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When you want to sell your property, you are probably looking for someone who can qualify for a bank mortgage to buy your home, right?
Of course, you have to pay off your mortgage … or do you?
Assuming you are successful in finding a buyer, the costs of the sale will probably wipe out your equity, or profit on the sale.
The National Association of Realtors estimates that the average home sells for approximately 9% less than the asking price.
Take out 2% -3% for the seller paid closing costs, approximately 3% for the on-going costs of mortgage, taxes, insurance, maintenance and repairs for the 90-150 days between listing and closing, and you have lost at least 14% of the value of your home to the costs of selling!
Imagine having to subtract another 6% for the realtor!
And, if you are the average homeowner, you have less than 25% equity in your home to start with, according to the National Association of Mortgage Bankers.
Do the math and you will see that you will walk away from the sale of your home with virtually nothing, except …
For every property for sale, including yours, there exits a market of "Phantom Buyers."
These are people who would love to buy a house like yours, but who can not or will not qualify for a bank mortgage.
They may be self-employed business people, small business owners, or foreign nationals. They do not want to have to show tax returns, financial statements or assets. And yes, there may be others in this category with bad credit resulting from a personal or business reversal.
What they all have in common is that, in most cases; they have plenty of cash and the income to support the monthly payments necessary to finance the purchase of your house.
When you offer your home on terms that meet their needs, with seller financing, these Phantom Buyers will gladly pay you 20-30% more than the fair market value of your home.
You will double or triple your profit from the sale!
However, there is only one way to be able to sell your home with seller financing to someone else without them having to get a new mortgage to replace yours.
You must place the title to your home into a properly structured land trust, then you sell it with seller financing to one of the Phantom Buyers.
Remember, you will not need money to pay off your mortgage! This will certainly limit, if not eliminate the need for substantial amounts of cash at the closing.
The new buyer usually pays you a basic down payment, sometimes even the total amount of equity you have in the house, then makes payments on the balance; if any of your equity, and takes over the payments on your mortgage.
You could even decide to take a sail boat, a Mercedes Benz or any other valuable item as all or part of the down payment. You are the Bank, you make the rules!
The term of the deal can be anything mutually agreeable, from a year or two to 20 years or more.
Incidentally, you can probably add a point or two to the interest rate on the balance you are owed, providing you with a care free, passive income for as long as the buyer is paying your mortgage.
For example, your mortgage is $ 200,000 at 6%. There is also $ 50,000 of your equity the buyer still owes. You require him to make payments to you at the rate of 8%. You are now receiving 2% on $ 250,000 or $ 5,000 per year, passive income with No land lording headaches!
The situation is similar to financing a car through the bank. The "owner" of the car uses it as he pleases. The only thing he does not have is the title to the car. The bank holds it until it is paid off. If the car gets blown up in an accident, the buyer does not expect the bank to fix it, even though the bank is the true "owner" of the car.
Your buyer has all the rights and benefits of home ownership, including the tax write offs for the mortgage interest, real estate taxes, etc. The only thing he does not have, is the title, which is held by the trustee of the land trust.
You have sold your house for the fair market value or higher
You have 100% or most of your original equity at closing
You will receive a steady passive income for years
You will receive another cash infusion when the new owner gets his own mortgage or when he sells the property.
It is not unusual for you to make two or three times more profit than you would have walked away with in a sale to a "normal" buyer:
You get upfront cash
You get positive cash flow every month
You receive cash profit when your buyer cashes you out
Your equity increases as the mortgage is paid down
You can write off the depreciation from your taxes
All this with no more tenant, toilet or trash problems!
If your new buyer fails to keep the property up or fails to make his payments, you notify the trustee and he is evicted, with no cost or time consuming foreclosure needed.
You simply find another "Phantom Buyer" with another down payment and start over.
The land trust is a little known device used by wealthy property owners for hundreds of years to protect their assets and provide complete privacy for their property dealings.
Oh, almost forgot. Since this is not a "Sale", (the title remains in the name of the trustee) you do not pay any transfer tax, real estate taxes do not go up as the property is not reassessed and you do not have to pay any income tax on your gains!
Especially important if you are selling an investment property.
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For people who want to sell their house in a low market, they are curious if they are going to make it or break it. Well, for others they consider it a lucky year, but for some this is not really the best time do this.
If you are a FSBO seller, you are actually marketing your home without a real estate broker. That is why it is termed as FSBO-for sale by owner. This is beneficial since there will be no cuts or statements from the profit that you can get. The entire amount will all be yours. You can actually save a lot if you are a FSBO.
Previously, a lot of homeowners prefer FSBO since they do not see the need of real estate agent. For them, they can manage to dispose their property faster without any help from an agent. And they can have bigger profit since there is no need to pay any commission to anyone.
However, if you try to evaluate the current condition of real estate market, will FSBO still work? Well the answer will really have to depend on the seller itself. Although the real estate market has been slowing down due to various factors, houses for sale still sleep in the market even if real estate brokers exist. It is not a guarantee that your house will be sold faster if you get an agent to do it for you.
In some cases, yes, they can greatly help. But there are also instances where the owner can actually do the same like what the brokers are doing. Armed with enough real estate tidbits plus the patience and determination to sell the property, the owner can be successful in getting a good deal. It is just a matter of how well you can apply your strategies so home buyers can consider your property as one of their prospects.
Alternately, it is undeniable that the economy is struggling right now. This incident has terrible effects to the lives of most homeowners. Their chances to acquire their own property have lowered down. No matter how low the rates are but their financial capacity is still not enough to finance the entire project, then buying a house is still not feasible. Thus, FSBO sellers will absolutely have a hard time making everything work in their own hands.
The advantage of getting an agent in a low market is, there are certain strategies that some FSBO sellers do not know. Since real estate brokers are already used to selling properties, even in low or booming market, they can change the minds of hopeful home buyers to ever acquire the property. Here, you are assured that your house will be sold in a shorter time compared to selling it on your own.
There is really nothing wrong with becoming an FSBO seller. If you think that this will work for you, then go ahead. Just be sure to load yourself with enough knowledge and strategies so you can dispose your house immediately. If you think that getting an agent is more advantageous then secure to get the best and reliable person. Whether it is a down or booming market, there will always be a right buyer for your house if you just know how to market it.
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Should you, as a homeowner, looking to sell your home, consider selling the property yourself or take the conventional route and engage a Realtor? That is the preverbal $ 64,000 question – or if you use the national average sale price of existing homes of $ 268,000 – the $ 16,000 question. Based on pure value, this is a question that really should at least merit consideration.
Obviously For Sale by Owner (FSBO) is not for everyone. I really do not know why that statement has to be made – NOTHING (with the exception of air and water) is for everyone. Now back to the point at hand.
Why should you consider FSBO:
First and foremost – you save money – simple statement to make. How do you save money? You do not pay the typical 6% real estate commission associated with a real estate brokered listing and sale. This is not just any money – it is your tax free (usually) home equity. Money that you have extremely earned either through appreciation, home improvement, sweat equity or savvy real estate investment. Any you slice it, it's YOUR money. It is often said buying a home is the single most important and largest purchase of an individual's life. Does it not stand to reason that selling a home represents the single most important "Sale" of an individual's life? The National Association of Realtors will tell you that FSBO homes sell for 16% less then Realtor sales. The problem with their calculations is that they use a flawed formula to support their argument – they use a MEDIAN price as opposed to an AVERAGE price. The median is a "middle number" in a series of numbers – the average is a sum of all numbers divided by the total number – which is what as a homeowner about.
Another consideration is that an FSBO can take all or part of the real estate commission savings and deduct it from the price of their home to expedite a sale. This works great in a "soft" market or if you simply have to sell your home in a limited amount of time. Consider this example (I have used this illegally scenario purely to make my point). You own a 1300 sq ft – 2 bedroom / 2 bathroom condo. Your adjacent neighbor has the exact same unit with the same level of finish and has listed it with a Realtor for $ 485,000. Calculate the 6% real estate commission in the equation and best case your neighbor walks away with $ 455,900 – that leaves you with $ 29,100 to negotiate. If I'm a buyer and I see the exact same condo next door for $ 30K less I can tell you which one I am buying !!! To be honest, I'm going to buy it if I can save ANYTHING! This works very well if you bought in a strong real estate market and the market has now softened to the point that you actually paid more then you can sell it for. Selling FSBO may allow you to at least keep your head above water – remember we are talking 6% of the value of your property.
Another reason individuals consider FSBO is a bad experience with Realtors. Realtors are just like every other field – there are "good" Realtors and "bad" Realtors. Like many industries they have a self governed "Board" that they can be brought before and face punishment. That said Realtors also carry E & O and insurance insurance to protect both themselves and their clients.
Do you need a Realtor in a hot real estate market? I would say – no! If the homes on your street or neighborhood are selling within 2 -4 weeks of listing do you really think there is some hot shot realtor responsible for it – the market is responsible. It could be related to all sorts of things, including local economy, zoning, school system, new amenities, or a number of other factors but rarely, if ever, is it due to a Realtor. List your home FSBO – it will sell just as quickly and in the same price range
FSBO also offers a significant level of control, you control when and if shows or Open Houses occurrence. Personally I'm not sold on the value of Open Houses for FSBO's – I know the value for Realtors and it is more often self serving then for the homeowners benefit. Realtors use an Open House to "troll" for leads. Chances are slim they will buy the house where they are conducting an Open House – but they are buying a house – and chances are they do not have an agent if they are out at Open Houses.
Another advantage of selling FSBO is the simple fact that you know your house better then a Realtor. Buyers that are interested will ask very specific questions like what type of perennials are in garden or what the neighbors like. In fairness this can go the other way too; some homeowners do more harm then good – they can not help themselves. I personally attest to this with listings at FreeFSBO.com that just seem to go on and on. It is important not to overwhelm a potential buyer to the point that they never want to risk exposing them to that situation (the homeowner) again.
Why you should not consider FSBO:
There are over 2 million licensed Realtors nationwide. Most are highly trained and experienced professionals. Can a single FSBO compete with this – maybe (14% of all existing home sales are FSBO).
Realtors may have clients that are looking for a property just like yours. That said, they will normally approach you if they do – they will ask if you are willing to cooperate and kindly request that it be formalized and have you sign a document agreeing to pay their commission. Beware if they ask you to sign a listing agreement that is longer then 48 hours they may just be trying to grab your listing and the "buyer" may be fictitious – do not pay over 3%.
You simply may not have the time required to undertake an FSBO – for every four people that say they are coming to look at the property one will likely show up – get used to that fact. Do not get your feelings hurt if someone does not like your taste or property – that is just reality. If a potential buyer calls and wants to see your home at a moments notice you may have to drop what you are doing and rush home to show them your home. If you're not prepared to deal with that then maybe FSBO is not for you.
You do not possess any sales or marketing skills. I know it's not easy to admit, but if you're an introvert – forget it. Most successful Realtors are extroverts and spend countless hours attending social functions, clubs, associations, golf courses (sorry had to throw that in) to generate leads and contacts. They have usually taken countless sales training courses and most importantly, they know how to close a deal.
Multiple Listing Service (MLS) – this in my opinion is the single most important advantage that Realtors have over FSBO. The MLS is made up over approximately 500 individually owned and operated MLS organizations. It is essentially a nationwide repository of existing properties available for sale. It provides both realtors and buyers similar an opportunity to locate properties using a number of search criteria including, but not limited to, geographic location, size, price, bedrooms, bathrooms etc. There are two factors to consider here – one – you can buy a Flat Rate MLS at either a national or county level and take advantage of the marketing exposure that MLS provides – it will cost you in the range of $ 299 – $ 599 and an agreement to pay 2 – 3% to a selling agent if a Realtor sells your home. You do however maintain the right to sell your property yourself without paying a commission fee. As far as "quality" of exposure goes, I truly believe that an online FSBO listing is superior (in appearance and functionality) to an MLS or realtor listing. That said, no FSBO website fulfills the level of traffic and potential buyers offered by Realtor.com.
In conclusion, obviously undertaking a successful For Sale by Owner is not for everyone – we can all agree on that statement. Is it worth a try – definitely!
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There are some particular things that happen when selling a home by yourself. You will have to be able to deal with them in a professional manner in order to receive the best price for your home and not be taken advantage of. One of the first things that you will have to deal with is the abundance of calls that you will likely receive from local realtors wanting your business. They will tell you that they can sell your home quickly and for more money, but of course, there is a commission attached to this so it's in their best interest to get your business. However, if you have planned properly for your sale and have done the necessary market research and are confidant that you can sell your home yourself and save the commission fees then stick to your guns!
Another thing that you may have to deal with is low-ball offers from buyers who think they can get a reduced price simply because you are not being represented by an agent. As agents are typically experienced at negotiating, people expect to pay more and have more trouble with getting a lower price. If you have priced your home properly then there should be no need to cut your price down, buyers should realize the value of your home and be willing to meet your price. Be ready for people making low offers in an attempt to find out what your bottom line is. If you receive an offer that is too low for your liking, make a counter-offer that is acceptable to you. Whatever you do, do not be desperate to move the property. In all likelihood the buyer's agent will identify this quickly and you will end up losing money in the end.
Do not sell yourself short in this process, and never settle for an offer that is less than you know the home to be worth. FSBO selling is tricky and there are people out there who will prey on uneducated FSBO sellers. Make sure that you are not one of them.
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Full of anecdotes, sales scripts, and proven tactics, this fully revised and updated book shows readers how to find the best listing prospects; win over “For Sale by Owner” sellers; earn the seller’s trust; and more.
For Sale By Owner is just as it sounds, a homeowner trying to sell their home without the assistance of a REALTOR. Can you do this, sure! Do they actually get their house sold, sure! Is it typical? No. About 80% of FSBO's end up listing their homes with a Professional REALTOR anyway. Here's why:
1. I do not have the time to make appointments during the day or during normal business hours.
2. How do I know if these potential buyers can qualify for my home?
3. I am not aware of the legal documentation that should accompany a contract.
4. How do you pick a Title Company, and who is suppose to pay their fees?
5. What if the buyer backs out of the contract?
6. Can I sell my home for market price without using a REALTOR?
7. What coverage do I have if the buyer sues me a year after closing?
8. Is it worth having a home inspection before putting the house on the market?
9. Who does the home warranty really protect?
10. Will I really be saving the real estate commission if I try to sell myself?
These are some of the many questions that homeowners have to ask themselves before embarking on this endeavor without a professional. What some homeowners do not realize is that most REALTORS do care. This is our livelihood. We want to sell your home for the highest possible price; our commission is based on sales price. So when we say the house is overpriced, it is! Our goal is to have a smooth transaction, and you be happy with the income so the next time to have to buy or sell, you think of us.
Still, anyone can put a sign in the yard and try to sell their home, and some may actually get it sold in a reasonable amount of time. But as with any profession, if you decide to take on the role yourself, you are opening yourself up to potential risks.
Licensed REALTORS are just as such, a licensed professional who is capable of guiding you through the process and assessing the transaction with the least amount of risk possible. We help get your home sold in the least amount of time, for the highest possible price. We ensure that the buyers are qualified to purchase the home and walk you through the closing process step by step.
Some FSBO's think that since they have sold houses before in other states, that it will be a walk in the park anywhere. Not so. For example, Texas is one of the most demanding states when it comes to selling real estate. We as agents are required by law to have all of our ducks in a row before even placing the house on the market. Here's a few things we're required to do:
1. Checking the mortgage balance to see if it the seller is even in a position to sell at the current market
2. Verifying ownership
3. Does the property have clear Title
4. It is a saleable property, which work needs to be completed prior to listing
5. What is the current market price price to allow a quick sale
In closing, just know that there is a REALTOR out there for each situation. From leases to commercial property, we are licensed to assist with all your real estate needs.
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