For Sale By Owner often generates a lot of curiosity on the part of homebuyers so we've created The Definitive Guide To Buying a Home For Sale By Owner to help answer the most frequently asked questions on how to approach these homes as part of your home search.
Let's get into it.
For Sale By Owner (FSBO) refers to a type of home sale listing managed directly by the owner of the property without the use of a real estate broker.
Mostly to save money... or because they couldn’t find an agent to help them
The conventional wisdom is to be extra careful with your inspection process on an FSBO because the seller will have had less help in preparing disclosures and may not even be aware of all of their legal obligations in a standard residential real estate transaction. So these are definitely things to consider and what to make sure of when buying a home for sale by owner.
An FSBO might not have as much detail available online as a traditional listing. Therefore it is important that you or your agent ask the owner the following questions:
These are the key things you need to know and make sure of when considering buying a home FSBO.
Whether you're using a buyer’s agent or not, you shouldn’t have to change representation for an FSBO vs. traditional listing. You shouldn’t have to change anything about your approach, other than being aware that the seller might not have the experience to manage the process efficiently and being prepared to do extra work as a result. If you have been using a buyer’s agent and are curious whether you can avoid their commission if you end buying an FSBO – that will depend on what your exact agreement with your buyer’s agent says, and whether they were present when you visited the FSBO.
The seller still has to follow the law and make all the appropriate state and federal disclosures about the property. The FSBO seller still has every right to expect that you will have a mortgage pre-approval or other proof of funds before they engage with you on showing the property or entering into a purchase agreement. If local custom is to use a real estate attorney for the purchase agreement, then you should still use one on your side, regardless of whether the seller chooses to employ one. If the seller isn’t using an attorney, then your attorney or agent will have to draft the purchase agreement. Of course, don’t let the seller personally hold any cash deposits or any preliminary funds related to the transaction; those should be held by an independent 3rd party such as an attorney or other escrow agent.
The good news is, when negotiating an FSBO deal, you will likely be dealing directly with the owner and decision-maker – this can result in fewer miscommunications or garbled messages passed through multiple agents, and you might get faster and more straightforward feedback on your offer.
In an FSBO transaction, and assuming you have a buyer’s agent that is going to be compensated the typical 2.5% - 3.0%, there is suddenly a 2.5% - 3.0% piece of the economic pie that is up for grabs. Presumably the seller expects to pocket all of this difference; however, your goal should be to negotiate well enough to capture some of that value for yourself as well.
One way to capture savings is to have your team take on enough of the extra work to justify a discount on the home price. For instance, if the market price is $300,000, and normally the selling agent would get a $9,000 commission, leaving $291,000 net proceeds for the seller (before other closing costs), then you might be able to pay closer to $295,500, which leaves both you and the seller better off by $4,500 each compared to a traditional transaction. There is evidence that FSBO homes sell for less than homes with a listing agent, and this might be the main reason.
Another reason you might be able to get a better deal on an FSBO home is because selling agents genuinely add value through their advice on how to present the home and their marketing reach, and without that, you as a buyer will face less competition when you make your offer. An FSBO seller is likely going to have less support and get fatigued by the process more easily, which could result in a better financial deal for the buyer.
That being said, don’t be discouraged if you find an FSBO seller has unrealistic expectations and isn’t willing to negotiate; this type of emotional decision making is more likely to occur with an FSBO and you should always stick to your process and not feel obligated at all to match the seller’s emotional tactics.
An FSBO seller should be using non-digital techniques, such as putting a 'For Sale' sign outside the house. They also are able to list their home on real estate portals that are geared specifically to FSBO transactions, and those that have a mix of MLS listings and FSBO listings.
Is that they typically don’t appear in the MLS (Multiple Listing Service). The MLS is what buyer’s agents use to find homes for their clients, but only properties represented by agents are included in the listings.
However, some FSBO sellers will use a for sale by owner site that charges a fee to include their home on their website with an option for an MLS. This is why FSBO homes do appear in the MLS occasionally. Your buyer’s agent will know where to find FSBO listings; they should automatically include them in their search process unless you specifically tell them not to.
These are all the things to take into account when considering buying a home for sale by owner - good luck!
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