Reader Question: Monty, my home in Rochester, MN is up for sale by owner with a listing price of $178,900. It is an all brick, 3 bedroom, 2bath, 1600 square foot home with a full basement and a 2.5 car attached garage. Lot size is 120×188. We paid $144,000 in 2006 and have invested approximately $16,000 since then. We have had an offer of $168,000. How can I be sure it is a good offer? – Tiffany G.
Monty’s Answer: Hello Tiffany, your question is a common one. When buying or selling a home, the evaluation process is not an easy task. What you paid and invested may or may not correlate to current market value. I recommend you read Valuing A Home, and How To Challenge A Home Appraiser, as both articles will provide enlightenment on the subject.
Briefly, the correct answer is to gather information about the comparable homes that have sold in your neighborhood in the past 6 to 12 months. Select the property that are closest to your home in all the important features, then adjust for the differences between the sold comparable homes and your home to reach your range of value. Then determine how many per month have sold for the past 6 to 12 months, which determines the monthly “sales rate”. Finally, gather the pertinent information on the comparable competition in your neighborhood to gauge the marketplace. As an example, if the “sales rate” is 3 homes per month and there are only two competing homes you are in the driver seat. If there are 40 comparable homes for sale, the buyer is in the driver seat. So look at the range of value you determined and the sales environment to help you make the right decision. If you still have questions ask me directly on the website and I will answer you.
Value Is Only Part Of The Process
Also realize that the home’s value is only part of the transaction. Another article about Home Buying and Selling Contingencies has to be considered while evaluating the buyers offer. Even if the price is acceptable, it means nothing if it cannot be consummated.
Finally, I worry that you are this far into the selling process and wondering if you are on the right track? You did not provide enough history for me to understand what steps you have taken in deciding on the current asking price, but I want to proffer a general observation.
Is For Sale By Owner A Viable Option?
A home buyer has choices on how to go about seeking a home. One choice is to find an agent who understands their requirements and takes them on a tour of the homes that are of most interest. They can also jump in their own car, buy a newspaper or search sites on the internet and go out on their own. Why would a buyer do that? The most likely explanation is that they believe if they do the work, they can save the commission. Interestingly, the seller trying it on their own is trying to do exactly the same thing. They both cannot save the commission.
If both parties could just split the fee, all would be acceptable, right? In theory, the seller can only gain if they retain the commission they are doing the work to save. The buyer can only gain if they obtain the home for less than market price to pay them for their efforts. The great majority of us do not have all the different skills and experience to successfully close the transaction knowing we saved money. Even if we did, we are still missing the bulk of the buyers. Occasionally, there are people that have a particular knowledge, disposition, market and personal circumstances where they can actually count the difference, but my experiences suggest it is uncommon.
Your question suggests this is where you may be right now in your transaction. It is logical to reason that sellers utilizing agents have better odds of achieving their goals. A larger problem in real estate today is that consumers often pick real estate agents for the wrong reasons.
Consumers who choose the for sale by owner route may look hard at invested that time commitment in learning how to evaluate a home, how to interview and choose a reliable agent and how to proceed through the real estate buying or selling process with a solid game plan. That way, they stand a better chance of protecting their hard earned capital.
Tiffany, please let me know how it is going and if you have other questions, ask me.