Conventional wisdom dictates you must call your real estate agent whenever you want to sell your house. Entering into a legally binding, potentially counterproductive listing agreement is the conventional route most people take when deciding to sell their property. Most sellers enter into these agreements without thinking twice; it’s just the way it is — they rationalize.
For this and other reasons, most home sellers operate from the assumption that only real estate agents have the power to make real estate transactions happen. In fact, the national association of realtors, as well as individual real estate agents, spend millions of dollars in advertising every year to make sure you keep this mental association deeply etched inside your brain.
I once met a seller who hired an agent and willingly entered into an exclusive agreement right after he himself had found a buyer for his half a million dollar property. Sticking to the protocol instead of asking questions cost this man 6% in commissions he would have saved if he would have contacted a title company directly.
Of course, using an agent has its benefits, but the reality is that anybody can sell his or her own property. There is no law that says you must use a real estate agent when selling your house. There are truly unlimited ways of structuring a sale, both with and without having an agent involved. Here are five unconventional strategies you as a homeowner could use when selling your house.
1. For Sale by Owner (FSBO)
An FSBO deal is when a home owner decides to sell the home directly without listing it under an agent. Sellers opt for this method of selling their home for many reasons. Owner sellers can avoid paying the 3-6% commision included when selling a house with an agent. The downside to selling your house this way is that you will have to find the buyers yourself.
Selling a house “by owner” enables the seller to make more money through the sale but the seller is likely to encounter problems associated with not being a professional seller. Many FSBO sellers make the mistake of assuming that they can handle of the necessary paperwork, legal compliances and marketing and end up spending a lot more time and effort on selling the home than they would have it they’d just used an agent.
FSBO sellers also run the risk of inviting lawsuits if they do not follow all of the compliance laws that agents already know all about. The FSBO seller must be aware of disclosure laws as well as how to draft a proper agreement that the buyer won’t weasel out of.
To get around these hidden blockages a FSBO seller can list the property with an established real estate company but only pay a flat MLS fee once the house is sold rather than a percentage of the sale.
2. Equity Sharing
Equity Sharing is a simple form of ownership where several parties own a house and then share the profits of reselling it.
Two or more parties will put down the payment for the building however they will appoint one occupier to live there and make sure that it is well maintained. Equity sharing sounds simple at first but the complications come when it is time to assign the costs of upkeep and the exact limits of the occupier’s rights.
By the terms of most equity sharing agreements, all the parties share the costs of buying the property equally. These are known as Initial Capital Contributions. Further costs such as major repairs and maintenance are called Additional Capital Contributions and are also shared equally. Other costs such as mortgages, insurance and property taxes are paid only by the occupier. If the occupier is not able to pay these costs then his/her right to occupy is revoked.
The benefit to engaging in such an agreement is being able to have a stake in a home that you would not have been able to afford on your own and enjoy the future profits when they decide to flip the property.
3. Sell To a We Buy Houses Company
Professional home buying services offer a easy solution to anybody looking to unload a property quickly. They take ownership of the house and find a new seller for it themselves rather than simply listing it and letting the original owner know when a buyer becomes available. The drawback to using such a service is that they are likely to buy your house at a fraction of its market value, although the buyer won’t have to wait months before someone else buys it.
Another benefit is that the house buying company will take the house as it is. The original owner will not have to make any repairs or renovations before selling it. Professional house buying companies have all the necessary skillsets to make those repairs and usually do them to higher standards than the previous owner would and at a lower cost.
Sellers to these kinds of companies are usually struggling financially and are facing imminent foreclosure or bankruptcy which has led many people to believe that professional house buying services are immoral because they know that they can pay peanuts for quality houses from desperate people.
4. Rent to Own
Rent to Own contracts give tenants the option to outright buy the houses that they are renting before the lease agreements expires.
When the tenant signs the lease agreement the potential buyer puts down a non-refundable lease option fee. This option gives the tenant the right to buy the property however it is not an obligation. The lease option simply expires at the end of the lease agreement if the tenant decides not to buy the house.
Most lease option contracts have the price of the house fixed when the lease is signed. The tenant then has a portion of the monthly rent put towards buying the house outright at the end of the contract. 25% of the monthly rent is put towards the purchase price and is called a rent credit. If the tenant decides not to buy the house at the end of the contract, then both the rent credit and the option money are forfeit.
If the tenant does decide to buy the property then he or she will usually apply for financing in order to pay the seller the full amount at once.
Rent-to-own agreements are popular among people who are unable to secure financing to buy the home through a mortgage or who would like to live in an area for a time before deciding to buy the property.
5. Selling “Subject To”
Buying a house subject to an existing loan means that the seller is unable to pay off the existing mortgage and the new owner takes over the responsibility of making the payments. The balance on the existing mortgage is considered as a contribution towards the home’s purchase price.
Although the seller of the house is obligated to inform the bank that they are selling the property, in most cases the bank is simply happy that somebody, anybody, is making sure that the payments are made.
There are three main types of Subject To options:
- Wrap-around subject to:
- The seller is able to fix his own rates on interest to be paid by the buyer in order to make money on the existing mortgage balance
- Straight subject cash-to-loan:
- The buyer pays the difference between the loan balance and the seller’s purchase price with cash
- Straight subject to with seller carryback:
- The buyer could put down a fraction of the loan balance and pay off the other part of the mortgage already paid by the seller at an interest rate set by the seller but pay off the principal loan at the bank’s interest rate.
Such agreements are popular in markets that are experiencing rising interest rates because if the interest rate is 6% and the home’s mortgage is fixed at 4% then the new buyer can buy a new home at a reduced cost of borrowing money than he or she would have paid if buying a new house and taking on a fresh mortgage.