How Consumers Should Weigh Up The Risks Before Going It Alone In Real Estate .

Canadians are increasingly growing an appetite for doing things themselves- whether to save money or be self-sufficient.  The world is evolving in such a way as to make it easier for Canadians to take matters into their own hands; there is software to do your taxes; online tools for travel arrangements and even online shopping, and the list of self-serve products and services grows.

One place that this “hands-on management” is extremely prevalent in Canada is in the Real Estate Industry. Changes to the MLS mean that, in theory, the business of selling houses is wide open.  But just because you can do it all alone, does it mean you should?

Selling a home is more than marketing and salesmanship.  There is documentation, contracts, transferring of property and funds- all of which require singular interests to be sought out and protected.

Typically, knowledge is power, but in this instance, is it really empowerment, or a dangerous case of a little bit of knowledge where a lot of expertise is ultimately required?

Like any major undertaking, perhaps the greatest risks are the ones you don’t know about. The business of selling and buying properties is no place to rush in blindly.

Ready willing and able, but capable?

Lending credence to the suggestion that Canadian consumers may possess more enthusiasm than expertise as they decide to sell their own homes, a poll recently conducted by TitlePLUS/LawPRO suggests that an overwhelming majority (97%) of those Canadians who chose to sell or buy their own homes were aware of MLS, how it worked- and ultimately, probably of the tremendous value of the tool from a marketing standpoint.

But shockingly, a minute portion of that same group- only 11%- were able to translate what the changes to the MLS meant to the process of selling or buying a home privately.

And perhaps most telling of all, 45% indicated that they would “now consider using a real estate lawyer and selling privately rather than using a real estate agent.“

"What these findings show us is that there is an appetite among Canadians to conduct the sale of their home privately," says Ray Leclair, vice-president, TitlePLUS. "But buyers and sellers alike need to recognize the limitations of going it completely alone because of the intricacies of the often perceived common transaction. Consulting with a real estate lawyer early on in the process can ensure that consumers' interests are protected and that they are armed with the most up-to-date information available."

Don’t bite off more than you can chew

Regardless of motivation to sell privately or not- it is the sheer size of the transaction within one’s financial portfolio- that should be reason to pause and fully take stock.

In taking on something so financially substantial- there comes an inherent presence of risk- and that is why, at the very least, the transactional component of sales process cannot be left to amateurs. Risk, however, can be mitigated by education and access to information.

Leclair says that size does matter.  And that you need tools- or support- to eliminate problems before they even begin. “Because this is one of the largest, and therefore riskiest, financial decisions many people will ever make, Canadians should seek expert advice early on in the process in order to ensure that they have access to all the necessary information in a timely fashion.”

“Real estate, although often perceived to be a common transaction, is a very involved and a problem-prone process. The TitlePLUS program has advocated for years that a person should have all the information about the property and the real estate process before committing themselves to a deal, in order to make informed decisions and properly protect themselves. This becomes more crucial if someone is considering proceeding with a private sale. “

Leclair, then is not necessarily advocating the type of service- he is advocating  for advice- and for its’ place in due diligence- which is a consumer’s best ally in protecting their interests- private sale or not. “We are not advocating any one option, but simply encouraging anyone interested in buying or selling to educate consumers to do so and protect their interests is to consult a real estate lawyer early in the process to better understand their options and the ramifications of choosing one over the other; to then properly plan for the exercise.”

Like so many things in Real Estate, it comes down to strategy- and to the execution of it; “The success of a real estate transaction increases when it is well planned, the potential issues are identified and provided for and the proper parties are brought in when required.”

Weigh all the facts

Seemingly, the motivations of selling privately are largely financial- but the risks of doing the entire transaction on your own are substantial. If all the facts are not considered, then there remains the possibility that you may ending up losing money through carrying costs and through other avenues- which outweighs the savings made on commission.

There is the possibility that a private seller may luck into a sale immediately, and save not only lots of money on commissions, but also save money on carrying costs. 

In this environment, luck must be contrived, not hoped for. In order to mitigate risk, a private seller must understand everything right from the get go- even if they end up selling privately; they must understand all scenarios- and that involves understanding all the variables, whether though consultation at the beginning of the process with a Real Estate Lawyer- or with a Realtor.

Cathy Mudge, Sales Representative, Royal LePage 1st London Real Estate Services, Brokerage has had the opportunity to provide service to several clients who have first tried the FSBO route, but had little luck.

She reminds that she does not get paid unless she is successful in completing a sale- and for her, the successful sale comes about in providing end-to-end service.

“As a realtor, working on a contingency basis, I don't get paid until I am able to execute a successful sale. So I'm investing time and money into education, insurance, technology, security systems, marketing tools, relationships, meeting with buyers, pre qualifying buyers, educating buyers, showing properties, building relationships with other buyer realtors, lawyers, moving services, home stagers, mortgage lenders, upgrading contract skills and resources, negotiating, advising, researching market trends and sales, and so much more, so I can provide valuable service  and protection to my clients, while seeing them through to the very end so they can realize a successful sale, and purchase of their next home.”

In her experience as well, there are instances that owners could have benefitted from advice, before they even started the process- case in point- her clients. Mudge worries about sellers who are lured in based on commissions savings only, and who don’t weight everything equally.  “Unfortunately there is a lot of misinformation out there. These FSBO companies perpetuate the myths, and prey on unsuspecting sellers who think that by paying a FSBO company hundreds (sometimes thousands) of dollars up front, they will still have a successful sale, and save thousands that would otherwise be paid to a realtor after the sale is complete.”

Again, best decisions are made by having all the facts in front of you.

Is handing the reins over losing control?

For consumers, sometimes it just makes sense to take control ultimately by handing off the process to someone else.  Lesley Kelly, after consideration of all the possibilities, still elected to use a Realtor- because it fit best with her needs; ”Despite having a positive experience purchasing our new home through a private sale, we felt that it was very important to use the services of a realtor for the sale of our current home. As busy, full time working professionals and parents, we didn’t feel that we had the time to devote to adequately promoting our own home. We also felt that there was a network of resources which are still primarily available only to realtors... We also felt that the type of expertise and experience that a realtor could provide in terms of comparable market values and pricing was invaluable.”

Regardless what route consumers choose, it is essential to do the homework. Leclair suggests that  those who don’t make themselves aware of the implications of entering into the sales process alone, do so at possible peril. Things may work out- but they also may not- and without the advice of an expert, you are leaving the outcome largely to chance.

He suggests that those considering a private sale weigh through some sample questions, which he believes that many consumers do not readily know about; “Who prepares the agreement of purchase and sale?  Who negotiates the deal?  Who will prepare the house for showings?  Who will show the house to interested buyers?   How to price the house - How to determine its value?  Should there be an inspection report available for prospective buyers?”

Not just about peace of mind

Leclair too, suggests that the impetus for expert advice goes way beyond moral support through they sales process; “This is not simply a peace of mind issue but it has fundamental legal, financial and practical implications for the parties to the agreement of purchase and sale.  This is a legally binding contract once signed by the parties and before signing, they should understand what is being agreed to (does the written text reflect the intention) and does it address all the necessary issues.  Only then will surprises be avoided and the parties successfully accomplish what they set out to do.”

“Whether a real estate agent is involved or not, a purchaser or vendor should consult a real estate lawyer early in the process.  Then they will have peace of mind that comes from knowing they understand the greater financial and legal implications involved and have properly protected their interests in what is likely the single most expensive transaction they will undertake. “

Part of charting a successful course, no matter where you are going or what you are doing, is to flatten the potential impact of risk brought on by unanticipated events.  In the case of Real Estate, this risk can be neutralized and managed better through education and consultation at the beginning of the process- from an expert that meets the required need.

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