5 myths about pricing your FSBO listing

FSBO Pricing Strategies

fsbo-pricing-strategiesMost FSBO sellers go the DIY route because they want to save money. Saving money does not mean that you have to approach the task of selling your home blindly though. In my 25+ years of appraisal experience I have done a lot of pre-listing appraisals for sellers who thought they were pricing their home correctly, but found out too late that they were off base when their home just sat on the market.

Today I want to share with you some of the approaches these FSBO sellers took, and that they later found out was not the best strategy to use. I hope that you can learn from their mistakes so that you have a positive FSBO experience by selling your home for the highest amount that the market will support and in the most reasonable amount of time.

Top 5 FSBO strategies you shouldn’t use

1- Price your home at its assessment value: This might seem reasonable at first but it’s not really a good idea. The methods that county assessors use to arrive at a value for your home is different than what a fee appraiser uses.

All appraisers learn about the three approaches to value: sales, cost, and income, however the way that the appraiser uses it is different. A county assessor uses mass appraisal methods by looking at a large number of sales and then applying what they found to your home, however their information on your home could be incorrect. Mosts county assessors do not have detailed information about your home so their values can be off.

An appraiser that comes to your home and measures it and takes detailed notes is going to be able to provide a more accurate indication of value. Their comparable sales selection will also be more accurate because they will be hand picked to more closely match the physical characteristics of your home.

2- I’ll price it at what my neighbor did: During an FSBO appraisal assignment the owner told me that they originally priced their home at a similar price as what their neighbor had told them that their home had sold for. The only problem with this is that the neighbor had “puffed up” their price and my client had not verified what the sold price was.

Sometimes the price that your neighbor tells you is not always correct. People have a way of telling little white lies to make themselves look better. This neighbor had embellished a little on the price to make themselves feel better so it was not an accurate indication of what my client could sell their house for.

After being on the market for longer than normal they decided to get an appraisal to see how it compared to what they had it listed at. During my research I found out the true price of the neighbors sale, which was lower than thought. After completing the appraisal my client revised his listing price and sold the home shortly thereafter.

The moral of this story is to verify through county records anything you’ve been told to make sure you are pricing your home using the most accurate information.

3- I’ll price it at what my refinance appraisal from last year showed: I’ve been asked on many occasions how long an appraisal is good for and my go to answer is that it’s good for one day: the day that I am there.

You may think that this is a smart aleck answer but it’s not meant to be. Technically speaking the value is only good for that day because many things could happen to the home or to the real estate market. The home could experience a fire or the local real estate market could take a dive, which would affect the value of the home.

It is reasonable to assume that if nothing drastic happens that the value may be accurate for at least a short period after the appraisal is completed. While this is true you also have to take into consideration other homes that come onto the market after the appraisal and their impact on your home’s value. A good pre-listing appraisal will consider recent closed sales as well as current active listings.

4- I’ll price it by looking at how much money I’ve got in it: Wrong! Sorry for the outburst but this is one of my pet peeves because it is used by so many people to estimate the value of their home.

I know, I am a homeowner too. I don’t want to lose any money and want to recoup all that I have invested in my home but that is not always the way it works out. It’s important to keep in mind that cost does not always equal value, there is the cost of an item and then there is the markets perceived value of that item. It might cost $25,000-$30,000 to install an inground pool but you may only get $15,000-$20,000 out of it when you go to sell.

This is one of the appraisers important tasks when doing an appraisal. The adjustments you see in an appraisal are the markets reaction to that feature and this can change from location to location as well as over time. An up to date appraisal will give you the best indication of value for your home under the current market conditions.

5- I’ll use Zillow because they’re always accurate: Wrong again!! Sorry for that second outburst but I guesszillow "zestimates" are not accurate #4 was really not my biggest pet peeve, but Zillow is.

I’ll give credit where credit is due but the zestimate is not where it’s at. Zillow does a good job reporting the sales prices of local homes and they also provide helpful pricing trends. Zillow does not do a good job of estimating your home’s value however because they utilize inaccurate information.

There are many reasons why Zillow zestimates aren’t accurate and you can read about them in a past article I wrote but the bottom line is that their accuracy leaves a lot to be desired. Neither buyers nor sellers should rely on the zestimate but instead should rely on the experience of a local real estate appraiser that is more familiar with the market and can do the research and analysis necessary to arrive at a reliable opinion of value.

Conclusion
There is nothing wrong with being a FSBO seller but you should know the potential pitfalls and the due diligence you should take to make this endeavor as successful as possible.

Do you have any questions about being a FSBO seller? If so leave a comment below and I’ll do my best to answer it for you. As always, thank for reading.

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Comments

  1. I’ve got another FSBO myth for you. The Realtors will point to a statistic that FSBO homes sell for less than homes sold by an agent. However, that statistic is just based on comparing median price, but does not take into account that FSBO homes are often lower priced. There are academic studies done on this topic and FSBOs tend to sell for just as much as homes listed by agents when apples are compared to apples. The lesson is that the market works and usually gets the price right if your property has an agent or not. The difference is that FSBO sellers, if they price properly, can pocket the commission that they would have paid as compensation for the extra work and liability.

  2. JHall - Colorado says:

    Good one! Zillow strikes again! We’re all dealing with that nonsense in one state or another. The primary points stated in their most simplest form being that Zillow predicts value through AVM or automatic valuation modeling on a macro scale, often not having legitimate or full access to proprietary MLS data but rather running with public assessor data. The assessor uses mass assessment simple categorization tools. The appraiser looks at the micro scale and finds individual best matches. Assessors may not reassess regularly and some are bi-tri annual+. You know what keeps them coming back to Zillow? High numbers. Zillow in the real estate world is more like clickbait. FSBO is good and all but at a minimum the buyer and/or seller should coordinate a title lawyer or similar to write contracts and assist with closing. FSBO often does not play well since one party or the other will have representative agency. FSBO is best reserved for friendly, family, private deals, and experienced persons whom have competency equivalence to agents, but are merely cutting out a sliver of agency representation costs. FSBO’s go south when one party either buyer or seller is represented and the other is not. As the representative agents are probably not running per diem transaction brokerage and are more likely to be in agency agreements, the party with the agent has an effective advocate but the party without an agent has none. That’s the reality of FSBO for most people. If you need to score a deal, negotiate your agent down a half point or something and play it safe. Good read, thanks Tom.

    • Thanks JHall, you make great points about representation. In my area I have seen less FSBO activity over the last several years. Even FSBO websites offer an MLS listing option. There are still some people that like it though but I am inclined to think that it is those people who are very familiar with the process and utilize other professionals to help them, like the attorney and title people.

      • JHall - Colorado says:

        I ran across a guy whom was going to sell his departed mothers home. He had a garage sale and struck a fsbo on the spot simply because he mentioned possibly selling the home. That’s how hot the CO markets have become, desperate buyers are willing to strike a fsbo via garage sale. Remarkable. If you listed fsbo in CO right now I’d bet you’d get as many calls from soliciting listing agents as you would buyer inquiries. Everyone and their mother seems to be an agent lately and consistency in quality representation is suffering to the point fsbo may develop a new more positive image soon. Some sellers are trying to negotiate down points as a term for list agent, but list agents put in more work than ever with an avalanche of immediate interest and competitive multi offer scenarios. Now with Corelogic MLS systems in place, normal sf buyers often cannot keep up with investor participants whom can become aware of and then move and offer in an hour flat after the initial MLS list post. I’m mixed on the future of fsbo because MLS advancements are causing the most responsible careful buyers to oftentimes have a disadvantage. The locals are long since priced out and all too many are drinking the cash out kool aid. A day at the mb office in Denver; Hello. Yes we can go FHA 30 cash out. Hello. Yes we can go conventional 30 cash out. Hello. Yes we can even though you just refied less than a year ago… I’m already geared up for default servicing the moment the coin flips. Cheers.

  3. Great job Tom. I think you covered the bases well. I’ve seen all these things happen. I’ve also seen owners pick a price per sq ft in the neighborhood from some other house and apply it to their own property (and then come up with the wrong value).

    • Good one Ryan, I should have included that as well. Generalizing price per square foot across the board is not a good idea unless there is a high degree of comparability among the sales. Using smaller sales will overstate the $/sf while larger homes will understate it. Thanks for your thoughts!

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