Attempting to sell or buy a home privately is not without risk. Sellers and Buyers are encouraged to first identify, analyze, and understand the many risks they are accepting in exchange for possibly saving part or all of a REALTOR® sales commission.
For many inexperienced private Sellers or Buyers who may not fully appreciate the value of a REALTOR® for the work being done on their behalf, there can often be no savings or else a negative impact in exchange for the high risks accepted as one side (private Seller or Buyer) can easily receive a significant benefit at the expense of the lesser informed party to the transaction.
Selling privately or buying a private sale should be avoided whenever possible (and this is true even for highly experienced Sellers or Buyers who have bought or sold at least 20+ properties) unless the opportunity for savings is virtually guaranteed and significant (such as over $60,000 above or below market value - e.g. from a personal friend or family member) to overtake the high degree of Buyer or Seller risks being accepted. It is not simply ‘one’s potential ability to sell or buy a home privately’ that is important, but rather it is the good work REALTORS® do in order to make a transaction ‘risk-free’ and ‘problem free’ for the positive benefit of our clients. [Agency duties provided by full-service REALTORS® to their clients (whether Single Agency or Transaction Brokerage) include loyalty, obedience, honesty, confidentiality, reasonable care and skill, full disclosure, and full accounting.]
Below are samples of the many risks that Buyers unknowingly accept when (a). Selling privately vs. Hiring a licensed REALTOR® when selling; or (b). Buying a private sale vs. Buying a property with their own Buyer REALTOR® that has been listed with and is represented by a full service REALTOR®:
SECURITY – Who is this person (Buyer or Seller) that you are coming in contact with behind closed doors? Is this person someone you and your family can trust? Without any pre-screening, Buyers can be meeting a dangerous Seller and vice versa Sellers can be letting in a dangerous Buyer off the street into their home. This is very different when hiring a REALTOR® because REALTORS® use a screening process for our Buyers and keybox records are kept for every REALTOR® escorting Buyers into a home. Criminals often do not like contacting REALTORS® due to additional screening and traceability when they can simply ring the doorbell to enter a private Seller’s home (usually on very short notice, day or night) without any scrutiny and can avoid traceability. REALTORS® also work to protect a property from damage (carefully watching and coaching our Buyers) and to physically caution and protect our clients in the event of an unforeseen or undesirable situation. Next, what about dangerous animals (e.g. vicious dogs) during a showing? I have heard of situations where private Sellers had dangerous animals and reptiles including K-9 attack dogs and boa constrictor snakes! These situations are unacceptable and are not tolerated in full service REALTOR® listings. As a licensed REALTOR® I make sure that my Sellers understand the importance of removing dangerous animals during showings to protect Buyers and REALTORS® coming into the home. I also coach my Sellers to make sure that other hazards such as live wires, the need for hand rails and barricades, slipping hazards, etc. are adequately controlled. You cannot put a price on your well-being and your family’s well-being – one negative incident in a Buyer’s lifetime is one too many.
HARASSMENT – Once a private Seller or Buyer has your personal contact information (phone number or address) from calling or visiting a property to show interest in buying a home, there can be a chance of receiving regular unwanted phone calls (every few hours or days) in their ongoing desperation to sell or buy the property. This can make for very uncomfortable, unpleasant, and possibly dangerous situations. Plus, Sellers and Buyers can accidentally give out confidential information to the other party that can significantly reduce their negotiating leverage or can put the other party in a state where they do not want to sell or buy to the other party. With using a full service REALTOR®, it is the REALTOR® who will usually field all of your calls from signage and inquiries and / or will resolve a rare situation of you receiving unwanted phone calls from a Buyer or a Seller. Private Buyers can be harassed by private Sellers while conducting their own showing and from my experience most Buyers do not want the Sellers present when they are viewing a home because they want the freedom to relax and look anywhere and say whatever they want – this is a huge benefit to Buyers when viewing a home listed by a licensed REALTOR® with well over 90% of the showings in confidentiality alone with their Buyer REALTOR®. Also, private Sellers are harassed with private Buyers showing up on their doorstep (ringing the doorbell any time day or night) wanting a showing whereas when listing with a licensed REALTOR®, showings are arranged in advance at times mutually suitable for both the Seller and the Buyer. It is important for Sellers to respect the Buyer’s comfort level with the showing and sales experience – as this increases, then correspondingly a Sellers’ chances for the best possible sale price increases.
WORKLOAD - When Buyers and Sellers engage the services of a full service REALTOR®, there are many services the REALTOR® will usually automatically provide for a client (varies for Sellers and Buyers) including but not limited to the following: providing comparative market analyses; registration of the listing on REALTOR.ca; professional levels of advertising and marketing; good advice for maximizing market value; handling incoming calls and scheduling appointments; providing keypad access for showings; assistance to compare, analyze, and rank properties for Buyers; providing regular updates on the market and new listings; offer and counteroffer presentation, negotiation, and acceptance; resolution of finance, inspection, and document issues; completion / turnover; plus additional valuable advice and guidance as required, etc. When people 'go it alone' privately to sell or buy, they are essentially undertaking to do all of the work that a REALTOR® would normally perform without licensing and the same strong degree of real estate education or experience. Once private Buyers add up all of the time, effort, and expense they would undertake to possibly make a private deal (note the word 'possibly' - quite often private Buyers and Sellers can waste time, effort, and expense if their efforts are not successful) this adds up a large risk component that must first be carefully weighed.
NON-DISCLOSURE of LATENT DEFECTS – Many private Sellers do not understand and / or are not concerned about their legal obligation to disclose undesirable previous history and / or serious latent defects to Buyers that might not be determined during the course of a normal property inspection. This can include intentionally covered up foundation cracks not yet repaired; past history of flooding for which no remedies were taken by the Seller to solve the problem; a serious crime that was committed in the house; extensive mold issues; etc. As a licensed REALTOR® I quiz my Sellers at length on their property and have a serious discussion on the topic of disclosing to Buyers both latent defects and any serious undesirable previous property history. I have had a situation in the past with a Seller’s condo where a terribly serious violent crime was committed in the unit. I informed the Seller that this past property history would likely need to be disclosed to prospective Buyers. The Seller refused to comply with the law so following ethical principles I chose to refuse the listing. The Seller ended up selling the property privately to someone who was unaware of the past history at the time of purchase. Imagine after a few months if the private Buyer suddenly found out from neighbours, etc. – they would be very upset and might not any longer feel comfortable living in their home. Other types of required disclosures include City or County ordinances; Capital Health Notices; etc. In Alberta it is Buyer beware so it is always advisable for Buyers (in a high majority of cases with some rare exceptions) to obtain an independent property inspection but I have heard of cases where private Buyers were talked into not having a property inspection by private Sellers (hiding latent defects not disclosed to the Buyers) and who were faking competing interest or else offered an incentive in exchange for the Buyer buying the home without an inspection. As a result, Sellers with something to hide about their property are more apt to sell privately by owner because they do not have to face the scrutiny of a licensed REALTOR® (i.e. they want to push over a Buyer) and this means when Buyers buy a property from a private Seller, there is a much higher risk they will encounter situations of the Seller not disclosing latent defects, City ordinances, etc. Other issues can include non-disclosure from private Sellers of an entire 100% condo documents package, acreage documents, commercial documents, etc. plus lack of good advice for dealing with these issues. [A sizable component of a full service REALTORS®’ work on these types of properties can often include document acquisition; review; and analysis / advice.]
INNOCENT, NEGLIGENT, OR FRAUDULENT MISREPRESENTATION – Because private Sellers are not using a full service REALTOR® to properly advertise features and measure a property within a reasonable measuring tolerance (e.g. 5 to 10%), what is to stop a private Seller from advertising a home as 3000 sq. ft. by including basement, garages, patios, ‘larger than life’ dimensions, etc. in efforts to fool an unsuspecting Buyer even though the actual living area may only be about 2100 sq. ft.? The answer: very little – in Alberta it is Buyer Beware, and the only post-turnover remedy for a Buyer would be to pursue a costly legal process with very little chance of success. When buying a home listed by a full service REALTOR®, there are advertising standards that REALTORS® use and if any questions exist Buyers should request their own Buyer REALTOR® to check measurements to ensure the advertised amount equals the actual amount within a reasonable measuring tolerance. Note: do not be fooled into relying solely on City or municipality measurements – City measurements while usually reliable are on occasion prone to error, in some rare cases by as much as 10 or 20%+. There is a lot to know when measuring a property, and most private Sellers and Buyers do not know (or care) how to measure the living area properly. My advice: Sellers should make sure when they hire a listing REALTOR®, their property will be measured and likewise Buyers (if any related concerns exist) should ask their Buyer REALTOR® to check any questionable measurements during a property inspection before removing all conditions.
THE OFFER STAGE - When a Seller hires a full service REALTOR® to list a property for sale, that REALTOR® must provide proper conduct protocol and accepted behavior when dealing with offers, counteroffers, and multiple offers to ensure that Buyers and Buyer REALTORS® are treated in a fair and equitable manner. For example, in the case of multiple offers, there are strict regulations in place to ensure that proper disclosures are made to all Buyers via their Buyer REALTORS® in advance of the multiple offer presentation to ensure that all Buyers are given an opportunity to improve their offer to make it their very best. With private unrepresented Sellers, however, it can literally be 'jungle law' with offers since they have no obligations for their conduct in dealing with offers in a timely manner, no obligations with honesty and fairness in the case of dealing on multiple offers, and no obligations in dealing with counteroffers and acceptance. Oftentimes due to logistics it is important in real estate (and in a Buyer's interests to secure a property) for a deal to become verbally pending until such time as documents can be signed and initialled by both parties - regardless of the fact that very few if any legal options exist to Buyers or Sellers in the rare event of one party not keeping their word to sign documents. With situations where a Seller is represented by a licensed REALTOR®, issues relating to offer details or 'of one party not keeping their word' are actually quite rare. However, without ethical obligations, a private Seller's word can be worth nothing during the critical stage before signing, even after a deal has been reached. This added risk means that private Buyers can easily 'get screwed around' by private Sellers who delay offers to discuss with their lawyer; are dishonest in stating that multiple offers exist when that may not be the case; provide preferential treatment for a particular Buyer (e.g. friend or neighbour they want to sell to but are testing the market to see what is a fair price); etc. For all of these reasons, a Buyer's interests are seriously in jeopardy when making offers to unrepresented private Sellers (with or without Buyer's REALTOR® representation).
NEGOTIATIONS – Direct negotiations between private Buyers and Sellers are often very difficult and emotional. Buyers often are inexperienced in knowing how to behave during high-pressure situations and it is very easy for naïve Buyers to leave out extremely important details on the purchase since Sellers are the ones most familiar with their property, etc. REALTORS® operate as agents of the Seller or Buyer (as a business) without any emotion attached and this means REALTORS® will use clear-headed thinking throughout the negotiation process for our clients’ benefit regardless of how stressful and how lengthy the negotiations may become. Plus, without a Buyer REALTOR® who can point out items to consider and disclosure of past sales (along with viewing a larger number of properties to establish ‘personal value’), the Buyers or Sellers often have very little way of knowing if a particular home is priced properly for the neighbourhood. Note that even with a Buyer Agency Contract activated with a full Buyer Agency commission paid by the Buyer, some private Sellers still refuse to cooperate with the Buyer’s REALTOR® (including activation of a Customer Status Agreement in advance for basic real estate services during the transaction; Agency Guide; FINTRAC; etc. for which REALTORS® and brokerages must have records of when dealing with unrepresented Sellers as part of our licensing and auditing requirements to present offers). The Sellers understand there are some real risks to them of not being represented by a licensed REALTOR® and they can be afraid of losing the negotiation in a very significant way to the Buyer. This should serve as a red flag to Buyers whenever a Seller ‘does not want to cooperate with REALTORS®’ – there can often be hidden reasons such as something they are attempting to hide from the Buyer about their property, etc. that they do not want a REALTOR® to point out to the Buyer or do not want to be tied into a purchase contact that they cannot easily cancel (e.g. if their next door neighbour comes in with a higher offer next week). For example, I have seen occasional situations in the past with unethical builders who refused for Buyers to be represented by a REALTOR® because they prefer to negotiate the Buyer direct into an agreement that is not in the Buyer’s best interests and they did not want the REALTOR® questioning their ‘modus operandi’ as to how deposits are dealt with; what rights Buyers have in the event of builder default; the rights Buyers have for deficiency identification and clean-up; resolution of builder and contractual issues; Builder's Lien and deficiency holdbacks; etc. Other common issues include private Sellers who tie up their home ‘subject to sale of home’ (because the Buyer was so convincing) and they end up having deals fall apart because the Buyer had no chance of selling their home or else meanwhile found a better home. When Sellers hire REALTORS® to list their home, Sellers gain the experience of the REALTOR® on which offers are risky; offers that should be rejected, and offers that should be considered for acceptance. Both Sellers and Buyers gain a professional negotiation with REALTOR® representation.
DEPOSIT – When Buyers buy from a private Seller, often Sellers may insist that the deposit be held with the Seller or the Seller’s lawyer. This can create a multitude of complications because if there are any deposit issues, the Seller can instruct their lawyer to withhold release of the deposit or can refuse to return the Buyer’s deposit whereby the Buyer’s only recourse would be to initiate costly legal action against the Seller to retrieve back their deposit. Sellers’ problems can include Buyers’ cheques bouncing or Buyers suddenly untraceable to replace a deposit. This is very different when buying or selling property listed by a licensed REALTOR® - real estate brokerages hold deposits in accordance with the Real Estate Act and both the Seller and the Buyer (i.e. via Buyer REALTOR® representation) will understand prior to the offer the rules for their deposit(s) including what circumstances, timeframes, and under what conditions the Buyer’s deposit(s) will be returned. Licensed REALTORS® work for licensed brokerages and the manager is always a licensed broker, all of which are bound by the Code of Ethics and the Real Estate Act when dealing with deposits, and these balances provide extra deposit security for both Buyers and Sellers. Note that small real estate firms on occasion can become insolvent – when Buyers are providing deposits to any small real estate company, to mitigate this risk it is best to have as small of a deposit as possible or better yet: hold the deposit with the Buyer REALTOR'S® firm.
PURCHASE CONTRACT – In Alberta, REALTORS® (when representing our clients) use purchase contracts and associated documentation prepared by the Alberta Real Estate Association. The purchase contract is a widely accepted document that includes rules, information, and allowances for: the property itself; financial details of the transaction; deposits; closing (including real property report / compliance); insurance; warranties and representations; additional terms; conditions; remedies / disputes; advice; etc. It has been my REALTOR® experience that this document is thorough; explanatory; all-inclusive; and as ironclad as possible to ensure that when a deal is made and finalized, problems are minimized because both parties (the Seller and Buyer) understand their contractual obligations since they are advised by their REALTORS® of those obligations every step of the way in the event of any questions or discrepancies. This continual coaching and prodding of both the Seller and Buyer by their REALTORS® is paramount to keep complex real estate deals on track in efforts to avoid problems on closing or resolve questions about intention of either of the parties that can amass technical and complex legal issues afterwards. Many private Sellers tend to favour using their own contracts (in the case of builders) or contracts prepared by for sale by owner companies and those same Sellers may refuse to deal with contracts prepared by a licensed REALTOR®. While other contracts can technically may still be legal, this does not mean that they cover the same amount of risk for Buyers (or Sellers) as the REALTOR®-prepared purchase contract. A Seller who is not represented by a licensed REALTOR® or lawyer during negotiations and / or a Seller who refuses to deal with a purchase contract prepared by a licensed REALTOR® indicates a huge red flag and those Sellers should be avoided by Buyers at all costs. Dealing with private Sellers direct also includes higher risk of omitting important contractual details and extra legal costs from added contractual risk or from lawsuits due to not having the complex transaction conducted properly by a REALTOR® using the standard Alberta Real Estate Association purchase contract designed to protect a Buyer’s (and Seller’s) best interests against a myriad of contractual pitfalls. Finally, there are often many important additional terms and other considerations that are added to a purchase contract (on a property by property basis) on the advice of the Buyer's or Seller's REALTOR® as a result of their experience and lessons learned (in many cases between dozens to hundreds of previous sales) for the benefit of the Buyer or Seller that would otherwise be missed.
SALE RESCISSION – A private Seller, being unrepresented by a full-service REALTOR®, might try to nullify a private Buyer’s purchase for someone else who later agrees to pay more for their home (imagine how upset you would be if you sold your home, were ready to move into your new home that you bought from a For Sale By Owner only to discover you are out on the street since the Seller used a loophole (legally or illegally) to nullify your contract because someone just offered to pay him or her a few thousand dollars higher). In this case your only recourse might be initiating legal action against the Seller that you might lose if the purchase contract was constructed to provide the Seller this loophole. When representing Sellers and Buyers as a full service REALTOR®, both before and during the transaction I coach my clients (and answer their questions) to understand the importance of the purchase contract documents they are signing to ensure a full and conscientious understanding of the property deal being made (plus amendments and notices) along with the potential consequences of any non-compliance or non-conformance.
REAL PROPERTY REPORT (RPR) and COMPLIANCE – In my opinion, provision of a current RPR and Compliance must only rarely be negotiable from a Sellers’ or Buyers’ perspective when purchasing a house, acreage, commercial property, or bareland condominium. As a REALTOR® I make sure that my Sellers understand (at my very first evaluation meeting with them) they will be 99%+ obligated to provide this, and likewise when representing Buyers for these types of properties I make sure that a current RPR and Compliance is contracted to be provided by the Seller without exception unless the client receives contradictory advice from their real estate lawyer (rare circumstances - for example in the case of a lot value property sold 'as-is, where-is with no representations or warranties of any kind being made ...'). When buying real estate privately without a REALTOR®, the current RPR and Compliance requirement and risks can easily be overlooked, particularly in cases where the private Seller convinces the private Buyer into a lower price in exchange for not providing a current RPR and Compliance. The risks of current RPR and Compliance can include (but are not limited to) permit issues; development issues; encroachment or other encumbrance issues; and may require a Buyer (at a future date) to remove or remedy the issue, for which the cost can be substantial (e.g. tens of thousands of dollars +). If Sellers refuse to provide a current RPR and Compliance, this can indicate a red flag that there is some type of permit or encroachment issue they are attempting to hide from a Buyer. The typical total cost for a basic RPR and Compliance can be in the range of about $500 to $750+ (varies, more for commercial properties) not including cost to remedy permit; encroachment; etc. issues discovered which in some cases can be very high amounts.
LAWYERS / CONVEYANCING / INSPECTORS / MORTGAGE BROKERS – When Buyers attempt to buy privately (either with or without full service REALTOR® representation) from a Seller not represented by a full-service REALTOR®, sometimes Buyers can receive a request from the Seller to use the Seller’s lawyer, inspector, and / or mortgage broker to help save a few bucks (with possibly the Seller receiving an undisclosed kickback.) I would strongly advise Buyers against this since Buyers should always select their own service providers (qualified, experienced, and available) who are looking out for their best interests only as opposed to the Seller’s best interests or the for sale by owner company’s best interests. If in doubt of a good real estate lawyer, inspector, or mortgage broker, one option is to ask your REALTOR® for the name(s) of service providers we have worked with in the past who have demonstrated superior customer service and general knowledge of the real estate industry. For example, for the benefit of my clients, as a full service REALTOR® I will use my experience to refer quality lawyers, mortgage brokers, inspectors, and other service providers.]
In summary, while attempting to buy or sell a home without a REALTOR® is currently an option available in free-market societies like Canada and the United States, it carries a very large amount of risk in varying combinations. It is important for Buyers and Sellers to first weigh the risks before jumping in too quickly and making one or several huge mistakes. Buying or selling a home will be one of the most high-stakes and important endeavours one will encounter in their lifetime so it is critical to mitigate risk using a qualified full-service REALTOR® and not blindly 'roll the dice’ on your own without understanding the magnitude of risks involved. By following this advice, it will help ensure your next selling or buying experience will be positive and rewarding.
[Article written and ©2011 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at Maxwell Devonshire Realty in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.