prevent listing agents from visiting you at your open houses. If you don't want to be bothered by any listing agents, try putting "No listing agents, please" in your ads.

If you're approached by a listing agent, you may hear one or more of the following lines. (Some were taken from a listing agent sales script available on eBay.)

"Your price is much too low."

Listing agents may use this trick (called “buying a listing”) to rattle you into signing a listing contract with them. If you fall for it, the agent will typically raise the price, allow the home to languish on the market for a month or so, then urge you to bring the price back down. You lose in two ways: you’re stuck with an unethical agent, and you waste precious time by having your home on the market at an unrealistic price.

"I'll advertise your home for free."

Be careful--some agents offer free advertising in order to grab leads for their businesses. The giveaway is that they use THEIR contact information--not yours--on the ads. When buyers call, the agent may tell the buyers about other properties, or offer to show them your property in order to capture the buyer’s agent’s commission. Either way, you lose.

"No real estate agent will show this home if it’s a FSBO."

Agents sometimes use this line to convert FSBOs into listings, but if you want to see what they really think, go to Craigslist.org and type “FSBO” as a search term. You’ll find that lots of FSBO sellers are licensed real estate agents selling their own homes. (State laws often require owner/agents to disclose that fact in their ads).

The truth is that buyers’ agents are happy to show FSBO homes if they’re priced competitively and if the buyer’s agent’s commission is at least 2.5%. For one thing, it’s a violation of the Realtor Code of Ethics and many state laws for agents to steer buyers away from any listing. For another, agents--even unethical lawbreaking ones--have a strong incentive to show FSBO properties to their clients. If an agent refused to show a FSBO home, the buyers could find it on their own and contact the sellers directly. If they made an offer, the agent would likely get cut out of the deal completely.

"Let me pre-qualify buyers for you!"

Mortgage brokers will sometimes offer to do this, but don't let them. First of all, pre-qualification requires buyers to reveal their wealth and income. No shrewd buyer would want to reveal that information to someone the seller picked out. Second, mortgage brokers often hold real estate licenses. What’s to prevent the broker from intercepting the buyer in order to capture the buyer’s agent’s commission? Third, pre-qualification won’t protect you from unqualified buyers, since it’s based on what the buyer says, not on any documentation. Finally, if the broker is giving you a kickback of any kind (e.g., free signs), both you and the broker may be violating federal law. The Real Estate Settlement Procedures Act (RESPA) “prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan.”

If you're worried that a buyer can't afford your house, it's reasonable to ask him or her to append a pre-approval letter to any offer. You won't want to go to the trouble of drafting a counteroffer or putting your house into escrow, only to find out the buyer can't afford the house. Refer buyers to the Mortgage Professor for advice on how to shop for a loan and get pre-approval. For more information, see this article in Realty Times.

"We can protect you from criminals."

You always run the risk of theft when strangers some into your home, but you’re probably better able than an agent to size up visitors and protect yourself from them.

"I have errors and omissions insurance in case there's a mistake in the paperwork."

“Errors and omissions” insurance protects agents from litigation in the event that the paperwork wasn’t handled properly, and listing agents often tout this insurance as a reason to hire them to help with the paperwork.

Don't fall for it. E & O insurance is generally designed to protect the agent, not the seller. If an agent is sued by a buyer, the agent’s insurance company often responds by suing the seller. Indeed, a former litigation counsel for a Fortune 500 real estate brokerage once told me that sellers are usually better off if the agent doesn’t have E & O insurance.

The best way to protect yourself from litigation is to be open and honest about any problems with your property, and to have an experienced broker or attorney review all your documents before you submit them.

"I have a buyer. Sign this contact and I'll show him the house."

Some agents will ask that you sign a standard exclusive listing contract as a condition for showing your house. Don't do it.
Instead, consider signing a Single Party Listing Agreement, which allows the agent to receive a buyer's agent's commission after showing the house to a single, specified buyer (assuming the buyer makes a successful offer). Before signing a Single Party Listing Agreement, make sure the agent agrees to provide you with the buyer's name within 24 hours. Be prepared to haggle over the the commission. I think 3% is fair.

	Don't ever take agents up on their offers to host your open houses for you. By "showing" the house to open house visitors, an agent can establish a claim to a commission if a visitor later makes an offer. It's best to give buyers the option of making their offers directly to you or through a discount brokerage.
	Listing agents will occasionally pepper you with obscure questions about real estate law, then shake their heads gravely if you don't know the answers. The idea is to convince you that you're in over your head. But you can hire a discount broker or real estate lawyer to handle the paperwork for a fraction of what a listing agent would charge.

After a week or so, the phone calls and visits will taper off, though one or two agents will probably continue to call regularly. When I had my Sacramento house on the market, one agent called regularly to offer advice, and – without my asking – did a CMA, brought signs over for me to borrow, and so forth. Had I decided to list with an agent, I certainly would have gone with him because he’d been so helpful.

Don’t call listing agents too often for advice or help. Many are willing to offer free help in hopes that FSBO sellers will sign with them if they decide to go with an agent. But it's not fair to ask for help if you have no intention of ever signing with them.

Scheduling appointments

Here are some tips for scheduling personal appointments:

Don't reveal when the house will be vacant--there's a remote chance the caller could be a burglar. If you can't make a 2 o'clock appointment because you're at work all day, just say that 2 o'clock doesn't work for you.
Don't take off work or break off important social engagements to show a house. Buyers often don't show up.
Try to schedule the appointment during the day. Homes often look gloomier at night.
Try to schedule two or more showings during the same time slot.

How to handle awkward questions from prospective buyers

I've taught college-level economics for most of my adult life, and I often have to resist the urge to provide lengthy answers to all questions. But while you should always be truthful and freely disclose any problems with the house, there are some questions you shouldn't answer:

"By how much will you come down on the price?"

Don't ever say anything that will reveal how much you're willing to come down. When buyers ask this, I laugh engagingly and say we haven't made up our minds yet. I then say that we'll consider all reasonable offers.

"Why are you selling?"

It's okay to answer this but don't reveal how eager you are to sell or bring up problems with the house. Don't say, "I got a job back east that starts in a week." Say, "We plan to move back east." Don't say, "We've made an offer on this house that we absolutely ADORE but we have to sell this one first." Say, "We plan to move into a larger house in the area." Don't say, "We can't stand our neighbors." Say, "We hope to move into a house that's better suited to our needs."

"Will you call me if you get an offer from someone else?"

Here's how I'd respond: "If you plan to make an offer within the next few days, I'd be happy to let you know if another one comes in. Otherwise, no."

Handling the question this way encourages the prospective buyer to take action and make an offer soon, or risk losing the house to someone else.

Note that this is what you should SAY, not what you should DO. If you get another offer, you should call all prospective buyers with the news, and invite them to make their own offers.

"Have you had any offers yet?"

I usually answer this question, but I avoid giving too much information. Good answers might be "Yes, but the buyer wasn't able to get a loan." or "Yes, but the deal fell through." or "Not yet, but we've had some serious nibbles." or "No, but we're expecting one in a few days." Use these answers, of course, only if they're true.

"May I ask what your other offer was?"

I'd just laugh and say, "I don't think I'm supposed to answer that one."

	People may knock on your door without an appointment. Think through in advance how to handle them. It's perfectly reasonable to ask them to return later for a personal tour. You can prevent many of these surprise visits by putting a "Shown by appointment" rider on your sign.
	Don't say anything to buyers that would reveal how much you're willing to come down.

Providing information packets

If buyers seem interested in the house, I offer them them information packets to take home. Each packet contains the following:

The property's flyer.
A copy of a standard form Offer to Purchase Real Property contract (you can purchase these for about $20 at Nupplegal.com.
An appraisal of the property, if it's higher than the asking price.
A parcel map and/or floor plan.
A fact sheet giving monthly averages of utility bills (if you live in an area with high bills).
A paper with additional color photos of the property.
A fact sheet with additional information about the property.
A C.L.U.E. report on the house (if you live in an area subject to fire or floods or hurricanes or tornados or earthquakes).

I keep some packets at the bottom of the stack that also include this:

My paper, "How to Buy a FSBO Property." (Click here to download it in pdf format.) The paper tells buyers how they can save money (and perhaps offer more for your house!) by asking for a buyer rebate from their agent or by making an offer through a real estate lawyer.

I give these special packets to buyers who haven't yet begun working with an agent. They're somewhat expensive to produce, but I've found that buyers will refuse them unless they're seriously interested in the property.

Dealing with offers

I'm almost always disappointed in the offers I receive. Buyers never seem to understand how wonderful my homes are.

Unfortunately, soul-crushing disappointment is often part of the selling process. But you need to shake it off when you get an offer, and be as rational and realistic as you can. If you can stay cool, you may be able to coax a larger offer out of the buyer.

Some tips:

You usually have three days to respond to an offer.
Unless the market is very slow, most buyers will expect you to make a counteroffer at a higher price.
If there are other people who have expressed an interest in your home, call them right away and say you've received an offer (though don't tell them the amount of the offer). Invite them to make their own offers.
The offer should include a deposit large enough to cover either the mortgage payments or the rental value of the property for a month. In California, at least, a check for the deposit is normally made out to a title insurance or escrow company and held by the buyer's broker until the offer is accepted. At that point, the check is handed over to the title insurance or escrow company. If the buyer defaults on the contract, you get the deposit.
Offers usually come with contingencies, which allow the buyer to get out of the contract under certain circumstances. Buyers usually want to be able to walk if (a) they can't get a big enough loan; (b) there are unforeseen problems with the house that the seller refuses to fix; and (c) the seller doesn't have clear title to the property. (Click here to read more.)
Some buyers want to make the deal contingent upon the sale of the buyer's house. This isn't much of a problem if the buyer's house is already in escrow. If your buyer hasn't yet received an offer, accepting such a contingency can by risky. If you accept such an offer, consider adding a kick-out clause to your counteroffer.

Buyers sometimes set up the contracts so they can easily wiggle out of them if better deals come along.

Example #1: In her offer, Betty Buyer made the deal contingent on her getting a loan at a 5% interest rate. Steve Seller agreed. Two weeks later, Betty Buyer declared that she wasn’t able to get such a loan, and she walked away from the deal with her deposit. By specifying such a low interest rate, Betty deliberately created a contingency that was sure to fail—giving her an “escape clause.”

Example #2: Bob Buyer made a low initial deposit of $1,000 on a $500,000 home, and agreed to increase the deposit by $9,000 two days later. Sally Seller agreed. On the day before escrow closed, Bob backed out of the deal. His penalty? Just the initial $1,000 deposit. Sally hadn’t noticed that she’d agreed to a standard clause in the contract specifying that only the initial deposit would serve as liquidated damages in case the buyer defaulted.

Make sure the buyer isn't asking for an excessive amount of time to get a loan. If the deal isn't going to work out, you want to be released as soon as possible.
Don't agree to transfer possession of the property until 5 pm on the day escrow closes. If the deed is recorded before then, you can alwyas send them a note allowing them to take possession early.
If it's not possible or convenient for you to transfer possession at close of escrow, ask the buyer if you can rent the house for awhile.
You'll sometimes get verbal offers. If a bid is very low (say 15% or more below your estimate of the market value), tell the buyer you're not interested. If the verbal offer is within 15% of the market value, tell the buyer that you will only consider offers that are made in writing. Urge the buyer to have a discount broker or lawyer draft the offer. Don't haggle verbally over the price. Doing so tips your hand without gaining you anything.
Unless you expect to get multiple offers, I would counter any serious one. I would judge an offer to be serious if it's at least 85% of your estimate of the market value of the property (higher in a hot market) and if the buyer has made a reasonable deposit (say, 1% of the offer price), and if the contingencies are acceptable to you. If you have doubts about whether the buyer can afford to pay for the house, you might ask that he or she append a pre-approval letter to the offer before you'll consider it.
In order for a seller to get financing, the sales price must be in line with the appraised value of the property. So even if the buyer is in love with the property, the deal might not go through unless the appraised value is close to the sales price.
If you've agreed to an offer, you may want to accept backup offers in case the deal falls through.
If you get multiple offers, set a date and time and ask each buyer to submit his/her "best and final offer" by that deadline. Set the deadline for two days away if the home has been on the market for awhile, longer if it's new on the market.
The highest offer isn't always the best. If you're getting competitive offers, think about whether each buyer will be able to close the deal.

Should you get help with the paperwork?

Selling FSBO doesn’t mean you have to handle the paperwork yourself. When you get an offer from a buyer, you can representation from a lawyer or discount broker for a small fraction of what you’d pay a traditional agent.

I recommend that you do so. A good broker or lawyer will help you negotiate your contract, prepare all disclosures, coordinate inspections and appraisals, and maintain a timetable to help ensure everything gets done on time. He or she can also troubleshoot problems and “make deals happen.”

Many FSBO sellers mistakenly believe that their escrow officer will handle all the paperwork, but that's not quite true. Their role is simply to follow the parties’ escrow instructions and prepare the documents necessary to close escrow. They have no obligations with respect to the disclosures that need to be made in order to comply with state law and avoid future litigation. It’s not their responsibility to catch your mistakes or offer advice.

Mistakes sellers make in seller's markets

Next topic: Closing