COUNSELING THE FOR-SALE-BY-OWNER CLIENT
by Aurora Abella-Austriaco, ATG Staff Attorney

The real estate market is in a flurry, interest rates are at an all-time low, the economy is stable, and people are either buying, selling, or refinancing. What a glorious day for real estate professionals!

Meeting clients' needs is becoming more and more difficult due in part to the fact that consumers of legal services are more savvy and therefore more demanding than ever before. Real estate clients are no exception to this. Many experienced real estate buyers and sellers who are ready to upgrade are more real estate savvy and more aggressive today than they were when they bought their first home. In addition, there are more young, professional, first-time homebuyers (individuals and couples) in the market today who are willing to take on additional duties if it means more cash in their pockets. Given this, it is not surprising that the number of homeowners selling their homes without the services of listing agents is on the rise. Homeowners who choose this method, commonly known as "For Sale By Owner" or "FSBO," are willing to do the extra work - post signs, arrange and pay for advertising, take phone calls and other inquiries, schedule and conduct showings - because of the significant money they will save if they are successful.

According to the National Association of Realtors®, about 15% of sellers moving to an upgraded home successfully sell the old one by themselves. About half that number try to sell their homes themselves, but end up listing with an agent. (Kipplinger's Personal Finance Magazine, April 1998, page 90.) Many people feel that the FSBO method is at least worth trying solely because of the substantial cost savings to the seller - 5% to 6% of the purchase price. On a $150,000 home, that's $7,500 - $9,000, a significant amount of money to most people! For the sellers, it may mean that they will be able to put more money down on their next home, buy a larger or more expensive home, or use the extra cash for decorating, landscaping, or any number of household purchases. Wise homebuyers may seek out the FSBO seller because of the perception that there is more room for negotiation within that 5% to 6% window.

With the rise in FSBO transactions, the client's need for a highly qualified real estate attorney is even more critical. Home purchasers and sellers are likely to confront a number of complex issues during and after the contract negotiation stage that can be resolved only by an experienced real estate attorney. In addition, the seller must comply with various state and federal disclosure laws timely and accurately, which a qualified real estate attorney can handle.

Generally, real estate attorneys get referrals from Realtors and receive contracts for review after they've been signed. Although the clients' interests would be better served if they would engage the services of a real estate attorney before the contract is signed, the most common scenario is that the real estate agent sends the attorney a contract signed by both buyers and sellers. The attorney may or may not have the opportunity to exercise the attorney modification period. But in a FSBO transaction, there is no referring Realtor. How do you as a real estate attorney tap the FSBO market and increase the chances that these consumers will engage your services early in the game? Marketing consultants advise cross-selling and networking.

Cross-Selling
If you have a good client who always hires you for the legal work on the business he owns, try to connect with him on his personal matters. While he's in your office working through a labor matter or a contract negotiation, take that opportunity to inquire about other areas where he might need legal services or representation. Educate clients and prospective clients. Find ways to make them aware of the risks of proceeding into a real estate transaction unassisted, how you can help them through it, and why they should hire you in the early stages of the transaction.

Networking
Being active in your community is a way to build relationships and strengthen your credibility as a trusted adviser, someone who is plugged-in to the local scene and who cares about the community. There are numerous ways to accomplish this whether or not you are providing legal services: serving on the board of an organization, community group, or club; providing legal advice to your homeowner's association; and volunteering in civic or religious groups. Position yourself as a local expert by submitting regular articles to your local newspaper or volunteering to speak at various community forums. Once you've tapped into this growing market, how do you counsel the FSBO seller? What are the unique issues? Consider the following:

1. Advise your client on the importance of attorney involvement every step of the way. No matter how sophisticated the client, there is no better way to protect his or her interest than to have a real estate lawyer explain the various disclosure requirements that a seller must furnish to a purchaser or prospective purchaser. These disclosure requirements are mandated by the state and federal governments and failure to provide them may subject the seller to fines and liabilities.

 

  • Ensure compliance. Compliance is half the battle. Accurate, proper, and timely disclosures are part of the statutory requirements. The real estate lawyer will ensure that all statutory requirements are met.

     

  • Negotiate the terms of the contract. This is the most critical stage because once a contract is signed, the parties are bound by its terms. A qualified real estate attorney explains the terms of the contract and suggests changes to protect his or her client's interest in the real estate.

2. Explain the types of services you will furnish your client.

 

  • Prepare documents and provide advice on how to handle the sales transaction.

     

  • Manage all details so no deadlines or requirements are missed.

     

  • Represent the FSBO client at the closing, explain the documents, handle any last minute disputes, and follow up on details.

     

  • Many lawyers [ATG members] can also provide related services such as title insurance and assistance on various financing options.

3. Advise your client on how to market his or her FSBO property. Since FSBO sellers are not listed on the Multiple Listing Service, their access to the target market is limited. Further, real estate agents are reluctant to bring a prospective purchaser since there is no incentive for them to do so. FSBO sellers can increase exposure to the buyer's market in the following ways:

 

  • Advertise in the local newspaper, especially in the weekend edition for a Sunday open house;

     

  • Place a large, professional-looking sign in front of the home. The sign should say "For Sale By Owner" and include a phone number;

     

  • Provide flyers or brochures describing the home so interested buyers can instantly learn about the features of the home. Many signs are designed to house such flyers; and

     

  • Use the Internet - several sites have been constructed exclusively for FSBO transactions. The Owner's Network, www.owners.com, is the largest registry of FSBO homes in the country. Depending on the type of advertisement you want, the cost runs from $65 to $115 for a four-month ad on the Owner's Network site. The Owner's Network also offers information on local schools, comparable home sales, and mortgage information.

It is critical that an experienced real estate attorney represent the FSBO client early in the process. Real estate lawyers should reach out to this quickly-growing market segment. After all, buying or selling a home is the single largest transaction most consumers enter into in their lifetime. The role of the real estate attorney is invaluable.

EDITOR'S NOTE: This article was originally published in the Real Estate Section of the May 27, 1998, issue of the Chicago Daily Law Bulletin. If you would like to promote this service to your clients, order the ATG publication, Client Bulletin, Vol. 8, No. 2: For Sale by Owner: Navigating a Real Estate Transaction Without a Realtor. For more information, contact our Corporate Communications Department, 800.252.0402, and ask for Ed Sudlow or Elaine Oldham.

© ATG vol22atgc1298

 

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