When I told my next -door neighbor we are selling our house, she mentioned that she knows a few people who might be interested in doing what she termed a “private sale,” before it’s officially on the market.
Can you tell me what the relative advantages and disadvantages would be?
The main advantage of selling your home “privately” is the savings of the fee (commission) paid to the real estate agents. Beyond the savings of the real estate commission, I believe there are more disadvantages to selling your home privately.
In a typical real estate sale, there are two agents involved: the listing agent, who represents the seller, and the buyer’s agent. A private sale, where the property is not listed, may involve no agents; hence, the costs associated with selling are reduced. However, a private sale often involves one or even two agents, as the buyer and the seller usually need the assistance of an agent to handle all the paperwork.
I’ve participated in private sales as the seller’s agent and, at different times, as the buyer’s agent. When an agent isn’t involved in negotiations or preparation of documents, then an attorney will usually handle the sale. (I’ve never known a private sale that didn’t involve at least one Realtor or attorney, unless it was quit-claim deed between family members, for example.)
There are several reasons a seller might want to have a sale handled privately. For example, there may be a buyer (a neighbor or friend) that is already known to the seller. In that case, there is no need to list the property and seek other buyers. As the sale is “not arm’s length,” the price may be less than the market value because the buyer is known or related to the seller.
Or a seller might have been approached by a buyer (or a Realtor acting on behalf of a buyer) who knocks on their door, unsolicited, and inquires about buying the home. In this situation, when a buyer has presented him or herself, it may be possible to negotiate a private sale.
In some situations, a seller might not have enough equity in the home to pay for the services of a real estate agent or closing costs and would need to seek a buyer privately, or sell the home “for-sale-by-owner.”
In terms of advantages, it pretty much comes down to selling costs. Some private sales will have lower costs for the seller. Beyond the cost savings, I can’t think of any other reasons why you’d want to sell privately. In fact, I believe there are more disadvantages to private sale.
For example, how will you determine the value of your home? In a private sale, the value is often determined by appraisal. An appraisal only considers historic sales in your market area. In a normal real estate market, with prices trending higher, the value of your home will be higher today than it was six months ago.
Although an appraisal is the opinion of an expert, it is only an opinion of one person. And an appraisal is no substitute for exposing your property to the opinions of many thousands of agents and buyers.
In contrast, when you list your home with an agent through the Multiple Listing Service (MLS), you expose the home to the marketplace. That’s thousands of Realtors and buyers. By exposing your home to broadest audience, you increase the odds of a sale and a sale at a price that is determined by the market.
In the current Seattle real estate market, the shortage of listings means every house is receiving a lot of attention when it hits the market — a seller’s market. In a recent example, a Wallingford home listed for $590,000 received multiple offers, which pushed the final sale price to $740,000. Knowing this, why would any homeowner consider a private sale?
Suppose the example above was your home? Imagine you accepted an offer from a buyer in a private sale. You agree to a price of $590,000, and you ask your agent to handle all paperwork. With just one real estate agent involved, you’ve saved the selling commission of 3 percent (more than $17,000). Saving half the commission seems like a good deal for you. In this example, you saved $17,000 in costs, but you lost the opportunity of the marketplace, leaving $150,000 in equity behind.
You can do the math. It would have been wiser to list the home through an agent.
In today’s real estate market, it would be unwise to sell your home privately. My advice: List your home with an experienced Realtor via the local MLS, and let the market determine the value of your home.
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to firstname.lastname@example.org or call (206) 722-4444.