Should you get help with the paperwork?

Selling FSBO doesn’t mean you have to handle the paperwork yourself. When you get an offer from a buyer, you can get broker representation for a small fraction of what you’d pay a traditional agent. Our affiliated brokerage, Chalkboard Realty, will provide seller representation from contract to close of escrow for just $3,400—and that’s payable only if escrow closes.

Arguments in favor of getting help:

1. Buyer’s agents sometimes set up the contracts so their buyers can easily wiggle out of them if better deals come along. A good broker will catch these tricks.

Example #1: In her offer, Betty Buyer made the deal contingent on her getting a loan at a 5% interest rate. Steve Seller agreed. Two weeks later, Betty Buyer declared that she wasn’t able to get such a loan, and she walked away from the deal with her deposit. By specifying such a low interest rate, Betty deliberately created a contingency that was sure to fail—giving her an “escape clause.”

Example #2: Bob Buyer made a low initial deposit of $1,000 on a $500,000 home, and agreed to increase the deposit by $9,000 two days later. Sally Seller agreed. On the day before escrow closed, Bob backed out of the deal. His penalty? Just the initial $1,000 deposit. Sally hadn’t noticed that she’d agreed to a standard clause in the contract specifying that only the initial deposit would serve as liquidated damages in case the buyer defaulted.

2. A good broker will see that the disclosures are handled properly.

Example #1: Scott Seller didn’t give Bart Buyer the Natural Hazard Disclosure Form until three days before escrow was to close. Bart, meanwhile, had found a cheaper house and wanted to get out of the deal. When he got the Disclosure, he claimed that he wouldn’t have bought Scott’s house if he had known the house was near an earthquake fault. He was able to walk away from the deal and take his deposit with him.

Example #2: Buyer Betsy bought Sally Seller’s house in 2005 for $500,000. In 2006 it was worth $400,000. Betsy, looking for a way to get her money back, discovered that a registered sex offender lived three doors away, and that Sally had never filled out a Sex Offender Data Report Disclosure Form. Betsy successfully sued to rescind (undo) the purchase.

3. Escrow officers offer only limited help. Their role is simply to follow the parties’ escrow instructions and prepare the documents necessary to close escrow. They have no obligations with respect to the disclosures that need to be made in order to comply with state law and avoid future litigation. It’s not their responsibility to catch your mistakes or offer advice.

4. A good broker will help you negotiate your contract, prepare all disclosures, coordinate inspections and appraisals, and maintain a timetable to help ensure everything gets done on time. He or she can also troubleshoot problems and “make deals happen.”

Example: Seller Samantha wanted to sell her home in June but she faced a prepayment penalty of $6,000 if the loan was paid off before August. Samantha’s broker called the lender and negotiated a penalty of just $600.

What about “errors and omissions” insurance?

Some listing agents get “errors and omissions” insurance to protect them from litigation in the event that the paperwork wasn’t handled properly. Agents often tout this insurance as a reason to hire them to help with the paperwork.

Be wary. Errors and omissions insurance is designed to protect agents, not sellers. If an agent is sued by a buyer, the agent’s insurance company may respond by suing the seller rather than extending protection to them. Indeed, a former litigation counsel for a Fortune 500 real estate corporation once told me that sellers are usually better off if the agent doesn’t have errors and omissions insurance. The best way to protect yourself from litigation is to be open and honest about any problems with your property, and to have an experienced broker or attorney review all your documents before you submit them.