When viewing and purchasing real estate, key risks exist that many Buyers do not realize exist and / or how to successfully navigate. Below are Kelly Grant's top 10 important reasons why Buyers should avoid (a). viewing or buying any For Sale By Owner property (i.e. properties not listed by full-service REALTORS®), and (b). why no one, regardless of experience, should attempt to view or buy property without a full-service Buyer REALTOR® assisting them every step of the way:
(1). Risk of entering an unsafe situation with a For Sale by Owner (FSBO) Seller one has not met and do not know their past personal history (i.e. is this Seller someone a Buyer and their family can trust meeting?) Buyer safety risks can largely be mitigated by (a). working with an experienced Buyer REALTOR® with keybox access; and (b). omitting for sale by owner properties and focus strictly on purchasing homes listed by full-service REALTORS®.
(2). Risk of buying a home that has an undesirable previous history that was not disclosed by the Seller (i.e. does the home have a covered-up criminal or otherwise undesirable circumstantial history or is there something structurally or otherwise wrong (i.e. material latent defect or Government notice) the FSBO Seller, without REALTOR® coaching and advice, is intentionally hiding from Buyers?) Buyer disclosure risks can be mitigated by (a). working with an experienced Buyer REALTOR®; and (b). omitting for sale by owner properties and focus strictly on purchasing homes listed by full-service REALTORS®.
(3). High risk of innocent, negligent, or fraudulent misrepresentation by a FSBO who is not bound by the REALTORS®’ Code of Ethics. Imagine how upset a Buyer would be if they bought what they thought was a 2200 sq. ft. home only to discover it is actually under 1700 sq. ft. - this is unfortuately a much higher risk when buying from a FSBO who often do not care about proper measurements and are more than willing to falsely advertise whatever they want about their property (unlike Sellers who hire a full-service REALTOR® to list and measure the home; receive a discussion on disclosures; and are questioned verbally and in writing). Misrepresentation risks can be mitigated by Buyers to a large extent by (a). working with an experienced Buyer REALTOR®; and (b). omitting for sale by owner properties and focus strictly on purchasing homes listed by full-service REALTORS®.
(4). Lack of showings privacy leading to direct negotiations which can often be very difficult and emotional - Buyers often are inexperienced in knowing how to behave during high-pressure situations and accidental disclosure of private information (which is very easy for Buyers to do when they are meeting directly with a FSBO for a 20-minute showing vs. the advantage of having showings conducted in privacy via a Buyer REALTOR®) and / or leave out important details on the purchase since Sellers are the ones most familiar with their property. Without a Buyer REALTOR® who points out items to consider and disclosure of past sales, the Buyers often have little way of knowing if the home is priced properly for the neighborhood. Buyer contract negotiation risks can be mitigated to a large extent by working with an experienced Buyer REALTOR®.
(5). No professional advice available from a REALTOR® - Buyers should research and hire an experienced, full-service Buyer REALTOR® to show properties that closely match their requirements instead of attempting to ’find homes on their own’ and working with whatever random REALTOR® the Seller might have hired for three reasons:
(a). Rather than Buyers who work with a listing REALTOR® on a home they found on their own (i.e. who is working solely for the Seller) who may be trying to push them into the wrong home, a full-service Buyer REALTOR® will show a Buyer several homes and sell the home that is the best fit for the Buyer;
(b). To correct a myth, money is usually not saved by working with the Seller’s REALTOR® - total commission is due and payable by the Seller regardless if one REALTOR® is involved in the transaction or two; conversely, Buyers actually may pay more for the home by working with the Seller’s REALTOR® who is hired by the Seller to achieve a top sale price (i.e. and acting with a new Buyer as a 'Customer' with no Agency Duties provided) vs. the same Buyer engaging a Buyer's REALTOR® to act solely in their best interests who in many cases can show them a lesser-priced home that might better suit their family's needs; and
(c). REALTORS® are aware of hot new MLS listings and immediately notify their Buyer clients hours before Buyers are able to find them on their own - bottom line: Buyer 'A's next dream home could have been shown and already pending by Buyer 'B' and Buyer 'B's REALTOR® before Buyer 'A' was able to find the home on their own.
(6). Risk of encountering construction quality, cost, and schedule problems; and surrounding area zonage surprises, after agreeing to purchase an unseen house or condo in a brand-new development from an unknown builder (i.e. selecting a builder with an excellent track record; and using Buyer REALTOR® representation are critical). [See article on 'Important Risks to Navigate When Buying a Brand New Home'.]
(7). Risk of encountering unresolvable mortgage / inspection / zoning / insurance / deposit cheque issues (i.e. the risk of legal issues encountered by handing over deposit to a Seller one has never met before and who is not a licensed REALTOR® bound by the Real Estate Act for holding deposits). This also includes handing over deposit to a Seller's lawyer who receives instructions from their client not to release a deposit that otherwise would have been released by a listing brokerage (i.e. in typical situations of non-removal of Buyer conditions), forcing the Buyer to launch legal action to retrieve deposit(s).
(8). Risk of Seller nullifying a Buyer's purchase for someone else who later agrees to pay more for their home (i.e. the scenario where a Buyer sold their home, were ready to move into a home bought from a For Sale By Owner only to discover they are out on the street since the Seller used a loophole (legally or illegally) to nullify the contract because some other Buyer later offered to pay them more). This includes risk of omitting important contractual details and extra legal costs by not having the transaction conducted properly by a REALTOR®; and / or from avoidable lawsuits occurring due to not using the standard Alberta Real Estate Association purchase contract designed to protect a Buyer’s best interests against a myriad of contractual pitfalls.
(9). Risk of paying over fair market value: it is common to see For-Sale-By-Owners drop the price tens of thousands of dollars when listing through real estate once they have hired a REALTOR® who shows them recent past sales to prove they have been asking way more money than their home is actually worth in today’s market. Bottom line: if a home is offered for sale by owner, often waiting it out can be smart since a sizeable percentage of FSBO cannot sell and Buyers may have a good chance to view and buy it properly (and at much less risk) with Buyer REALTOR® representation once listed at a reduced price].
(10). Available Option to accept high-Buyer risks using full-service Buyer REALTOR® Representation - A Buyer may wish to accept the high risks and purchase a FSBO property with REALTOR® representation by hiring a Buyer REALTOR® to facilitate the transaction (i.e. after receiving a disclosure and accepting the numerous Buyer risks of buying a FSBO property, and proceeding to sign an Exclusive Buyer Brokerage Agreement, with deposit, including insertion of the agreed Buyer REALTOR® commission to be either 100% Seller-paid or 100% Buyer-paid via the Offer to Purchase). Note that despite an experienced REALTOR'S® best efforts, many for sale by owner risks (including safety) incurred by Buyers, while will be mitigated somewhat, still exist to a much higher degree in comparison to other properties in which a full-service REALTOR® was hired to list the property. Hence, the work packages completed by a full-service REALTOR® on behalf of a Seller are substantial and the net effect mitigates risk for both the Seller and the Buyer.
In summary, the risks of buying a FSBO property are large, varied, and potentially devastating if encountered - with or without Buyer REALTOR® representation - although an experienced Buyer REALTOR® will definitely help mitigate FSBO buying risks. To mitigate these risks, Buyers should do advance research and hire the best available full-service Buyer REALTOR® to facilitate their upcoming purchase, and very often Buyers will make a conscious decision in advance to simply rule out viewing or considering all FSBO properties in efforts to maximize the likelihood of a safe, legal, and quality transaction for their family.
[Article written and ©2009, ©2020 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at MaxWell POLARIS 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 will be 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.