You might have noticed "for sale by owner" homes are more visible than they used to be thanks to the proliferation of online real estate marketing. Even casual home searches intended to satisfy curiosity about neighborhood price points will turn up FSBO listings.
For a more targeted approach to searching for a For Sale By Owner (FSBO), the National Realtors Association reports that the top five outlets owners used to market their FSBO in 2018 were yard signs; friends, relatives, or neighbors; social networking websites like Facebook and Twitter; open houses; and the Multiple Listing Service (MLS) website.
Similarities and Differences between a FSBO and Traditional Home Sale
A For Sale By Owner transaction has the majority of the same components as the traditional home sale process with one major difference, the absence of a listing agent:
- Finances. Understanding how much house you can afford and where the money will come from.
- House hunting. Online and in person.
- Negotiation. Preparing a final offer.
- Closing day activities.
If you're buying a home sold by owner, it’s important to keep in mind that the home seller who prefers a FSBO is interested in saving money or has the expertise to sell a home (or both!). Some FSBO sellers are open to paying a buyer agent’s commission because they need professional help with paperwork, but others would rather not.
Much of the FSBO home buying process is the same as a traditional sale, but there are a few other questions buyers often have about a FSBO purchase. Here are some things to note when buying a home sold by the owner.
8 Things to Know When Buying a Home For Sale By Owner
1) You can work with a buyer's agent. Just because the seller chose not to use an agent doesn’t mean you have to work the deal alone. In fact, there’s a good chance the seller will be happy to work with your agent, because the sale will require official paperwork.
The owner is still saving money by paying the agent’s commission, about 3%, which is less than the 6% for the buyer's AND seller's agent. Note that buyer's agents might be reluctant to take on a FSBO because they’re essentially performing twice the work for the same or less commission.
2) Learn your state laws. FSBO transactions aren’t exempt from state and local laws, and it’s up to you to make sure your deal is meeting standards-- especially when it comes time for the seller to disclose issues with the property or make required repairs. A first time FSBO seller may not understand all of the selling procedures your state requires.
State laws also vary when addressing the need for a lawyer. Some states do, and others don’t. The laws may even change from city to city or county to county. And the specificity of their services range from requiring both parties to be represented by an attorney to not needing attorneys at closing.
3) Beware of FSBO overpricing. There’s a big difference between what the homes in the neighborhood are listed for and actual comparable sales prices. Truthful “comps” help you determine the best offer price. As the buyer, you’ll want to know if the property was previously listed with an agent and for how long. Also, how long has the house been on the market?
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 should help you calculate the best scenario because there are multiple ways to go about the sale. For example, you could offer the owner less money overall and pay your own closing costs.
5) Don’t give the seller your earnest money. Normally, the listing agent holds the money in an escrow account, but since the listing agent is the seller during a FSBO, you’ll need to find a trusted third party, such as a real estate attorney or title company to hold the money. You don’t want to depend on the seller to return the money if the deal does not work out.
6) Yes, a FSBO still needs a home inspection. Remember the only difference in buying a FSBO 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 that is lacking or wrong with the house compared to a professional inspector’s checklist.
Here’s more about Why You Need a Home Inspection.
7) Get a C.L.U.E. A Comprehensive Loss Underwriting Exchange 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 trick is, the seller is the only person who can request the report, which they may be reluctant to do if major damage has occurred. If the claims are negligible, they shouldn't be hesitant. The report contains the dates, amount paid, and cause of the damage. You can offer to pay for the report, which is about $20.
8) Plan for what you’ll do if repairs are needed. A FSBO seller likely won't be interested in spending more money than necessary, even if the repairs are needed. You might see “as is” in the marketing package. Even if they agree to the fixes, they aren’t required to hire the #1 ranked professional in your area. Consider if these needed repairs will affect the offer you present to the seller.
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If a FSBO home listing looks attractive to you, 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 lack of knowledge about state-specific real estate laws.
If you choose to go down the homeownership road alone, you’ll have to take into account the differences between a traditional sale and a FSBO to protect your purchase. You’ll need plenty of time to research accurate pricing and be willing to invest in real estate professionals, from home inspectors to title company services, who are familiar with working with buyers directly.
