FSBO Math – When Two Plus Two Equals Five

FSBO Math - The Problems of Buying Privately

I’ve written before about the potential downsides for buyers when it comes to the purchase of a private sale. A recent example highlighted this for me, yet again. Let’s call this one A Tale of Two Townhomes.

So, on this particular street was the subject property along with two recently-sold units. One sold for $309,000 and was an identical layout; however, it had a finished basement with a second bathroom, den, and fourth bedroom. From a market value perspective, that adds significant value. Another unit a few doors down was an even closer comparable because, like the subject property, it had an unfinished basement. It sold for $289,900. The units were almost mirror images, with one exception: the subject property was an end unit.

Well, here’s the thing about end units. People tend to make blanket statements about how being an end unit equates to added value. Possibly. But for starters, it depends on the way the townhouse complex is designed. Sometimes an end unit means added privacy and extra square footage. Other times, the end unit is actually smaller, could be closer to a busy street or even the complex dumpsters. I’ve seen it all. And while one buyer appreciates a few extra windows on that outside wall, another more practical person worries about higher utility bills. Love a side yard? Great! Some buyers see it as wasted space to maintain (and pay taxes on.)

But back to the math.

In the end, the subject property sold privately for $302,000. On the surface, that falls between the two comparables on the street. Except that it doesn’t. The two comparables sold on the MLS and their sale price reflects fees to Realtors that represented both buyers and sellers. Assuming that the private sellers paid out 2.5 per cent of the purchase price to that buyer’s agent, the other 2.5 per cent remains in the hands of the private sellers. Are they happy? Of course they are! But, in my opinion, the buyer overpaid, and here’s why.

When you factor in fees at an average of 2.5 per cent, this buyer effectively paid $550 more than the house down the street with the finished basement – and over $20,000 more than the unit a few doors down with the unfinished basement. Did the Realtor representing the buyer explain all of this in detail? I certainly hope so. I hope that buyer went into the deal with eyes wide open, because more than likely in a few years’ time he’ll be looking to sell that investment. I’d sure hate for him to be surprised to hear that his only chance of getting a return on that investment will be to find someone who, like him, is willing to overpay for property. Who knows what their discussions were or what his expectations or plans down the road will be.

The only thing I know for certain is that any future ill-informed future buyer won’t be my client. I’m not in the business of helping people lose money in real estate. 

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