Commission Saved:  $8,000
Hit to Sales Price:  $20,000

In FSBO Mistake #4, I chronicled the case of the hapless For Sale By Owner (“FSBO”) in Golden Valley who wasted their first — and best — month of market exposure incorrectly classified as a “Foreclosure” on MLS.

Hit to their bottom line?

I’d estimate 3% to 5%.

On a $400k home, that comes to a cool $16,000 — or a couple thousand more than they “saved” by not using a Realtor.

(Note:  the vast majority of FSBO’s are willing to offer a commission to the Buyer’s agent, just not to a listing agent who would represent them.  As a result, they’re only saving 50% or so on a full service commission, or a little less than 3%.)

Illusory Savings

Although 2012 is still (very) young, add this one to the recent “FSBO file”:

This past Fall I represented a Buyer in the purchase of a Plymouth townhome.

The owner, an attorney, elected to represent himself.

The purchase negotiation and inspection went fine, but I knew the appraisal would be tricky because there had been few, recent sales in the complex where the townhome was located — and one of those had been a foreclosure.

Torpedoing the Appraisal

If you weren’t already aware, foreclosures typically sell at deeply discounted prices.

That’s true even when their condition isn’t particularly bad; call it the real estate equivalent of “guilty until proven innocent.”

As a listing agent, my job is to make sure that the appraiser doesn’t torpedo the Buyer’s mortgage — and my client’s sale — by improperly including a foreclosure.

Of course, “improper” depends entirely on the context:  when every nearby, recent sale is a foreclosure, you can hardly make the case that they should be excluded.

However, when there are only a few, isolated foreclosures in the immediate area — as was the case for the aforementioned Plymouth townhome — the appraiser has much more discretion.

Proactive Listing Agents

As a listing agent, how do you proactively make the case for excluding a harmful foreclosure?

By supplying the appraiser with three, good “traditional” sales that they can price off of instead.

Of course, the attorney/FSBO knew none of this.

Guess what happened next?

The appraisal came in $30k low due to  . . . . wait for it . . . one of the three Comp’s being the foreclosed townhome.

Rather than go through the hassle and delay of challenging the appraisal, or risk losing the deal and having a second appraisal (on a subsequent deal) also come in low . . . the Seller agreed to reduce the sales price by $20k.

Suffice to say, that was much more than the $8k they “saved” by not paying a listing agent.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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