2 Reasons Why 70% Of Private Sale By Owner Transactions Fail

Private sale by owner
Avoid the 2 reasons why most private sellers fail

A growing number of home sellers are dissatisfied by the prospect of using a real estate agent for a range of reasons.  The majority of these people believe that a private sale by owner is the only other option they have.  For many years, this was indeed the case, however, as you’ll discover towards the end of this article, there is another option.

The high cost and the perception of how little agents do are the main reasons why many vendors consider selling privately.  Unfortunately, there are many dangers and pitfalls to a private sale by owner, which hardly any vendor is aware of, or ever considers.  Two of the biggest mistakes private sellers make will be outlined in this article. 

These are the two biggest reasons why up to 70% of for sale by owner transactions fail.  This is a tragic statistic, which hardly any private seller knows about and which most of them fall victim to.  The good news is that these mistakes can be avoided.  

Sale By Owner Ignorance Of The Immutable Formula That Makes A Property Buyable

Private sellers are right in believing that real estate agents don’t sell homes.  You can read about the reasons why here and in this published book.  However, they are wrong in believing that a home simply sells itself.

A home, or any property for that matter, is never sold.  It can only become buyable and there is a formula  – not a person – that helps to achieve this.  This formula doesn’t care who follows it or how much you pay for it.  There are five main steps to this formula, which consist of five P’s: Preparation, Presentation, Pricing, Promotion and Parlaying. 

This formula exists solely to create two things: Awareness and Perceived Value.  These are the only two reasons why anybody buys any property.  Think about it:  Would you buy a property you didn’t even know exists?  Would you buy a property where you feel you didn’t get your money’s worth? 

A well promoted property will create awareness amongst those who are looking for exactly the type of property being marketed.  Unfortunately, this is the only focus of most private sellers, because they mistakenly believe that once the home is advertised to enough people, it will sell itself.  A property will NOT sell, just because it’s for sale.

Even if the whole world knew about a particular home, no transaction will ever take place unless buyers perceive value in the property, which is exactly what the combination of preparation, presentation and pricing will create. 

Parlaying is much more than just the delicate negotiation process, which helps to discover the ideal buyer’s absolute highest limit.  It includes all communication from the first encounter with a prospect.  The nature and style of this communication lays the foundation for a smooth transaction.    

Unfortunately, most for sale by owner campaigns are conducted with complete ignorance of, or disregard for the 5 P’s formula or how to execute the many intricate steps under each of the 5 P’s.  This is why buyers do not see perceived value in most private sale transactions.

Sale By Owner Ignorance Of The Endowment Effect

The endowment effect is perhaps the biggest killer of private sale by owner transactions.  This is especially so when combined with the disregard for the 5 P’s formula that makes a property buyable.  

In behavioural psychology, the endowment effect simply means that we value something higher than what it’s actually worth, simply because we own it.  You may see how detrimental this can be to any campaign where the vendor believes their home is worth more than it is, and overprices it as a result.  

Many real estate agents – often without knowing it – play on the endowment effect of home sellers, when they appraise a property in order to win the listing.  This is why you should always avoid real estate agent appraisals – you can read more about why, here.

The endowment effect creates a second problem for private sale by owner transactions.  This second problem makes the mistake of overpricing a home even worse.   Those who believe their home is worth more than it is – which is most private sellers – are unlikely to put as much effort into the presentation of the home as they should. 

Why would they, if they believe that it is already worth so much as it is, right?  An overpriced home, which is not presented optimally is very unlikely to convey a high perceived value to any buyer. 

In summary, the two reasons why around 70% of all private sale by owner transactions fail is firstly because the owners have no idea of how to create perceived value, using the 5 P’s formula.  Secondly, this is made worse by the endowment effect that creates unrealistic price expectations, leading to an overpriced, inappropriately presented home, which is unlikely to be bought.     

There is a way to avoid becoming a terrible private sale by owner statistic, by avoiding both of the commonly made mistakes mentioned above.  You can easily achieve a record price for your home, without the ridiculous cost of a real estate agent or the risks of a private sale. There is a short video that you can watch here to learn more.

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