What to Consider When Thinking About Selling to a Friend or Neighbor

When selling your home you're almost certainly looking to maximize your net proceeds. It can sound very attractive when a friend or neighbor reaches out and wants to buy the home off-market – if everything goes smoothly you'll potentially avoid the entire listing process and not owe any fees for agents. At first glance, this might seem like an easy and convenient option, but it's essential to understand both the advantages and potential pitfalls before making a decision. Let's dive into what this process entails and how it might affect you.

The Potential Upsides of Selling Directly Off-Market

1. No Showings or Open Houses – Selling directly to an interested off-market buyer means skipping the days, weeks, or even months of showings and open houses. Keeping your home ship shape for prospective buyers can be exhausting and disruptive to daily life.
2. No Marketing – When listing with an agent they will typically handle the marketing for you, but when selling For Sale By Owner you take on the responsibility to market the property yourself. The more effective your marketing efforts, the more prospective buyers you reach, and closer you typically get to offers near, at, or above the market value of the home. When selling directly, you skip all that time and energy and negotiate with the specific Buyer in front of you.
3. Trust and Familiarity – There's a certain comfort in dealing with someone you know. You may believe that your friend or neighbor can be trusted to be ethical, honest, and forthright. If that trust is well placed, the transaction may be a very smooth one.
4. Cost Savings – When selling directly neither side is obligated to engage the services of a Real Estate Broker. Under ideal circumstances, by having less expenses in conducting the transaction, your net proceeds will be higher.

The Potential Downsides

1. Legal and Contractual Risks – Without professional oversight, there’s a higher risk of mistakes in the contract or overlooking necessary disclosures, which could lead to legal issues down the line. Language used may not be enforceable in the given state, or could strongly favor the interests of one party over the other. In other instances, the language might be ambiguous, with both parties interpreting it in different ways.
2. Underpricing the Property – By selling off-market, you're not exposing your home to the broader pool of potential buyers. This could mean missing out on higher offers or better terms that might have come from a traditional listing. A direct buyer such as a friend or neighbor may be offering less than the fair market value of home, even without malice – they simply may be unaware the home could command more on the open market.
3. Complicated Relationships – Mixing personal relationships with business can be tricky. If negotiations become challenging or if issues arise after the sale, it could strain your relationship with your friend.
4. Negotiation Challenges – You might feel pressured to give concessions to maintain a good relationship, potentially leading to a less favorable deal for you.
5. Lack of Professional Guidance – Seasoned real estate agents provide valuable services beyond pricing, marketing, and negotiation. For instance, they can assist in vetting a given buyer's ability to close on the terms promised, track important performance deadlines, and ensure their clients side step potential 'gotchas' or traps in the contract. Without their expertise, you might overlook critical details that could impact the sale, and your bottom line.

Navigating the Process Safely

If you decide to proceed with selling directly off market, consider these steps to protect yourself:

• Hire a Real Estate Attorney - Even if you're not using an agent, a real estate attorney can help draft and review all contracts, ensuring that the sale complies with all legal requirements.
• Get an Independent Appraisal - An unbiased appraisal helps establish a fair market value for your home, preventing potential disputes over the price.
• Set Clear Expectations - Approach the transaction professionally. Clearly outline terms and conditions to avoid misunderstandings.

The Bigger Picture

Selling your home is more than a financial transaction; it's a significant life transition. While selling to a friend or neighbor can offer convenience and familiarity, it's crucial to weigh these benefits against the potential risks.

In many instances not only will listing the home on market result in a higher sales price, but also in higher net proceeds to the Seller than the direct sale opportunity, even accounting for listing expenses.

Navigating the real estate landscape requires careful consideration and often, professional guidance. If you're contemplating selling your home—whether to a neighbor or otherwise—reflect on your priorities and don't hesitate to seek advice to ensure the process aligns with your goals. By interviewing one or more seasoned local agents you can review whether the direct sale opportunity is as appealing as it initially seemed.