“For Sale by Owner” or “How to Leave Money on the Table When You Sell Your Los Altos Home”

Earlier this month a home in South Los Altos closed escrow.  Nothing new or exciting given that approximately 12 homes a month close escrow in South Los Altos each month.  What is interesting is how this home was “marketed” and how much money the seller left on the table.  Let me explain.

Back in May/June of this year, this South Los Altos home was put on Craigslist as a “for sale by owner” listing for just under 1.2 million dollars.  The owner knew that he could sell the family home quickly (“because everything in this neighborhood sells quickly”) and reduce his selling expenses (by not having to pay a listing agent side commission).  Selling by owner is a viable option for sophisticated sellers who have the knowledge, time, energy and resources.  Unfortunately, the “for sale by owner” route didn’t work out as well as I think the seller would have wanted.

The house sold quickly and closed escrow in early July.  However, the sales price of $1,140,000 was substantially below market given the recent comparable sales.

The new buyer-investor did a modest remodel (a flip kitchen – looks nice but not something an owner would put in for themselves, interior paint, patio and landscaping etc.).  The home was listed with an Realtor, placed on the multiple listing service and sold in one week for over 1.36 million.  I estimate the net gain (after all expenses and fees) to the new owner-investor at approximately 100k.

Had the original home owner’s heirs marketed the home correctly, they would have received more money.  Instead an investor bought the home under market and sold it for a substantial profit.  It is sad, but a sizeable amount of the investor’s profit was the equity that this family had earned over it’s 30+ years of home ownership.  It should have gone to the original homeowner’s heirs, but instead it went to an investor who owned the home for less than 4 months.

Yes, the remodel added value but as all investors who buy a home in order to flip it for profit understand, the big money is earned on the initial purchase and subsequent value is added with any remodeling.

By the way this remodel was very limited in scope relative to the usual flip that happens in Los Altos.  Usually an investor will remodel the kitchen (with median-higher end finishes), remodel all bathrooms, change out all windows, add crown molding, change out the baseboards, change out lighting, re-finish the hardwood floors and/or replace carpeting, paint and landscaping.

Two reasons I think the flip was limited in scope:

1. Time constraint issues.  A complete remodel would push out the date the home would hit the market to late fall when typically there are fewer buyers
2. They made a sizeable profit when they bought it “for sale by owner.”  Further remodeling would have reduced the profit margin percentages.  They could have just painted and landscaped and still made 70k profit.

Lessons Learned:

1. “For sale by owner” properties attract buyers who are probably more sophisticated than the average home seller.
2. Selling real estate to maximize one’s profit is not as easy as it may appear.
3. Get advice from experienced and trusted sources.
4. Exposing the home to the largest pool of buyers generally yields better results
5. Taking the emotion out of the deal usually yields better results.
6. Market timing is important
7. Property condition is important