FOR SALE BY OWNER—AVOIDING THE INHERENT PERILS
The idea that you can sell your own home without the assistance of a real estate agent or broker inherently appeals to one’s ego. After all, who is better at pointing out the virtues of your property to prospective purchasers than you? Similarly, the idea of selling your property on your own resonates with an intuitive belief (whether based on fact or not) that you can maximize your return on investment by avoiding the payment of a real estate commission.
While many people hold these “common sense” beliefs, in reality they will be true only if you objectively and accurately analyze your property, understand modern marketing techniques and strategies, understand the contractual obligations of the parties and, importantly, are able to comply with statutory requirements regulating sales.
Before you list your house “for sale by owner,” it is important that you truly appreciate the complexity of selling a residence. While many people are perfectly capable of taking the “do it yourself” approach to selling what is likely to be their largest asset, it is not a simple process. Indeed, if it were as simple as it seems on the surface, there would be no need for the extensive education and training requirements imposed by the Bureau of Real Estate for real estate licensees.
This article provides a checklist for the marketing of your own property in California and identifies various sources of information that might assist you in successfully completing the transaction. It will also discuss the perils of selling your home on your own and some options available to you should you be concerned about personally handling any particular aspect of the process.
Beginning the Process
Physical Inspection of the Property
As a starting point, it is necessary to evaluate the physical condition of the property. Assuming you have maintained the major elements of your home (roof, foundation, plumbing, electrical, heating, cooling, kitchen, baths, etc.) preparing your home for sale requires that you perform any deferred maintenance. Anything not in good condition should be repainted, repaired, replaced or otherwise corrected. Keep in mind, however, that you are unlikely to recover the cost of making major capital improvements.
In order to make sure that you have identified any problem areas, systematically and thoroughly inspect the premises. (Use care in conducting the inspection. If you have doubts as to your ability to safely inspect the property, hire a professional.)
For the exterior, note the condition of the roof (shingles, shakes, tiles, etc.) in need of replacement or repair. Also, check the condition of the exterior paint, siding, windows, window openings, walkways, driveway, entry stairs and railings, landscaping, fences, vents, plumbing fixtures, gutters, downspouts, roof vents, TV antenna, chimney, etc.
For the interior inspection, for each floor (including any basement or readily accessible attic area) inspect contiguous areas systematically. Do not skip from one part of the home to another. Operate every door, window, electrical switch and outlet, plumbing fixture, etc. Note any ceiling stains as they may indicate potential roof or plumbing leaks.
Legal Issues Regarding the Property
One of the most common reasons that a transaction does not close is the lack of marketable title. There may be defects in the title that makes it impossible for a title company to insure that the new buyer will receive title free from existing liens, encumbrances or other items that affect title to the property.
You should make sure that title is in your name or in the name of an entity that you control. For example, make sure that the deed conveying title properly reflects your name or you as trustee of a family trust or is in the name of a business entity that you control. If you have been married, widowed or divorced either prior to or subsequent to acquiring the property, make sure that your ownership interest has not changed so as to prevent you from conveying clear title to a buyer. (This is a legal issue and you may need to speak with an attorney.) Likewise, make sure that a Deed of Reconveyance has been recorded for any paid off loan if it was secured by a deed of trust encumbering the property.
Other legal issues that can effect title include mechanic’s liens, professional’s (e.g., architect’s) liens, Notices of Lis Pendens (Pending Litigation), judgments, bankruptcy filings, divorce property settlement agreements, easements, etc. Also, make sure that all improvements to the property are in conformity with local building codes and properly permitted. Similarly, check for any code enforcement citations issued against the property.
What else should you do under these circumstances? The first requirement is that you examine the public records for supporting documents. The County Recorder’s Office will maintain records reflecting title to the property, including recorded deeds of trust or mortgages, deeds of reconveyance, grant deeds, easements and Covenants, Conditions and Restrictions. Other sources of information that are available are tax bills and property surveys or subdivision maps that establish the legal description of the property. Court filings involving the owners of the property are also a ready source of information. Depending on the location of the property, most of these documents are available online through searchable databases maintained by the various government agencies.
If you cannot access or search all the public records yourself, another source for recorded documents would be a title insurance company that can provide you with a property profile. Typically, title insurance companies provide courtesy property profiles to real estate agents free of charge since they hope that if the real estate agent makes a sale that they will write the title policy. Unfortunately, title companies may not be as accommodating with individuals that do not have a business relationship with them. If you can acquire a property profile, it will list recorded documents affecting title, including outstanding liens and recorded easements. When ordering a property profile, you should be sure to ask for the documents supporting the disclosures contained in the profile.
If you have any doubt as to the effect of any possible defect in title, it is important that you consult with a real estate lawyer or a real estate agent to seek clarification. (A real estate agent may not give legal advice but he or she can respond to questions concerning real estate.) You should not offer your property for sale if you believe that there are title issues. Instead, you should clear up those issues and then list the property for sale later.
Establishing Market Value
You must disabuse yourself of the notion that you know the value of your home. Market values can change rapidly and if you are not completely current, you risk two possible adverse outcomes: First, if you list the property for too little, it may sell quickly but you could lose whatever savings you achieved by not engaging a real estate professional. Second, if you list the property for too high an amount, you risk that the home will remain on the market for an exceptionally long period and become stale or “shop-worn.” The longer the home remains on the market, the harder it is to generate interest in it and, even worse, the eventual selling price can be less than market value.
It is important to obtain a comparative market report when pricing your property, such as a Comparative Market Analysis (CMA) or a Uniform Residential Appraisal Report. The former can be obtained from a real estate agent and the latter from a licensed real estate appraiser. An appraiser will normally charge you for the appraisal. Many real estate sales agents will provide a free CMA if you are listing the property with their company or you might be able to pay a fee for this service.
Create a Marketing Plan
Skillfully marketing your property is critical if you are to obtain the best possible price. Gone are the days when a well-placed yard sign and a small classified ad in the newspapers were your only hope for selling your home on your own. While these methods still have a place in an overall marketing strategy, their importance has diminished with the rise of the Internet.
One of the key advantages to listing your property with a real estate broker is that your home is included in your local (and national) Multiple Listing Service (MLS). The MLS listings are available online in most areas of the country and continuously reviewed by local real estate agents. Equally important, the MLS listings are frequently “scraped” by other services such as Trulia and Zillow, which repost versions of the MLS listing on their own web sites.
If you are selling your home on your own, how can you replicate the reach of the MLS? The truth is you cannot. There are, however, other methods of advertising that might be equally effective. For example, there are web-based businesses such as ForSaleByOwner.com dedicated to nationally advertising your home. One recent addition to this market segment is ListingMonster.com** which for a flat fee will include your listing in its database. The ListingMonster.com service will enable potential buyers to search for properties in their localities that meet the criteria they set, such as price, number of bedrooms, number of bathrooms, and other parameters.
For an additional fee, ListingMonster.com will also arrange to have a local real estate agent list your property on the MLS pursuant to a limited services agreement. As of this writing, ListingMonster.com is only available for properties located in California and Nevada but has plans to expand its service nationwide.
One of the benefits of internet advertising is that it allows you to post photographs of your home. While it is a cliché to say, “A picture is worth a thousand words,” in this case it happens to be true. A well-designed photoshoot can portray your property in its best light. Unless you are a very adept photographer with a quality camera, you are likely better off engaging a professional to photograph your home. Also, do not overlook the availability of drone photography services, which, for the right property, can display its unique qualities from a completely different perspective.
You should also include some color photos in an information sheet you make available when showing the property. It is a good idea to make the information sheets available next to your yard sign so that individuals driving by can obtain the information sheet and use it to distinguish your home from the dozens of others they have viewed.
While holding an open house may seem an old-fashioned way to market your property, it can have its advantages, particularly at the outset of the campaign. It will certainly attract a fair number of “looky-loos” including curious neighbors. Nevertheless, those neighbors are a great referral source in that many will have friends looking for a home in the area.
Showing the Property
It is extremely important that your home make a good first impression on a potential buyer. In this regard, be sure to de-clutter your home. Put away quirky mementoes or memorabilia that mean a lot to you but might put off a buyer. On the days you expect to show the property, make sure the interior is spotlessly clean. Wash and put away dirty dishes; hide the kids’ toys; mow the lawn and clean up the yard. The basic idea is to give the house curb appeal and a “wow” factor once they get inside.
In addition to the appearance factor, there are some practical problems to overcome in allowing strangers to wander around your home. First, put your valuables out of sight and in a secure location. Second, to the extent practical, do not allow potential buyers to inspect the home unaccompanied by you or a trusted friend or family member.
An additional issue is the need to allow the property to be shown at times when you cannot be present. Unfortunately, there is no easy solution for this. While it is common for real estate sales agents to place a lock box on the property so other sales agents can show the property, this is not an option for you.
Also, bear in mind that many potential buyers are reluctant to tour property with the owner. Normally, they would like to comment on the qualities of the property with whomever they are with but the presence of the owner causes them to “clam up” as they do not want to insult him or her.
From a seller’s point of view, giving guided tours to prospective buyers can also be perilous. There is always the possibility that you will misstate a fact or, even more likely, be misunderstood buy the potential buyer. This is the stuff of which lawsuits are made!
Negotiating the Deal
Probably a real estate agent will represent the vast majority of potential buyers that come to your house. This is, in part, because real estate agents are constantly searching the MLS or other advertising looking for suitable homes for their customers. Remember, however, the buyer’s agent is not working for free. He or she will likely condition any offer the prospective buyer makes on the requirement that the seller pay the buyer’s brokerage commissioner of at least 3% of the purchase price as a commission.
Having a real estate professional represent the buyer can place you at a disadvantage. Unless you have thoroughly done your homework, it is likely the real estate agent is much more knowledgeable concerning the pricing of the comparable properties in the area. On the positive side, the agent is likely to be familiar with normal transaction parameters (e.g., who pays for closing costs, inspection fees and the like) and will have access to standard real estate purchase agreements and other forms. That being said, you must be on your toes to make sure the agent does not take advantage of his greater expertise.
A different problem is presented when a real estate professional does not represent the potential buyer. The buyers’ lack of knowledge or unfamiliarity with standard real estate practices can make them difficult to deal with. Additionally, the burden will likely be on you to supply the appropriate contract forms and, as discussed below, to make the appropriate disclosures.
The formation of a contract requires a mutual agreement on fundamental aspects of the transaction including your agreement to sell the property to the buyer at a set price. Additionally, many other issues are normally dealt with in the contract, including contingencies such as the ability of the buyer to obtain a loan, the requirement that you convey clear title to the property, the requirement that you provide title insurance and physical inspections of the property. Each of these contingencies normally is associated with “drop dead” dates that mandate approvals or waivers of the contingencies. Further, the contract can include dispute resolution procedures or countless other legal provisions.
You must be certain that you understand the elements of your contract and any deadlines contained therein. If you do not have a complete understanding, you run a serious risk of suffering unpleasant consequences.
Disclosure Requirements re Property
The seller of residential real property has a duty to disclose material information that may affect the property’s value, desirability or intended use. Additionally, as described below, in California there are specific statutory requirements that are detailed and complicated and require perfection in their implementation.
1. A seller’s disclosure obligations upon a transfer of residential real property include strict time limitations. Should any of the disclosures listed below be made after execution of the offer or a purchase agreement, the buyer has three to five days (depending on method of delivery) to terminate the agreement by delivering written notice to the seller.
a. Real Estate Transfer Disclosure Statement. This document describes the condition of the property and must be given to the buyer as soon as possible after entering into the purchase agreement.
b. Local Option Real Estate Transfer Disclosure Statement. A city or county may require that the seller provide specific information about the neighborhood or community.
c. Natural Hazards Disclosure. Subject to certain exemptions, the seller must make disclosures concerning special flood hazard areas, areas of potential flooding, very high fire severity zones, designated wild land areas, earthquake fault zones, and seismic hazard zones.
d. Mello-Roos Bonds and Taxes. Disclosure is required for special improvement bonds for properties within a special assessment district.
e. Property Taxes. Full disclosure is required with respect to current and past due property taxes.
f. Ordnance Locations. This is the requirement for disclosure of areas once used for military training that may contain live ammunition.
g. Existence of Window Security Bars.
h. Industrial Uses. Disclosure is necessary if the property is located adjacent to certain industrial uses.
i. Methamphetamine Contamination. There must be a disclosure if the property is potentially contaminated by methamphetamine laboratory activity.
2. The Seller must also timely provide the following information to a buyer:
a. Earthquake Guide pamphlet.
b. Smoke Detector Statement of Compliance.
c. Disclosure Regarding Lead-Based Paint Hazards.
d. California’s Environmental Hazards Pamphlet.
e. Delivery of Structural Pest Control Inspection and Certification Reports.
f. Energy Conservation Retrofit and Thermal Insulation Disclosures.
g. Foreign Investment in Real Property Tax Act withholding requirements
h. Notice and Disclosure to Buyer of State Withholding on Disposition of California Real Property.
i. Furnishing Controlling Documents and Financial Statements Concerning Common Interest Developments (CID’s).
j. Notice Regarding the Advisability of Title Insurance
k. Certification Regarding Water Heater’s Security Against Earthquake
l. Information concerning the location of Registered Sex Offenders.
If you have entered into a listing agreement with a real estate broker, it is, in general, his or her responsibility to gather the information mentioned above and assist you in making the foregoing disclosures (albeit, the seller will have to complete and sign the Real Estate Transfer Disclosure Statement). It would also be the broker/agent’s duty to file a separate disclosure concerning the condition of the property after making a reasonably competent and diligent visual inspection of the real property. If there is a failure to comply with these disclosure requirements, it is likely that the broker/agent will have some liability to a buyer. In contrast, if the seller is not represented by a real estate professional, all the liability will be borne by the seller in the event of a violation of the disclosure requirements.
Disclosures re Manner/Occurrence of Death or Affliction of Occupant with AIDS
A seller is not required to make a disclosure of the death of an occupant of the property that occurred more than three years prior to the date of the offer to purchase, or that an occupant of the property was afflicted with or died from AIDS. However, if the buyer asks a direct question concerning deaths occurring on the property, the seller must make a complete disclosure or risk being accused of making misrepresentations.
The arranger of credit is required to make additional disclosures in the event the seller of certain types of real property takes back a note secured by a deed of trust in connection with the sales transaction. The specific disclosure requirements related to such transactions are beyond the scope of this article.
Closing the Transaction
Normally, arms-length real estate transactions require the use of an escrow service that can manage the documentation (i.e., insuring that each party has signed all appropriate documents and have either rejected or waived particular provisions). Once all the contingencies have either been waived or satisfied, the escrow company will collect the grant deed from you and the appropriate documents from the buyer and lender (if any) and “close” the transaction by recording the grant deed and, if appropriate, the deed of trust, and disburse the funds.
If you are concerned that you cannot properly handle each of the elements listed above, you should seriously consider engaging a real estate agent under a full listing agreement or a limited representation agreement tailored to meet specific needs that you might have.
Selling your own property is not for the faint of heart. It is a difficult and arduous process replete with traps for the unwary. If after reading this article and doing your research you feel you are up to it, try it. If, however, at any time you feel you are in over your head, do not hesitate to consult with a real estate broker or agent or speak with a qualified real estate lawyer. While there may be some cost involved in either engaging a real estate agent or attorney that is certainly cheaper than the litigation that will inevitably result should you fail to either comply with the terms of the contract or make a mistake with regard to disclosures.
*W. Gary Kurtz, J.D. is the founder of the Law Offices of W. Gary Kurtz located in Westlake Village, California. Mr. Kurtz, in addition to being an attorney, is licensed as a California real estate broker and as a property and casualty insurance broker-agent. The focus of the firm’s practice is business law, business litigation, real estate law, intellectual property, entertainment law and insurance law. Other articles discussing various aspects of these areas of law are posted at www.wgarykurtzlaw.com. He can be reached at (805) 449-8765 or at email@example.com.
**ListingMonster.com is operated by Bob F. Vavla, a licensed Nevada real estate sales agent with Southwestern Realty and Management Team and a California real estate broker with Berkshire-Hathaway. Mr. Vavla may be reached at firstname.lastname@example.org, at (702) 461-2258 or through his website, www.propzilla.com.
© 2015 Law Offices of W. Gary Kurtz