Expert: Matt Heisler - 7/20/2007

Question
QUESTION: I was informed of Salebyowner.com  I found it impressive. I just wanted to know how I could buy a house without a go-between. What are the procedures. I am a first time buyer.

Greg

ANSWER: Hi Greg:
First, as real estate agent, you should recognize that my answer is biased.  But I think I can back up my reasoning.
1) The only way to avoid a real estate agent in the process is to buy a house that is not listed with a real estate agent.  This is usually a problem for you because 95% of all houses are.
2) The main issue you will have is making sure that you know what the house is worth.  Town assessments are only within 20% or so, and basically you will have to rely on your own knowledge of what that house is worth in that market. Zillow, similarly, is usually only accurate to within 13% or so.
3) Should you decide to purchase a house, I would have a real estate attorney draw up the paperwork.  He will charge you for this service.  I would find an attorney who is comfortable with this process, as many do not write offers directly.
4) You'll have other issues.  How will you handle home inspection items?  What is reasonable for a seller to assume?  Are you comfortable going to the town hall and looking at the assessor's maps to understand the zoning?  Impact of potential developments?  Understanding how old or risky the septic system is? You will need to do all this - and understand it - before making a final decision.  
5) You should be aware that most For Sale by Owner properties are priced over market price, not under. (in my opinion).  Typically, the sellers ask multiple real estate agents what the value of the property is, add $10-25,000, or more, and are convinced that they can get the extra dough.
6) In my opinion, you should see AT LEAST 15-20 properties in the price range and town that you are looking for. Then at least you should be able to gauge relative value.
7) You will need help with contracting estimates.  Most homes need work.  The amount of work affect the price.  Like this: Perfect house - 120% (Amt of work to make house perfect) = Price you should pay.  This is hard to do if you are inexperienced.  Do you know how much a bathroom remodel is?  A roof?  New Windows?  New carpet?  If you don't, you will likely underestimate these costs.
8) WHY buy direct?  Most buyer agents are compensated as part of the transaction - the commission is not paid by you directly.  And as I mentioned, the seller isn't going to give you a good deal by going direct - they are going to get the maximum that they think they can.  Trust me.

So, in short, you are taking on a fair amount of risk in order to try to save 5% or less.  (And in many cases, pay more).  On a 300K home, theoretically that's 10K or so.  And the additional cost to you for using a agent is zero.  If you're not paying more, why take the risk? My guarantee to my buyers is that they will fully understand the risk a house has and the right price for that house in today's market.

I work with a number of first time buyers.  Most of them THINK they know a lot about real estate.  Most of them do not.  I look at hundreds of houses a year, talk to dozens of buyers, sellers, real estate agents.  It's only the biggest purchase of your life, are you sure you want to go it alone? Would you go to court without an attorney? If they were FREE?  I'm just not sure why anyone would do this.  But people do it all the time.  Before I was in real estate, I thought, "Matt, you're a bright guy, you don't need an agent." Now that I'm in real estate I see how foolish that was.  Here's an approximate statistic for you:
1) % of my customers who bought a house direct: 10%
2) % of those customers who I felt overpaid: 80%
I usually find out, because they try to sell there house in a couple of years, and they come to me - and I have to tell them they paid too much, and won't make any money on the sale.  Not fun for me!!!  But it happens a lot.

Best of luck, Caveat Emptor!!
Matt Heisler
Heisler & Mattson Properties
508-925-4626

---------- FOLLOW-UP ----------

QUESTION: Your answere is bright and puts everything in the right picture. Just a follow-up - I happily observed the prices and quality of homes and deal for money was quite the more promising and generous on salebyowner.com than on Foxtons and other similar sites. Your honest comment would be appreicated once again. Thanks abundantly Matt.

Greg

Answer
Hi Greg-

I don't have a lot of time to research price inequalities of FSBO's, so I haven't been to many sites, but I figured I'd check a couple that were in my area on this site.  So here are the first two I looked at.
1) There's only six residential listings on this website in my primary area (there's about 1100 homes for sale - so less than 1% is on the market on this site).
2) The first one I looked at (the nearest, by zipcode, was on for 800K.  It's assessed for 450K.  Town assessments are reliable, but they aren't off by that much.  It's been on the market for 260 days.  You know what that means?  It's overpriced.  Probably by almost 200K.  Maybe 300. The seller is advertising 2700 square feet, but the town has him at 1500.  He's not selling what he's advertising, a poor strategy at any price.
3) The next closest was a condo.  It's in a complex I'm familiar with, in fact, I know someone who just bought a unit there.  His unit wasn't as nice as this one.  But his was 80K less. He bought for 160, and this is on at 240. There have been 40, yes FORTY sales in this complex.  The highest one is 209. So at best, he's at least 15% overpriced.

I could go on.... but I think you get the point. This is typical!! The first two I looked at are really bad, but this is very similar to the pattern I often see.  Understand, I show and sell FSBO's, but they hard to sell because so many are expensive.

Matt Heisler
Heisler & Mattson Properties
508-925-4626