The following is straightforward "For Sale By Owner" (FSBO) guide that will answer many of the questions you may have as you get started.   Just remember, that I just a phone or e-mail away is rendering any of my Real Estate Services!

Equity: You Work Hard to Build It, Why Give It Away
Equity is the value of your home minus what you owe on your mortgage. For example, If Mark’s home is worth $200,000 and Mark still owes $170,000, then Mark’s equity is $30,000.All homeowners should be aware of the Rule of 50/20. For most mortgages, after making payments for 15 years on a 30 Year mortgage you will have only paid off around 20% of your principle. In other words, after paying for 50% of the term of your 30 Year mortgage, you will have only paid off 20% of what you owe on your home. That's the Rule of 50/20. In the early years your mortgage payments are front-loaded with HUGE interest payments. Only a small amount each month goes towards your principle. Therefore it takes a long time to build decent equity in your home. Most homeowners only stay in a home for around 7 years, that's very little time to build equity.

FSBO Might Sell Your House Faster
The most commonly heard phrase in the real estate business is...Location, location, location.  But there is one characteristic in real estate that can beat location it is "Price, price, price". Let's say Mark needs to sell his house quickly. One way Mark can sell his home faster is by setting the price below market value. If he is selling his home FSBO he can set the price of his home lower than market value and still retain more equity than if he used an agent/broker and sold the home for a higher price. Buyers search for homes by location and price. Let’s stick with the example from above with Mark, his $200,000 home, and his equity of $30,000. Let’s say Mark uses an agent/broker to sell his home. Mark is not stupid. He has come up with a logical answer to help protect his equity and have an agent/broker sell his home at the same time. Just jack up the asking price and sell the home for $215,000. Do the math. If successful, Mark will pay out $15,000 in commissions but he will retain about $30,000 of his equity.

Control of the Sale
If Mark sells his house FSBO he has complete control of the sale.  He can set his price, choose his escrow company, show his house to perspective buyers when and how he wants to, write up his own sales contract.  In effect, Mark can have total control of the sale. 

Prepare Your Home
The first step you need to take is to have a professional home inspection.  Knowing the condition of your home is critical for any "honest" seller.  A pre-sale inspection alerts you to any repairs that may need to be done by you before trying to sell your home, or alert you to areas of your home that will come into question from perspective buyers.  The buyer is typically obligated to contract an inspection before making a formal offer. Most states have clear laws making it mandatory to disclose known defects that could affect the value or salability of your home.  A Property Disclosure Statement is a basic form that discloses the general condition of the home as well as seismic hazards, geological hazards, environmental hazards (lead paint, asbestos, radon gas), termite damage, etc.
A general home inspection will let you know well in advance what the buyer may attempt to negotiate, and it will help you spot items inside and outside that need your attention in your effort to make your home as marketable as possible in a competitive market.   A pre-sale inspection gives you confidence as the seller, and can be a positive sales tool to reassure prospective buyers of the home's condition.

Home Improvements
Use common sense when making the improvements to your home.  For possible expensive repairs use the Golden Rule: If you can't get the investment back don't make the repair, BUT be ready to negotiate a lower price for the house to compensate the buyer having to make the repair at a later date.  To get your home in the best possible shape it may take a little painting, landscaping, cleaning and small repairs. Make sure the house is very clean when buyers are coming to visit.  Scented candles or fresh baked cookies always goes over well and makes a home smell great.  A huge improvement in the look and feel of your property can be accomplished with minimal cost and effort.

Setting the Price
Pricing your home properly is possibly the most important thing you can do to sell it quickly and easily. Overpricing is one of the most frequent reasons by owner sellers ‘ fail. In fact, many times when a by owner seller gives up and lists their house with a real estate agent, the house sells because the agent convinces the seller to reduce the price.  Since you will not have a real estate agent involved to provide this "reality check" for you, you must perform the check yourself. Be realistic and do your homework. Keep in mind one of the reasons buyers are interested in by owner properties is because they think they will share in the savings of the real estate commission. If you are not offering to share any of the savings, it is possible that buyers will simply move on to traditionally listed properties. Pricing a house is one of the areas in by owner selling where spending a little money up front to get the necessary information is very helpful.
There are many tools and methods to help you price your home:

Have a "desk appraisal" done which indicates a range of value. A desk appraisal means the appraiser will not visit your home, but rather will pull comparables from closed sales (they may well have more recent comps available than you can obtain from any source) and assign a range of value. Where you price your home within the range is up to you. The cost of this option is about $60, and you will have a formal document with which to justify your price to prospective buyers. Appraisers can be located through the Yellow Pages in your area.

Once you’ve got a range of value or an independent appraisal of the property, you will still have to arrive at an asking price. Unless you are in a very fast market (houses sell within 30-45 days), you should assume that you; will get an offer for less than your asking price. Generally speaking, most houses sell within 10% of a reasonable asking price. Set your price at the high end of the reasonable range if your house is in excellent condition compared to other houses for sale in your area, and if the market is fast. Set your price at the lower end of the reasonable range if your house needs work, doesn’t show as well as it could, or if the market is slow.

PREPARE SELLERS DISCLOSURE
In many states sellers are required to disclose known defects about the property. Even if not required by law, it is always good policy to disclose known defects. Some states, most notably Florida and California, require the seller to provide environmental disclosure. As a seller, it is your responsibility to understand legal requirements for your jurisdiction. We suggest you hire a real estate attorney who can help you meet your legal requirements and negotiate your purchase agreement when the time comes. Areas of Disclosure for Which You May Be Responsible

Flood Hazard Area
Federal law requires federally regulated lending institutions making any loan secured by real estate to notify the purchaser (or obtain satisfactory assurances that the seller has notified the purchaser), in writing that the property for sale is located within a Flood Hazard Area. Although federal law only requires lenders to make this disclosure, common law principles of disclosure may impose a duty on the seller to make this disclosure as well.

FSBO Frequently Asked Questions:

v     What if the Buyer wants to do a lease/purchase?  This means the buyer wants to lease (or rent) the property for a period of time and then purchase it during or at the end of the lease period. You don’t get your money immediately, so this option only works if you don’t need the equity in your home to make your next move. A lease option is a popular means to sell less desirable properties or to sell properties in a slow market. If you choose to pursue this option, we strongly suggest you hire a real estate contract attorney to prepare the forms and manage the closing.

v       What if the Buyer doesn't want to provide a pre-approval letter?  You must get to the bottom of this type of situation before you take your house off the market for an extended period of time. Explain that you must know whether the buyer can perform and ask point-blank if there is an issue with financing. Wanting a long financing contingency or a delayed closing can also mean that the buyers have a house to sell and are not disclosing this. Ask the question "do you have a house to sell?" outright.

v       What if the Buyer has offered a low Good Faith (also called earnest money) deposit or none at all?   It is natural for a buyer not to want to give an individual a deposit, even though they wouldn’t hesitate if there were a real estate agent or attorney involved. Remember that the buyer is probably just learning this process too. In this instance, you might recommend that the buyer obtain a contract attorney to negotiate the contract for them, since they are nervous about it. In any event, do not take your house off the market without a deposit. Insist on a deposit in your counter-offer and put a contingency in the counter that the deposit will not be deposited into the closing agent’s escrow account until the home inspection and other inspections have cleared. Another tactic is to accept a smaller deposit with the contract and require an additional deposit when the inspection contingencies have cleared.

v       What if the mortgage terms the buyer has outlined in the contract do not seem reasonable to you?  Generally, you should not enter into a contract that is contingent on the buyer receiving a certain interest rate and points. Tell the buyer that it is fine for them to shop around to get the best terms on their mortgage, but that the contract has to indicate that they will take "market" terms. This means that the buyer can’t get out of your contract just because interest rates go up - unless they no longer qualify for the loan. If the purchase agreement indicates that the buyer is making a down payment of less than 5% of the purchase price, this could be a red flag. Inquire as to the loan program they are looking at and be sure you get a pre-approval letter (complete with credit and source of funds review) for that specific loan program from a lender within 5 days of signing the contract.

v       What if the Buyer is offering a low price?  If the offer is in the high area of your acceptable net proceeds range, offer to "split the difference" or "meet in the middle". This tactic seems inherently fair to both parties and can sometimes shorten the negotiation process. If the offer is at the low end of your range or not within the range at all, move in small increments; give a counter-offer at just below your asking price. Be prepared to go through several counter-offers with this buyer.

v       Sometimes asking the buyer how they arrived at their offer price leads to a fruitful dialogue. For instance, the buyer may have done more research on the comparables than you have and have good evidence that your price is high. If so, you eventually have to drop your price - no matter who buys the property. Or the buyer might say this is all they can afford to offer. This could indicate that they are not really qualified to buy your home and you should not spend time negotiating, or that they are short of cash and you should step in and pick up some costs to make the deal work at a higher price.

v       What if the Buyer wants you to pay some or all of their closing costs or points on their loan?  First, realize that any costs you agree to pay come out of your net proceeds so don't forget to put the figures into the seller net calculation. It is not unusual for the seller to pay buyer's closing costs in real estate transactions. Generally it means that the buyers want to save their money for other expenses or that they are short of cash to close. This is fine as long as your net proceeds are acceptable and the buyer qualifies for the loan with your closing cost contribution. When a buyer asks you to pay closing costs, and it reduces your net proceeds to an unacceptable level, counter back to them at a higher price but leaving in the seller contribution to closing costs. Again, make sure you get a pre-approval letter from a lender ASAP.

v       What if the Buyer wants an extended closing date?  This is only a problem if you can’t or don’t want to wait to close. Find out why the buyer wants an extended timeframe. Is it because they need to save money for closing? Or because; they want their kids to finish school in their current location?  If the extended date has something to do with qualifying to purchase your house, then it is a potential concern. Get the details and see if there is another way to work it out. Often, presenting the issue to a qualified loan officer will uncover some viable options for the buyer. If it is a logistical issue, such as kids’ finishing school, just decide whether you can wait or not. If you can, accept the offer, but be sure you keep the financing and inspection contingencies short, so you know the contract is solid.

v       What if the Buyer wants a quicker closing date?  Frequently, buyers believe that a quick settlement will cause a seller to accept a lower price or take their offer over others. And sometimes, it does benefit the seller to close quickly, so the strategy works. However, if you can’t close and move that quickly, counter back with your desired timeframe. If the buyer can postpone closing, they probably will. If not, they will reject that portion of the counter-offer and go back to their original timeframe. Best advice - try to work it out - only very serious buyers want to move quickly. If you already have a contract on another house you are purchasing, see if you can speed up your closing to meet the buyer’s timeframe. If you are purchasing another house, but haven’t found it yet or you aren’t ready to move, determine whether you are willing to move twice to accommodate this buyer’s timeframe.

v       What if the Buyer wants you to hold financing for them?  This means that the buyer wants you to hold seller-held financing for all or part of the purchase price. There are both risks and rewards in holding a mortgage for the buyer. If you decide to pursue this, we strongly suggest you hire a real estate contract attorney to prepare the forms and manage the closing.

v       What if the Buyer has a house to sell before they can buy yours?  This is a sticky situation. You have to decide whether to accept this contingency or not. You have no control over whether the buyer’s house actually sells, so you are really taking your house off the market and gambling that your buyer's home will sell. If you are in a good market and you’ve had many people look at your home, you would be less likely to take the house off the market contingent on the sale of another house. Suggest to the buyers that they get a bridge loan or swing loan and that they will need to qualify to carry both houses at the same time. If they can qualify to carry both houses, you can stretch the closing date on your house into the future to try to give them the time to sell their house. That way, they have the time they need and you have a guarantee that they will close on your house even if they don’t sell their current home. If the buyer doesn’t qualify to carry both and you want to try to make the deal work, find out more about the market their house is in. What timeframe do they think it will sell in and how are they are pricing it? You may even want to visit the house to see if it is in good condition, and in a desirable neighborhood. If it seems reasonable to you that their house will sell and these buyers seem like otherwise good prospects, you could consider taking the offer, but adding a "kick-out clause". This means that you leave your house on the market, and if you get another offer, the first buyers will have 24-48 hours to prove that they can perform on their contract without selling their current home, or they get "kicked out" and get their deposit back. You are then free to negotiate with the new purchasers. When you accept a contract contingent on the sale of the buyers’ current house, always put a timeframe around it, even if you have a kick-out clause in the contract. For instance, you might give the buyers 30-60 days to get a firm contract on their house and 30 more days to close the transaction. Don’t leave the timeframe open ended. If you exercise the kick-out clause, remember that when negotiating with the newest purchasers, you must make any agreement with them contingent on the first buyers being released from your contract. We highly recommend that you hire a contract attorney when you are dealing with complicated situations such as this.