Buying a house for sale by owner
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When a house is for sale by owner (FSBO), it means the homeowner is selling the house without the help of a real estate agent. The most common reason someone would opt to sell their home on their own is because they want to save money on Realtor fees. By selling the home without an agent, they don’t have to pay an agent’s commission.
Buying a FSBO home has both advantages and disadvantages, but knowing more about the process can help you decide if it’s the right option for you. Whether you are looking specifically for a FSBO home or you simply fell in love with a home that happens to be for sale by owner, follow these guidelines when buying a FSBO property.
Buying a house for sale by owner
Buying a FSBO house requires knowledge of the homebuying process and attention to detail. A home for sale by its owner may allow for more room in price negotiation. In 2020, the typical FSBO sold for $260,000, compared to $318,000 for sales assisted by an agent, according to the National Association of Realtors.
While the seller may be responsible for Realtor fees, the fees are usually factored into the sale price of the home. Real estate agents typically earn a 5 to 6 percent commission based on the home’s final sale price — that amount is split evenly between the seller’s agent and the buyer’s agent. For a $250,000 sale, 6 percent is $15,000. But, with only a buyer’s agent involved, the commission fee would be half of that: 3 percent, or $7,500.
But purchasing a FSBO home also comes with some risks that buyers wouldn’t face when purchasing a traditional listing. When a seller uses an agent, that agent helps get the listing ready for sale. This includes crucial steps like setting a list price based on research and local market knowledge, completing all necessary paperwork and disclosure forms and crafting an accurate listing. An owner who sells without this professional help may miss some steps. With a FSBO home, the buyer must be vigilant to make sure all of these things are completed properly and legally.
Can you buy a FSBO home without a buyer’s agent?
A FSBO home doesn’t have a listing agent involved in the process, but you may be wondering if you need an agent of your own to buy it. Buyers are not required to use a real estate agent, but it is a good idea. With no agents involved on either end of the transaction, it would be very easy for steps to get missed in the process.
A buyer’s agent is there to help protect your best interests. “It’s beneficial for buyers to have a vetted, licensed Realtor on their side,” says Keri Rizzi, a Realtor with HomeSmart Homes and Estates in White Plains, New York. “With a Realtor to guide them through the process, buyers can rest assured that they’re following the appropriate steps to ensure that they’re treated as honestly and as fairly as possible.”
However, you will need to make sure the seller is willing to work with a buyer who has a real estate agent, as an agent means a commission must be paid. Have your agent reach out to the seller to find out. If they are willing to work with you, have the seller sign a fee agreement outlining how much your agent will be paid, and who will pay it.
If you do want to purchase a FSBO home without using a Realtor, Rizzi recommends that you do research and follow these steps:
- Pull data on nearby comps for homes in the same size, style, school district and price range.
- Visit the town hall in person or online and submit a FOIL request for all documents, deeds, plans, permits, surveys and miscellaneous reports on file for the home.
- Visit FEMA.gov to verify whether the property resides in a flood zone or not.
- Look into the current status of the seller’s mortgage and tax payments, to see if there are any arrears to date.
- Request the property’s current title status — whether the sellers are in the middle of a divorce, if the property is an estate sale or if anyone else can claim ownership of it.
- Conduct a thorough inspection of the entire home, inside and out, including water, well and septic testing.
Pros and cons of buying a FSBO
There are some advantages to buying a home that’s for sale by the owner. However, not everything is better about purchasing a FSBO home.
- You save time by avoiding an extra person in the communication process.
- You may be able to pay a lower price on the home.
- You could face less competition from other buyers than a traditional listing would have. “Since FSBOs tend to be sold with very limited marketing, sometimes only posted on a single website, fewer buyers may be aware of these properties on the market,” says Rizzi.
- A seller who isn’t working with an agent experienced in the local market may have unrealistic expectations.
- Without a seller’s agent to compile all relevant information on the home, the buyer will likely have to do more research and due diligence.
- There’s a higher likelihood of legal issues. If the seller is unfamiliar with the intricacies of the homebuying process, you may have difficulty completing the transaction correctly.
How to buy a house for sale by owner
1. Get preapproved
Getting preapproved for a mortgage means the lender has found you fit to get a home loan for the price of the home. Preapproval helps you stand out as a buyer and lets the seller know you meet the financial requirements for the purchase.
2. Consider a buyer’s agent
A buyer’s agent works with the seller on your behalf. Their job is to make sure that the home purchase process serves your best interests. Find an agent you click with, and don’t be afraid to interview several before making a choice.
3. Find a home
If you work with a buyer’s agent, they will talk to you about your preferences for a home and help you find listings that match up. Otherwise, you can look online or even drive around the area you’re interested in to look for homes.
4. Make an offer
Once you find a home you want, you will need to make an offer. Research similar listings in the area to determine if you should offer above or below the listing price.
5. Elect contingencies
You will need to decide if you want to include any contingencies in your offer. A contingency allows you to back out of the home sale if the criteria are not met. For example, many offers contain a home inspection contingency. One common contingency with FSBO sales is a Comprehensive Loss Underwriting Exchange (CLUE) report. This report details up to seven years of insurance claims on the property. A CLUE report can let you know about problems that may cause issues later on, such as flooding or damage to the foundation.
6. Apply for mortgage
Even if you are preapproved, you will need to officially apply for a mortgage — and be officially approved — once your offer is accepted by the seller.
7. Get a home inspection
If a home inspection was part of your offer contingency, set up the inspection as soon as your offer is accepted. Your agent can help you arrange it.
8. Close on the home
Once everything is in order, it’s finally time to close on the home. You will want to work with a title agency to help transfer the title and complete the closing process. And don’t forget to be prepared for closing costs.
Frequently asked questions
When buying a FSBO home, you want to get all the information about the home that you can. Make sure you get a home inspection to find out about any red flags. Check into the home’s title status and whether or not it is in a flood zone. You may also want to request a CLUE report to find out about any insurance claims on the property. Your agent can help make sure you ask all the right questions.
A home that’s for sale by the owner might have more room for negotiating price, because the seller doesn’t have to pay listing agent fees. You and your agent will have to negotiate directly with the seller to find a price you are both comfortable with.
The seller will create the purchase contract. This can create legal issues if not done correctly, so check carefully to make sure the seller has followed all the rules and regulations for a purchase contract in your area. If you have a buyer’s agent, they may be able to help the seller draw up the purchase contract for a FSBO home.
The regulations on real estate transactions are different in every state. In some states you may need to hire a real estate attorney to complete a real estate transaction for a FSBO home. Check the laws in your state to find out if a real estate attorney is required.