Wouldn’t it be nice to bypass all the marketing required to sell a home — especially people coming through at inconvenient times and public open houses — and sell directly to someone for a price you can live with, without the fanfare?
There are times when a sale off-market is appropriate.
For instance, an elderly man decided to sell his house for $1 million to a contractor he knew. He let his co-trustee know what he’d verbally agreed to and she got into the act. As a trustee, she owed a fiduciary duty to get the highest price possible for the trust. She knew that $1 million was too low.
After canvassing the local real estate community, it was determined that the house was probably worth about $1.4 million on the market. But, the co-trustee agreed that the property needed to be sold and that it probably would never be put on the open market due to health issues in the family.
The prospective buyer also agreed that the price was low. However, he couldn’t afford to pay more than $1.2 million. Both trustees thought this was an acceptable price since no commission was involved and the house had some issues. For instance, part of the house was built over the septic tank.
The buyer was a contractor who was aware of the property condition. He was also willing to let the seller rent back cost-free as long as was necessary until he found an acceptable retirement home. These concessions made the deal more valuable than the $1.2 million price, which was accepted by the seller.
HOUSE-HUNTING TIP: The biggest problem with selling directly is that the property doesn’t receive the benefit of marketing exposure. Professional marketing introduces a listing to a broad range of buyers. In so doing, a price is determined by what buyers are willing to pay. When a home sells without marketing, the sellers don’t know if they could have sold for more, and the buyers don’t know if they could have paid less.
In neighborhoods where homes are more alike than different, and were built at the same time, it may not be that difficult to establish fair market value, if there have been a lot of recent sales.
In neighborhoods with a diverse housing stock and few sales, it may be difficult to arrive at a price without professional assistance. One approach would be to hire a knowledgeable local appraiser to do an appraisal on the property. However, appraised value is not necessarily market value. The only way to determine the marketability of a home is to put it on the market.
Residential real estate transactions can be complicated, especially in well-established areas with an older housing stock, disclosure requirements and local compliance ordinances. In the above example, the co-trustee was a real estate broker who handled the transaction for free. So, an experienced professional was involved in the sale and made sure that all mandatory requirements were met.
Property condition has a big impact on price. A seller who is not aware of disclosure obligations (which vary from state to state) and who doesn’t have recent inspections of the property might not provide the buyers with the information they need to determine the price they should pay.
Even in situations where the sellers don’t want to expose their property to the market, professionals (real estate agents or attorneys and inspectors) should be involved to make sure that the transaction is completed successfully and that the buyers and sellers don’t end up suing each other after closing.
THE CLOSING: Neither the buyers nor sellers get a good deal on a transaction that closes badly.