When you’re considering buying a home and searching home listings, you might notice that homes for sale by owner are more visible than they used to be, thanks to the growth of online real estate marketing. Even casual home searches intended to satisfy curiosity about neighborhood price points will turn up For Sale by Owner (FSBO) listings.
Here’s what buyers should know before purchasing a home for sale by owner.
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How Buying a FSBO Home Differs from a Traditional Home Sale
A FSBO transaction follows many of the same steps to buying a house as the traditional home-selling process, with one major difference: the absence of a listing agent. That means buyers may need to ask more questions, confirm details in writing, and rely on their own real estate agent, attorney, lender, title company, and inspector to help protect the purchase.
If you're buying a home sold by the owner, remember that the seller who chooses a FSBO is interested in saving money, has the expertise to sell a home, or both. Some FSBO sellers are open to working with a buyer's agent, while others prefer to handle as much of the sale as possible on their own.
Much of the same information from a traditional home sale should be on your FSBO home purchase checklist, but buyers often have a few additional questions. To help you prepare, here's what to know before making an offer.
1. You can work with a buyer's agent.
Just because the seller chose not to use a listing agent doesn’t mean you have to handle the purchase alone. Buyers can still work with their own real estate agent when buying a For Sale By Owner home, but they should discuss representation and compensation before touring homes.
Many buyers are asked to sign a written buyer agreement that explains the agent’s services and how the agent will be paid. In a FSBO transaction, the seller may agree to pay some or all of the buyer agent’s compensation, but they’re not required to do so. That amount, like other real estate fees, is negotiable and should be addressed in writing before you move forward. If the seller won’t cover it, the buyer may need to pay their agent directly or negotiate another arrangement as part of the offer.
Some buyer's agents may be cautious about FSBO transactions because there may be more coordination involved when the seller isn’t represented by a listing agent. However, an experienced agent can help the buyer navigate the offer, deadlines, inspections, contingencies, financing requirements, and closing paperwork.
2. Know your state's real estate laws.
FSBO transactions aren’t exempt from state and local laws, and it’s important to make sure your deal meets required standards, especially when it comes time for seller disclosures, required repairs, contracts, and closing procedures. A first-time FSBO seller may not understand all the steps involved or the state's requirements.
State laws also vary when addressing the need for a real estate attorney. Some states may require that an attorney handle part of the transaction or closing process, while others don’t. The laws may even change from city to city or county to county. The specificity of their services ranges from requiring both parties to be represented by an attorney to not needing attorneys at closing.
3. Watch for FSBO overpricing.
Neighborhood homes' listed prices differ greatly from their actual comparable sales prices. Accurate comparable sales, or “comps,” help you determine a reasonable offer price.
As the buyer, you’ll want to know whether the property was previously listed with an agent, how long the house has been on the market, and whether the asking price reflects recent sales in the area. A seller may have an emotional attachment to the home or be using online estimates for pricing, which aren't always accurate.
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4. Spell out who pays for closing costs in your contract.
Closing costs can be paid by the seller, the buyer, or split between the two. Your agent, lender or real estate attorney can help you calculate the best scenario because there are multiple ways to structure the offer.
For example, you could offer the owner less money overall and pay your own closing costs, or you could ask the seller to contribute toward closing costs as part of the contract. The key is to make sure the agreement is clear and in writing.
5. Use a neutral third party for earnest money.
Don’t give the seller your earnest money directly. Earnest money is usually held by a broker, title company, escrow company, or real estate attorney, depending on state law and local practice.
Since there’s no listing agent in an FSBO transaction, buyers should make sure a trusted neutral third party holds the earnest money. You don’t want to depend on the seller to return the money if the deal falls through.
6. Don't skip the home inspection.
Remember, the main difference between buying a home for sale by owner and a traditionally listed home is the lack of a hired seller's agent. You typically wouldn’t waive a home inspection in a traditional transaction, right? Even honest home sellers won’t know everything wrong with the house compared to a professional inspector’s checklist.
A professional home inspector can identify potential problems with the roof, foundation, electrical system, plumbing, HVAC, drainage, and other major parts of the property.
7. Ask about the CLUE report.
A Comprehensive Loss Underwriting Exchange report, commonly called a CLUE report, is a critical tool for a buyer to get an inside look at any insurance claims the seller has made on the house within five years. The report may include the date, type of loss, and amount paid for reported claims.
Buyers and real estate agents generally cannot request a CLUE report for a property they don’t own, but they can ask the seller to provide a copy or make the offer contingent on reviewing one. A clean report can be reassuring, but it doesn’t replace a home inspection.
If the seller is willing to share the report, review it carefully and ask follow-up questions about any major claims or repairs. If the seller is reluctant, that doesn’t automatically mean something is wrong, but it’s worth discussing with your agent, attorney, or insurance professional before moving forward.
8. Plan for repairs.
Needed repairs won't necessarily prompt a FSBO seller to spend more money. You might see “as is” in the marketing package, which usually means the seller doesn't want to make repairs before closing. Even if they agree to the fixes, they aren’t required to hire your area's #1-ranked professional. Consider whether these needed repairs will affect your offer to the seller.
Is Buying a FSBO Home Right for You?
If a FSBO home listing looks attractive, don’t be turned off by the owner selling without representation, especially if you have a buyer's agent working on your behalf. Your agent will be able to handle any bumps encountered during a FSBO, such as not knowing about state-specific real estate laws.
Choosing to buy a home for sale by owner means you'll need to consider the differences between a traditional sale and a FSBO to protect your purchase. You’ll need plenty of time to research accurate pricing and may need to invest in real estate professionals, from home inspectors to title company services, who are familiar with working with buyers directly.
FSBO Home Purchase Checklist
To recap, a home purchase checklist for a FSBO property should include many of the same steps to buying a house through a traditional sale, with a few extra precautions.
Before making an offer:
- Review comparable sales
- Ask how long the home has been on the market
- Confirm whether the seller is willing to work with your buyer’s agent
- Clarify how agent compensation and closing costs will be handled
- Make sure earnest money is held by a neutral third party, such as a title company, escrow company, or real estate attorney
- Schedule a home inspection
- Review seller disclosures and ask about past insurance claims
- Confirm repair agreements in writing
- Make sure all deadlines, contingencies, and closing requirements are included in the contract
With the right preparation, buyers can approach a For Sale by Owner purchase with more confidence and fewer surprises.
Learn more about the FSBO process in our free guide below.
