Chapter Twenty-One

Selling by Owner

There are many reasons why it is easier for an owner to sell his property than a Realtor. Let us consider them.

1. Many prospective buyers will not deal with a Realtor to purchase property. They realize that a commission must be paid, and it will come out of their pockets. The main trend of their reasoning is that in reality about all the real estate agent does is furnish the address of the property. All of the decisions are made by the buyer and most importantly, he furnishes the ability to pay. Thus a commission of several thousand dollars seems a bit much.
   
2. An owner has only one house for sale, while a real estate agent has many. Thus the owner is only interested in disposing of one particular house, whereas the agent plays no favorites. Any sale is okay with him.
   
3. The owner can make the house available for showing seven days a week, if he wishes. The Realtor would probably be operating above average if he kept it "open" for two hours, on two days a week. He has obligations to hold other "open houses" also.
   
4. The owner is the most knowledgeable person to answer questions concerning the property. He might point out features that would otherwise be unmentioned. I have in mind a sprinkler system that covered the entire outside property; a heavy duty roofing job, which carries a 25 year written guarantee; a 50 gallon, quick recovery water heater; and many other things, including the glorious pink and red sunsets as seen from the living room windows.
   
5. He can also talk with authority concerning the location of churches, schools, theaters, Post Offices, the best shopping centers, the location of the nearest fire department and police station. He can even point out the nearest hydrant.
   
6. The owners can also divulge such specialized facts as the amount of taxes, insurance, water and gas and electric bills. He can describe the families on either side and point out any items that might be of interest to the prospective buyers. For example, if they had a 15-year-old daughter, they probably would be interested to know that 15-year-old Sally Jones, who is an honor student and president of her class, lives in the house on the right of them. Or their 200-pound teenaged son would be thrilled to know that the captain of the high school football team lives two houses away.

   If they asked for the location of the nearest Catholic Church, the owner could describe it precisely. He might also add that Marty Ryan, who lives in that green house directly across the street, is chairman of the Knights of Columbus.

It is beyond my conception of common sense to witness a homeowner tie up his property for several months and promise to pay a commission of thousands of dollars to a Realtor, who is a complete stranger to the property. It galls me particularly, because I realize that the owner is far better positioned to do the job himself or herself.

I realize, of course, there are cases where an owner cannot take charge of a sale. But in the great majority of cases, it is a conspicuous waste of good old American cash to cut a Realtor in on one's sale.

There must be reasons why people hesitate to sell their own homes. Let us take a look at the steps involved in a property sale. There are essentially three moves to be made, which are:

1. Showing the property
2. Signing a sales agreement
3. Escrowing the sales agreement for completion

I suppose there are some individuals who feel that they are not competent to present their homes properly. If you are one of them, I am sure that you are misleading yourself.

Let us assume that your former college roommate and husband pay an unexpected call. You have not seen the individuals for about 10 years, and they have never been in you home before. Her first name is Clementine and she married an Air Force Captain named Finklestine. After a few minutes of small talk, Clementine Finklestine exclaims, "You have fabulous living room, Mary. I suppose the rest of the house is just as lovely."

You say, "Thank you Clemmie. We love our home. Would you like to see the rest of it?"

"Oh yes" says Clementine, whereupon you proceed from room to room and point out items which you consider to be conducive to easy living.

You have just conducted a tour, which is all that is necessary to give to a prospective buyer. You do not need any sales talk, because houses are not sold. Rather they are bought. If a property changes hands, it is because the buyers decided that they want the place since all conditions are satisfactory to them. It would be next to impossible to sell you or anyone else a house which you didn't want or like.

I can understand how there may be some trepidation about handling the contract of sale, but only among first timers. The agreement may have various names but the most common, I believe, is Deposit Receipt.

Blank copies of the necessary form may usually be purchased at any bookstore or surely at the office of the Real Estate Board. You should secure some blank copies in advance.

For your information, I shall discuss the processing of the typical Deposit Receipt, in detail. You will find that most of the words are already present on the form, and you need only to furnish the names and numbers.

1. You will acknowledge the receipt of the down payment from the buyer, along with the name of the buyer. You, as the seller, will include your name, address and telephone number.
   
2. List the purchase price.
   
3. Identify the property by either the street address, the legal description or the Tax Map Key. The Escrow Agent will attend to proper legal description, when a deed is issued.
   
4. Some states require the seller to fill out a form answering certain questions concerning items included in the sale. It is called a Real Property Disclosure Statement. Ask your escrow agent if one is needed. If so, forms will be available where you purchase your blank Deposit Receipts or from the escrow agent.
   
5. Check the items which are included in the sale such as stoves, refrigerators, etc.
   
6. List any liens or encumbrances against the property or write in "none." The escrow agent will attend to the details. You merely indicate the status.
   
7. The next step concerns the financing. The buyer will deposit a nominal sum of money, probably two to five hundred dollars, when he tenders his offer to you.

   If you accept his offer to purchase, it is good business to require that he increase his deposit money to five or ten thousand dollars on or before a stated date, which should be the date of your acceptance.

   Of course, if the buyer and seller have already reached an agreement orally and are filling out a Deposit Receipt as a matter of record and for the use of the escrow agent, you may eliminate the original small deposit amount and start out with the $5,000 or $10,000, or other as the down payment. I am showing all avenues, because you, the seller, would use the same form, if you were making an offer to buy property. This acts as a guarantee, more or less, that he has made a definite decision to acquire your property. If you allow his deposit to remain at a few hundred dollars, he could easily forfeit the money without serious loss and walk away from the deal if he wishes.

   I am sure that you wonder why he should contemplate doing such a thing. I will give you one example. As soon as he makes known the fact that he has purchased a house, everybody and his brother will tell him about "fabulous opportunities" in their neighborhoods, which they insist he should investigate.

   If he has made a non-refundable deposit of several thousand dollars, he is not likely to look at any other property.

   After the amount of the cash deposit has been determined to the satisfaction of the buyer and seller, the method of the balance of the payment will be set out.

8. 1. If the buyer intends to pay cash, he will owe the difference between the amount that he has already paid and the total amount of the sales price.
      
   2. If he intends to use a mortgage, his cash payment will equal the difference between the mortgage money and the sales price.
      
   3. Sometimes a seller will agree to take part payment by a second mortgage. In this case, the amount of the second mortgage will replace the same amount of cash. The money will all be handled by the escrow agent, which you select, and it will be paid to the seller on the date that the deed is recorded in favor of the buyer.
      
9. The buyer and seller should select a date on or before which the escrow will be closed. This usually depends upon the date which the buyer knows he will have the funds to complete the deal. The name, address and telephone number of the escrow agent should be listed at this point.
   
10. It should be indicated that taxes and other monetary items will be prorated as of the date of escrow closing.
    
11. The exact names under which the buyers wish to take title to the property should be shown. The escrow agent will advise concerning other determinations, such as "joint tenancy."
    
12. The buyer may wish to include certain special terms which must be completed in order to validate the sale. These special terms are called "Contingencies."

    One of them would certainly be a period of time to arrange a mortgage loan.

    Another might entail payment upon the sale of the buyers present home. These two items would be included under the financing category.

    You have already set a date for closing the escrow, in paragraph nine. If the buyer has been unable to fulfill his contingencies by that date, the deal may be called off or you may grant him more time, if you wish, but put it in writing.

    In the above situation the deposit money will be returned to the prospective buyer, since you agreed to allow the contingencies, and it was a perfectly legitimate move to do so.

    You may keep the deposit money only if there are no contingencies and the buyer does not carry out his obligations, on or before the agreed closing time.

    Since nothing is sure in this life, you will not know that your property has actually been sold until you receive the payment money.

    Thus you should not remove your "For Sale" sign, nor should you refrain from showing your property. You may find another party who would like to purchase the house. You should inform the party of the impending sale, but make an effort to sign them to what is called a "back-up-offer".

    If the first party cannot carry through with his offer, you will have offer number two as insurance.

13. At the bottom of the deposit receipt, both the buyer and seller sign in the places indicated. Cross out the part about Realtors commission because luckily it does not apply in your case.

The above items which are discussed in paragraphs one through thirteen are handled in the order in which they generally appear on a standard Deposit Receipt. Therefore it should be fairly simple for you to compare my instructions to one of your blank forms. If you still are uncertain about anything, feel free to ask your escrow officer. It is he who will be handling the Deposit Receipt after you and the buyer have signed it.

Most Deposit Receipt forms have an explanation of the standard terms printed on the reverse side. They are usually quite clear although you will find that some items do not apply to your sale. If you and the buyer agree that certain things may be eliminated, be sure to list them on the front page in the space set aside for special terms.

In the case of a new house, the staking of the lot lines will almost certainly be deleted, since they are probably in plain view. Many buyers do not insist on a pest control report, especially concerning a recently completed house. The seller chooses his pest control firm, if one is required and receives a cost figure for any work deemed necessary.

He may fulfill his obligation in one of two ways. He may either have the work done and pay the bill, or he may offer to take the amount off the selling price and allow the buyer to have the work completed himself.

In many cases the buyer will happily accept the second choice, since he will make the repairs himself and save the money.

There is one other consideration, which I think is important, especially to those who are inclined to be timid about filling out a sales agreement. In the above thirteen paragraphs, there is not one single item which is required to be furnished by a Realtor. All of the facts must be determined by either the buyer or the seller.

If you have a Realtor, he merely writes down the facts which you furnish. This procedure may be considered to be the most expensive bit of penmanship you will encounter.

Your work is completed when the form is filled out and signed by both parties and the amount of the initial deposit has changed hands. There should be a copy for buyer and seller as well as one for the use of the escrow agent, who can either be a Real Estate Lawyer or a Title Company. There are plenty of names listed in the yellow pages. It is the usual practice to have the deposit check made out to the escrow agents. They will represent both parties and bring the deal to the conclusion called for in the Deposit Receipt or Sales Agreement.

I have dwelled at length on the matter of selling your own property. I have done so because it is very necessary to your ultimate success. Of course, you don't have to bar real estate agents entirely.

If one shows up, you tell him the price which you are asking for the property and state that he is free to sell it, but he must add on any amount which he wishes as a commission. Or you may "cooperate" with Realtors by quoting an asking price which includes their commission. However, you may explain to any of your own prospects that they will save the commission, if they buy directly from you. But do not list the property with anyone. Make it available to all who inquire if you wish.

Copyright ©1995 Robert A. MacDonald, All Rights Reserved.
Last revised: May 10, 1998.