52. HOME SERIES 8 OF 8 – FOR-SALE-BY-OWNER (FSBO) SELLERS

Home Series 8 of 8

Adrian   00:02

Hello future millionaires and welcome back to the get rich slow podcast. We’re your hosts, Adrian Schermer, Rob Delavan and Lance Johnson. Good morning, gentlemen.

Rob Delavan   00:10

Good morning.

Lance Johnson   00:12

Good morning, Adrian.

Adrian   00:15

And thank you for joining us here for part eight of eight in our series on real estate. Obviously, real estate is going to be a subject we revisit a number of times, but this is focusing on some of the National Association of realtor data and how it pertains to the market in the recent year.

Rob Delavan   00:34

Excellent and you can find us on Apple podcasts, Audible, Spotify, Amazon music and probably dozens of other platforms. Also, our video streaming of this is on YouTube on our channel and I wanted to just actually ask you, Adrian, about where you’re at and why and I think there might be a little bit of a success story there.

Adrian   00:59

Yeah and there’s a photographic hint behind me, it might be a little difficult, even in the video to see. But behind me is the coast and it’s the Nubble lighthouse, allegedly, I hear and I was raised in this town. So, this might be one of those expanded legends but the Nubble lighthouse is one of the most photographed buildings in the world, the most photographed lighthouse in the world. Just because of the way it is, allegedly, yeah. Every town has its biggest fish story. But yeah, here I am in York Maine and I’m here because of my brother’s wedding and normally, if I had many of the other jobs that I had in my past, I would have had to zip out here for the wedding only I would have missed the bachelor party that happened two weeks prior, which is just last weekend now for me and I would have had to sort of position myself for I don’t know, maybe a week off. You know, that’s how jobs are on this part of the world anyway, you can only take so much time in a year. But I’m very fortunate because my job gives me the ability to work remotely, I was even able to help a client in the middle of the bachelor party and it was in the morning, mind you before any festivities but and I’m able to rely on a team of people who keep the machine running when I can’t be there to man that controls and I know that you both have experienced this too, is that kind of fun moment where you go.

Well, I hope everything goes well and then you come back and you realize just how much work got done while you were gone and you start to question whether they actually need you there at all. But that’s a good sign in the team. You know, obviously, it can’t sustain forever. But to be able to take time, I’m taking a nearly month swath of time off and I’m doing a lot of work while I’m here which on the front of things might seem like a downside. But the reality is I get to chunk my vacation up instead of trying to cram everything into you know, one week of freedom. I can go okay, I’m going to work a couple days and then I’m going to have this time, I’m going to be able to have dinners with family and work during the day and it’s a really freeing and beautiful thing to be able to have that much flexibility to be able to shoot video from a different place.

Rob Delavan   03:24

Same thing and actually also in Maine, which is interesting, Adrian your Maine internet glitches out there for about 10 seconds…

Adrian   03:34

I did, I think we’re gonna have to edit around this actually, because I’m…

Lance Johnson   03:39

I think this is great. So, I think of this success story. If you were in Portland, you would have work would have been around the wedding, right or your personal life is around your work and you would have gone in to whatever you could go to. Now you can move your work to the wedding and still do the same thing like you were in so it’s, I mean, that’s the world now today is we have that advanced capabilities of doing both and it doesn’t matter what town you’re in, which is kind of cool, you know, in, in certain industries, right. So, like, if I’m an auto repair shop, I can’t bring that you’re right. But in the financial mortgage real estate world, you can do it from where ever, I think it’s very lucky from a cruise ship ones.

Rob Delavan   04:27

Yeah, there you go. So, I want to point two things out number one, Lance does this in Maine for around a man two to four weeks a year because that’s your family heritage home up in northern Maine and I had the distinct pleasure to join you guys for a week and a half on that a couple of years ago, which was cool. The second thing I want to point out is the balloons to glances left, we had a birthday boy this last week. I think it was what like 34 Lance…

Lance Johnson   05:01

34.

Rob Delavan   05:02

34. So, you know, maybe just add the better part of two decades to that. But hey, you know, not not a full two decades. Anyway he does get a little feisty, but we were able to celebrate just a little bit of his birthday this last week, so it’s always (No audio).

Lance Johnson   05:44

What’s today’s podcast? You’re gonna talk a little bit more about that.

Rob Delavan   05:52

So, Arian, you can edit this section out. We’ll do another pause here.  Yeah. Adrian, you were gonna do events and then it’ll show today’s podcast. What is the next thing so okay, Avery we’re gonna pause here. We’re gonna pause for a few seconds starting now Avery cut it on out.

Adrian   06:17

As usual, you can find out more about what we’re doing locally at ROI-fa.com/events. We’ve got a ton of learn and grow events coming up. We’ve got our summer bash in August and I know you guys have been as excited about the photos with Santa. It’s a little early to be talking about it. But we’re going to be doing some photos with Santa in November, which is really cool. So, you can get those Christmas card pictures out. So, it’s not a bad time to start thinking about it.

Rob Delavan   06:44

Yeah, that’ll be a fun one.

Adrian   06:49

In today’s podcast we’re gonna be discussing for sale by owners or as we say fizz bows, based on stats received from the National Association of Realtors, from July 2020 Through June 2021. The information’s provided supplies, understanding from the consumer level of the trends that are transpiring, if you want to read the full article, you can see page 9 of the NAR article. The section is titled, for sale by owner FSBO sellers and we’re gonna have a full link to the article in the works cited on the show notes. So, anywhere you’re watching this, check out the show notes, you can actually go and check out some of this data yourself. Draw your own conclusions. All right, Rob, let’s start off with you. Based on the statistics from the NAR article 57% of for sale by owners knew the buyer of the home, what have you found, in your own experience to be true?

Rob Delavan   07:50

So, this number actually doesn’t surprise me at all but it probably surprises the folks that that aren’t exposed to, you know, what I, in my day to day experience have of, hey, do I try to sell the home by myself and try to save on brokerage commissions? Which, you know, my company is, you know, in that 5 to 6% range or do I try to do it myself and this 57% of for sale by owners knowing the buyer. The reason why it’s not surprising is we see this all the time is we’ll get the call, hey, can you sell my house, unless we can sell it to our tenants, or unless we can sell it to you know, my son and his soon to be wife or, you know, unless I can sell it to a family member or the friend or whatever and it’s always an interesting conversation because I always say great, we’d be happy to help you and then end up with the responses. Okay, you want to sell to this person? What numbers have you discussed? Oh, well, we haven’t but we want to give them a good deal. Okay. So, that person, whatever it is, is the recipient of a below market deal and there’s some statistics that we’ll talk about later in this episode, about average sales for sale by owners. This is a key component of that is a lot of for sale by owners, they just it’s a private deal. They don’t necessarily want or need to pay a broker and a commensurate brokerage commission to do that and it’s because they’re giving somebody a smoking deal. So, there’s an element of that, that you know, we just we have to cover in this topic. So, yes, I have found this to be at least half the time and according to this article and for sale by owner section in this article is we’re looking at okay 57%. So, over half, yeah, selling it typically to someone and they’re selling it below market. So, that’s the short answer and we’ll I think we’ll develop that a little bit more in the conversation as we continue here.

Lance Johnson   10:26

Okay, Robin, Adrian for our listeners when a homebuyer is purchasing a for sale by owner, are there any differences on the lending side of things?

Adrian   10:38

Yeah, that’s a fun one who’s asking that question? I think that the official response is supposed to be no, it’s not different and from like, a technical nuts and bolts standpoint, no, in theory, there is no difference. They are not going to look at the contract and go, oh, we need to set an extra set of rules for you because it’s a for sale by owner, nope. Same debt to income ratios, the same credit score requirements, same asset requirements, same down payments, etc, etc. There’s no difference in the written rules. That said, there are differences in my experience and how smooth these transaction are. You just kind of glazed over pretty, not glazed over and you went into it. Pretty important statistic 57% of people have an existing relationship with the person they’re getting into this Fizbo relation, you know, contract with, it can be messy, I do find that it gets messy a lot of the times, I end up being asked questions that are realtor questions and I very often have to tell people, it’s in your best interest to not ask me this question. I am not a subject matter expert. Even if I sort of know the answer to this, you might as well ask me to do your tax return, I could probably do a tax return, I don’t know that it’s going to be right but I could do it and we could just cross our fingers and hope for the best and I think there’s also this degree of just, you know, everyone has a different and this is where you guys become so important to me. You know, I think a lot of people get into a for sale by owner because they go, I already have a buyer, I already have a seller, whatever it is, I already have the relationship and I see a real estate professional as only someone who is finding the person to buy my house, they’re the salesperson for me and the reality is that you guys are much more involved in the meat and potatoes of the legal side of things and the negotiation part more than anything. So, finding out what’s important to each side and finding a middle ground and offering that barrier of, you know, if you’re asking the seller directly as the buyer a question, you’re gonna see their emotional reaction right away and you guys offer that sort of, okay, I’ll take this to this person and then you can have the full discussion and then you can come back with just the offer. This is how business negotiations happen to, you know, you’re not just sitting there spitting at each other across the table. There’s a lot of foresight put into those offers in those plans. So, it’s messy, it’s messy is a lot of the times it is messy. Sometimes it’s clean. I’m not saying you’re gonna have a bad experience, just because you do one of these, but I would really come into it. You got to really have a plan.

Rob Delavan   13:18

Yeah, and from a lending standpoint, I will say this, because Lance, I know, there’s some conversation we need to have on this to Linux, the single biggest thing I say, without like, you know, dogging on this situation, right. Which, obviously and full disclosure, right? Disclosure, you know, for sale by owner, there is not a real estate broker that’s being paid. So, I always have to acknowledge, hey, I’m not getting paid for this job. You know, you’re trying to do it yourself and I understand that there’s financial benefit to myself being in the real estate industry as such that, hey, if you use the real estate industry, there’s benefit to that. So, you know, you’re going to the, you’re going to the guy who’s eaten at the table and saying, hey, hey, should we put food on your table or not, is the question, so I have to, you know, disclose that what I will say on this particular question, on the lending side of things in a for sale by owner whenever I’m approached or have a conversation or there’s a possibility that they will sell to that family or friend or whoever it is, tenant sometimes is, make sure before you have any number of conversations that you get as a seller, you get a pre-approval letter that’s dialed in by a reputable lender because what happens is these buyers, oh yeah, I love to buy a house and they can’t or they can qualify for 400,000 when the home is a $600,000 house and you know, those sorts of things. So, that’s the piece. Lance, I know you have some insight into this there’s also and, you know, I would say you talk to people about this fairly often.

Lance Johnson   15:06

Yeah, I mean, there’s all sorts of things like so. I mean, we got to recognize that the internet makes everybody more knowledgeable and it gives. So, you can look up all sorts of things like I could overhaul Ford Mustang 1968 Ford Mustang and watch a YouTube video on how to redo the engine doesn’t mean I have experience on doing it. It’s just the internet is made more and more people have access to how to do it, if you will. You could do a heart surgery and watch a video on it or a leg hip replacement.

Rob Delavan   16:18

Hey, Adrian, the recording stopped for a second there?

Adrian   16:26

Yeah, Avery is gonna have to edit here. Lance, you said hip replacement and that’s where I lost? Yes. So, we can pick up on your automotive and highly relatable, by the way, automotive?

Rob Delavan   16:37

Yeah, save and save a little bit of this Lance for Question three, because I’m going to give…

Lance Johnson   16:42

So, let me just finish out but is just, it’s at the end of the day, we’re here all the serve the client and when we can provide value, is the question of the value is different for when you are full service when versus like, I’ll give you an example. You tip, a restaurant that you do a takeout order the same as if you got served in the restaurant, right? Okay.

Adrian   17:11

Yeah, I like that counter service or table service.

Rob Delavan   17:15

Right, well, the answer would be no, is if I’m getting a sandwich at Subway, I’m not going to tip 20% versus sitting down at fine dining where, you know, we’re going to be at 20%.

Lance Johnson   17:24

And so I look at some of these sales by owner scenarios, there’s still value to add because it’s a complex transaction and there’s buyer beware seller, beware all that kind of stuff and so the question is, you know, does that person want that feedback that value? And then at the end of the day, should you get paid for that value and I think it’s just, you know, we know how to do full service and we know how to do no service, right? Don’t get involved don’t add value. But it’s that in between where there are some partial value that needs to be given and then how do you get paid? And I think the real estate market is trying to address that, you know, there’s different companies that are giving those things and you just, it’s awkward, right? We know how to do full service we know how to do and there are all sorts of example, if I got half a haircut half the time if it takes half the thing, or if I’m just going to shave the head. You know what I mean? Like, there are so many examples we can give, it’s tough to be I kind of use the example this falls into that. Can you be partly pregnant? And I often you often hear me talk about this. It’s hard to be partly pregnant, in conversations and you just, it’s either full service or no service, what’s the partial service and I think there’s so many examples of that, that it just it’s a difficult conversation. That’s all it’s just, if you are going to add value, you should get paid for that.

Rob Delavan   19:07

Right, which segues perfectly into the third question here. So, Lance, I’m going to start this one with you and then this, this one gets kind of fun. Based on the stats, these fizz bows for sale by owners typically sell for less than and I got it up on the screen here now, for less than basically home sold at a medium of 260,000 in 2019, which is significantly lower than the median of agent assisted homes at 318,000. So, it’s a $58,000 difference. I did the rough math napkin. It’s like 18 19%, something like that. In your opinion, given those statistics and this is is national and there’s always maybe slight regional changes and obviously, my West Coast and East Coast listeners are going to be like $260,000. What the hell can you buy with that? You know, nothing but hey, you know, there’s the middle half of the country that that is, you know, in that range. So, in your opinion, Lance, why would you recommend your clients work with a real estate professional versus doing a for sale by owner considering those statistics and by the way, all statistics are in this article and we have at the bottom of the page.

Lance Johnson   20:35

So, many things come to mind on that. So, again, as a financial advisor, you know, some of these higher end homes, they’re more complex. There’s so many things that have to go behind this one statistic, right, like you know, being a financial advisor, you know, what’s the average age of the home that would come to mind? So, you know, the value of the house, the bigger homes, the more complex, the ones that, you know, there’s all sorts of stuff.

Rob Delavan   21:09

How many real estate transactions has this person done? I mean, yes, it’s definitely an oversimplification.

Lance Johnson   21:19

So, one part of me that comes out of mind is where I think and again, I don’t know what the underlying but you know, when you’re going to pay 5 or 6%, for a real estate agent, generally those homes will price in that whereas if you sell by owner, so I bet there’s 18 to $30,000, that are priced in to the increase that is suggesting that, hey, if I’m going to use an agent, I’m going to net out and I just think there’s some of that that happens.

Adrian   21:56

I definitely heard that in the negotiations, I’ve had people come to me and say, well, we’re chopping it down by half, you know, we’re gonna split the difference.

Lance Johnson   22:05

We’re splitting the difference. So, you get both get a benefit out of it.

Adrian   22:09

And you get your family to family discounts might be a factor in here, too.

Lance Johnson   22:13

Yeah, could be that, you know, the owner. So, question one was 57% to the owner of the Fit For Sale By Owner, but the sale by owner, what you’re not getting is might only be I don’t know what the statistic is, but might only be 20% of all the sales being sold and then add them, the 20% 50% 57%, the owner, you see what I’m saying, there’s a kind of a play on statistics. It’s not that 57% of the homes are sale by owners, it’s 57 of the sale by owners know the owners, right, but how many of the total sales are done by so there’s like all sorts of things that come in. But I do the biggest thing that I think that happens, where a real estate agent, especially in a seller’s market, is that you’re removing the seller in negotiation and when you’re for sale by owner and it’s not the you oh, you know, the owner, you’re really kind of in the would you say Adrian earlier about is the initial surprise, or reaction to the negotiations really kind of…

Adrian   23:36

Emotional reaction.

Lance Johnson   23:37

Whereas I’ve seen you, Rob, sit there and you know, you take in a bunch of the things and you have this excuse, that excuse you have this comment to be like, you know, I have to check with the owner and whatever it allows you to do is play a poker hand and take in additional offers and you know, without showing your and you’re less emotional, you can talk it through the owners get all the data, you know, whereas when they get those initial offers, sometimes they’re ready to go and they’re really showing their hand and I think you can bid people up against things and that’s what you get paid for, right, to be a good negotiator we talked about in other episodes, I think that’s a real for a selling person, I think that’s a really good and that drives the price up and that’s what you want to do when you’re selling a home right, especially in a seller’s market and then I’ve seen you on flip sites where you know, you’re one of 20 offers and so how do you help a client distinguish and get them prepared and things like that and I think all that really adds to that difference in price is there’s two It’s accumulation that adds value to that and I think that’s why the difference exists there.

Rob Delavan   25:07

Yeah, you know, at the end of the day, you’re going to be different in your industry if you’ve done it for, you know, a decade or more typically unexposed.

Lance Johnson   25:20

I think it’s, there’s so many examples of, you can do so much and learn from the internet, but experience, it’s like, you know, my wife hates to cook, you know, or you know, she’s a great cook, but like, you know, it’s just to be a short order cook for 10 people sometimes not that we attend, but like, it’s like timing everything and when you’re a cook, you kind of know when to start certain things so that the whole meal comes together, right? So, when you’re a chef and same way with financial, there’s like certain things I know, I would do differently with clients and finances. Like when you deal with stretching your dollars with taxes, in that experience, that I think also amounts to 10, 15 $20,000 how you set up the house, how you put certain things into a house that better sell it, like when we had this tremendous selling, you didn’t have to put any money, like I’d like to see as certain statistics that talks about this house has to be 318, but then you had to put so much more into the house. So, then you had to put 20,000 so the real net number is not…

Rob Delavan   26:54

It is in two things, only its price and product and so then any seller has to it’s hubris to think you can control the market, you can only react within what you can control, which is the way you pre strategically price within whatever product you have. So, the goal is minimize the inputs maximize the outputs by being strategic and you know, it’s different depending on the market. We’ve had a seller’s market for a number of years. But there was a time not that long ago, seems like forever ago, but we were struggling to sell houses and you had to bend over backwards. In fact, there was a short period of time where on the seller side, this was in the you know, 2010s, where you would actually let potential buyers spend the night in your house and experience it because you were trying to be clever and hey, if I can pull them in, if I can bake some cookies, if I can, you know, get them emotionally connected to this thing. They’re more likely to buy it because there was less buyers out there than there were houses on the market. Obviously, the flip has been true. But guess what it’s going to the flip side is going to happen. So, this is a fun conversation. The Fizbo thing, you know, there’s a bunch of nuances. Lance, I’ll let you finish this up on this. The fiduciary responsibility piece because I did ask this question about you know, you’re recommending clients, whether they’re working with a real estate professional versus doing it for sale by owner, you’re not necessarily making that recommendation. You’re saying do the math and your fiduciary responsible. You know, how do you make sure that you’re doing the right thing in that way?

Lance Johnson   29:10

Well, I mean, I’m always like when it gets to real estate and you’ve heard me say, this is somebody might have a friend of a friend and they’ll have that real estate, you know, I had a situation they gave a quote based on them and I’m like, you know, the Portland metro, I’m like, wow, I haven’t seen that price and I’m like, nobody’s given that low of a price on the sell the home and I get that if you lower the price, you get multiple bids and I just said to the client, I said, it doesn’t hurt you. They’re only looking at selling. It was a rental and I’m like, well maybe you rent it and do some remodeling. Maybe you sell it 1031 exchange it and you put some work into the house, but maybe not a lot 1031 exchange, you go meet with somebody, go look at a local area, go look at a vacation rental, you know, go look at some of those vacation rentals, like in the Sun River, Black Butte places, the coast and so forth, weigh your options, you know, take your time to do your due diligence, go meet with you, if now you have two opinions and if you need a third one, at the end of the day, you’re going to pick the person you think that’s going to help you solve your problem and add the most value. So, I’ll do that all the time and just say, listen, there’s nothing wrong with getting some data points and figure out, you know, having a plan on how you’re going to go at this thing and that’s the most important part is what’s your game plan.

Rob Delavan   30:56

Right! Yep and that’s one of the things that I appreciate is, at the end of the day, you know, I could sell houses all day long, which we do and that’s why we have the strong relationship between both of you at risk of blowing smoke, both of your backsides. You know, you guys do your very best every time to be fiduciary responsible and actually give those advice items.

Adrian   31:25

Yeah, I think that’s a big part. If there’s one thing that I think I feel like we might have glossed over here is this also this idea of, Lance, so you brought up an example of you can work on your own car, you’re right, I could rebuild a carburetor, I could, you know, change out something I’ve been there. I’ve been laying on my back, watching the YouTube videos, you know, like, I don’t remember it looking like this in the video and then all of a sudden, you snap the head off a bolt and that’s not in the video, he didn’t snap the bolt in half. Now, I don’t know what to do. I don’t know how to get a bolt out of an engine cylinder head. I am screwed and now I’m in the middle of my garage and not a shop or I use the example of like a plane. Pilots get paid six figures. It’s not because planes are hard to fly objectively, some planes can take off and land all on their own. They’re there because when the shit hits the fan, they know what to do. They know they’ve got the tarp ready and so there’s a component there of yes, you know, that person you’re doing a transaction with and you trust them. But the job isn’t just finding the seller finding the buyer making the house look pretty, there’s a huge component of knowing what to do when things go wrong and I do I make that little, you know, I wince a little bit when someone says, yeah, we’re not gonna do it without a real estate agent and I go, you know, there’s a few, there’s a number of agents that I work with, who will do it for a reduced fee, they’ll do something like 1%, they’re not really representing one side or the other, but they are drawing up paperwork for you and they may help with one of those pain points where you go, well, whose responsibility is it that this pipe is sheared and we can’t lend on this house until it’s fixed, or whatever it might be, you know, some of those objective things that can be important.

Lance Johnson   33:09

At the end of the day, it’s everybody gets to choose their future and just the way it is and you got to kind of let you know, it’s like watching a kid, learn new tasks. Sometimes you got to fail at something to learn the knowledge and sometimes the failure is so big that like, you’re like, oh, but, you know, everybody gets to choose their life and how they want to do it.

Rob Delavan   33:37

That’s actually a great way to close this. I appreciate that, as you know, it happens.

Adrian   33:45

And that is the end of this eight part series on the National Association of Realtors data that we were able to pull from this July 2020 to June 2021 dataset. We are super excited. I think I speak for the group. Right guys, are we super excited to see what the next one brings? I mean, this is a roller coaster set of yours, folks. You know, I think everyone can agree with that.

Rob Delavan   34:07

And it won’t come out until the end of the fall, which is a bummer. We always wish it was coming sooner, but…

Adrian   34:12

Probably leap on this one earlier.

Lance Johnson   34:14

Yeah. It’ll be interesting this year. I think it’s just interesting, you know, everybody values real estate are ridiculous here in Portland, you know and so everybody was like, oh, I’m just gonna wait until the market goes down. Well, the markets are gonna go down until something crappy happens in the market and stock and bond market and then it affects the real estate and then people get laid off on businesses and then people are hurting and then you can get some good buys and so it’s like, we got to get prepared. So, I’m looking forward to kind of one of our episodes, it’s like, how do we take care of a down market? How do we position ourselves? Yeah, I think our next financial when it gets into real estate and stock market is, how do we take advantage of all the things that people want? Like, we don’t want to keep on paying these exorbitant prices. You know, that’s called inflation, right? And so something crappy has to happen in order to get good buys and I want to prepare our listeners to take advantage.

Rob Delavan   35:21

Exactly, yeah, you got to be prepared. Yeah, so we’re excited about those episodes and then also, we have some more guests coming on the podcast. So, stay tuned for that. We’re looking forward to and as always, here’s our contact information up on the screen and it’ll be in the show notes and then disclosures thereafter. Thank you all for joining us from the west coast and the East Coast York main or national. All right but yeah, I enjoyed this series guys and I really appreciate the insight throughout the whole, wow, eight episodes. So, this was a fun one. Thank you all for listening.