If you’ve been investing in rental property for awhile, you’ve most likely weighed the pros and cons of selling via FSBO, or “for sale by owner.” On the surface this seems like a great idea, as you will avoid having to pay a commission to your real estate agent. But like most things in life, there are tradeoffs. Read on for the specifics, and check out the great video below which I found on the subject.
BENEFITS OF FOR SALE BY OWNER
As I previously alluded to, the main draw of going the FSBO route is the savings on agent commissions. The typical agent commission is roughly 6-7% of the sale price. For example, if you sell your investment property through a realtor for $150,000, you can expect to fork over at least $9K in agent commission alone. Obviously, doing the ‘for sale by owner’ routine has the potential to save you a boatload of cash.
Another benefit is that no special skills are involved in trying to sell a property. It’s simply a matter of listing the property online, putting a ‘for sale’ sign out front, distributing flyers, and advertising in your local newspaper. So any landlord or investor can do it as long as he or she is willing to put the time in.
Another benefit is that you have total control over how things go down. You set the appointment schedule, you negotiate the price, and you control the timeline. Some real estate agents will try and pressure you into making a decision, but this is not in your best interests. This problem is avoided when you run the show.
DISADVANTAGES OF FSBO
The main drawback in my mind is the time commitment. If you have multiple properties, this time factor becomes even more disadvantageous. Before you go down this road, you must consider whether you have time to market the property, take phone calls, schedule appointments, show the property, craft the contacts and legal documents, follow up with the buyer’s agent, etc. In the aggregate, this process consumes a tremendous amount of time that is usually better spent elsewhere.
Another drawback is that you might not get the highest price possible. A real estate agent can usually (not always, but usually) negotiate a better price than you’ll be able to. The reason is that negotiation is an agent’s bread and butter, and as such is usually an area of strength. It also helps that the agent is, for all intents and purposes, an objective third party in the deal.
Another downside is that it is very likely that you won’t be able to sell a property as quickly as an agent could. The reason is that your agent has access to many tools, service providers, and former buyers and sellers. Plus, as I previously mentioned, selling is their core competency and so agents can typically get more done in less time.
HOW TO EXECUTE A SUCCESSFUL FSBO
Despite the drawbacks, it’s certainly possible to do a successful “for sale by owner” transaction for your rental property. The first step is to get some comps of similar rental properties that have sold in the area the past 6 months or so. This will allow you to set an asking price that is appropriate for your market.
The second step is to come up with a marketing plan. Conduct some research online, identify your chosen strategy and tactics, and create a budget. The key is to get the word out to as many people as possible, so think long and hard about how you plan to do this.
If your property is still not under contract after 3 months, it’s time to throw in the towel and solicit the help of your real estate agent to sell the property.
Although for sale by owner, or FSBO, tactics seem like they make financial sense, in the vast majority of cases this is simply not true. Selling your investment property is hard work, and takes a level of dedication that many investors simply do not have. Plus, an agent can usually facilitate a higher selling price, a quicker closing, and a lower probability of making errors or falling into traps. Thus, my recommendation is to forego the FSBO routine and sell your rental properties the old fashion way – with an agent. That said, if you still want to look into this further, forsalebyowner.com has tons of great resources.