June 3rd, 2011 12:24 PM by AllenBrothers Realtors
In a typical FSBO transaction, the owner is selling without an agent to retain the 6% sales
commission, and this sum, if applied to the asking price, will make their
property the most lucrative deal in the region based on all market comparables.
These properties all sold with the 6% commission included, so buyers will
gravitate to this new lower $/sq. ft. investment in the same area and
negotiations will be practically unnecessary. In fact, a common strategy for a FSBO
owner is to split the saved commission with the buyer by cutting 3% from the
comparative market value (CMV) of the property. The buyer saves 3%, the seller
saves 3%, and everybody wins.
Many earnest investors will never even be aware that the
FSBO exists; much less that it is 3% below the CMV of properties in the
neighborhood. The majority of investors
who do locate the FSBO and make offers on it will have been deliberately looking
for FSBOs. Historically, these buyers are looking for an exceptional deal, and
for them this means automatically offering 6-10% less than the posted asking
price. If the CMV of the home is $500,000, the owner has taken 3% off this
price to save on commission ($485,000). The FSBO buyer then arrives with an
automatic low-ball offer of 10% less ($436,500). FSBO sellers may then counter
at full price or sometimes raise the asking price to compensate for the buyer’s
low-balling. Usually, the FSBO buyer moves on because getting a bargain is more
important to them than buying a home.
The irony is that many times FSBO sellers are so caught up
in “saving” the commission that they lose thousands of dollars. They are
stepping over a quarter to pick up a dime and then think they’ve come out ahead
– while simultaneously doing all the work themselves just to get to that
point of loss. Perhaps even more ironically these sellers unfortunately hurt
the values of the surrounding homes by selling for less than the home was
actually worth. All the area homes now have been hurt by that one comparable
low FSBO sale. Instead of helping the neighbors, the FSBO seller hurts them
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