What Does FSBO (For Sale By Owner) Mean?

When you are shopping for a new home, you might come across for sale by owner (FSBO) listings. Buying a house directly from the owner has its pros and cons for both the seller and buyer. Today we will discuss what you need to know and what to avoid. 

Benefits of selling FSBO

The main reason a seller wants to sell their property themselves without real estate agents is to save money. Sellers typically pay 6% in real estate commissions which comes out of their profit. So, for a $300,000 home, they would be paying $18,000 in commissions. Some realtors offer a lower commission structure, but 6% is the norm. 

Sometimes a seller already has a buyer lined up, and they feel they do not need an agent. Additionally, savvy sellers with real estate experience under their belt might not think that they need the assistance of a real estate agent. There could be some circumstances where the seller owes almost as much or more than the property is worth, so they need to save in any way they can. 

How to buy a house listed FSBO

As you are searching for homes online or driving through neighborhoods, you will see some FSBO listings. If you already have a real estate agent, you can ask them for their assistance, but some agents may prefer to work with a listing agent. Keep in mind, with a FSBO, you will be paying their real estate commission, not the seller. Since the typical real estate commission is 6% and is split between the buyer's and seller’s agent, you can expect to pay 3% for a buyer's agent. So, for a $300,000 home, you would pay $9,000. That may or may not be worth it to you. You will also need to determine if the seller is willing to work with a buyer's agent. Some are, and some are not. 

Your other option is to buy the property directly from the seller without an agent. The steps to buying a house listed for sale by the owner are similar to buying one using a real estate agent. But without an agent, you will have additional work to do. 

More tips on buying a FSBO house

In a purchase, the lender and title company work closely together. But in most cases, they will not review the contract for you. For that, you will need an attorney. Make sure whatever you want is written in the contract. For example, if you are going to keep any appliances like the refrigerator or stove, list them in the contract. Do not worry about asking for too much, and make sure whatever you want is in writing. Protect your earnest money by making sure you can get it back if you are not satisfied with the inspection results or if you cannot get financing.  

Your lender will need:

• A sales contract signed by all parties
• Appraisal—the lender will  order that
• Title company contact data from the seller
• Homeowner insurance contact data

Regarding the home inspection—although the lender does not require it, it is wise to get one.  

Your lender will order the appraisal and get the property tax information for you. It is the buyer’s responsibility to request and schedule a home inspection. Ensure you note any contract deadlines for inspections, appraisal, or finance contingencies, and do not miss them. 

Benefits of buying a home listed FSBO

One of the biggest benefits of buying a home directly from a seller is that the price should be lower since they are saving on commissions. 

Additionally, because there are no agents involved you will be dealing directly with the seller. That can be either an advantage or disadvantage depending on the personalities involved. With real estate agents, they keep the buyers and sellers apart while they do the negotiating. But with a FSBO, you will be dealing directly with the seller. 

With this additional interaction, you should find out more information about the property, neighbors, and neighborhood than you would have using an agent. 

There can also be less competition for FSBOs because real estate agents may not show these properties to their clients. 

Sale by owner online listings

Most major property listing websites have a section for FSBO. However, some do not make these listings very easy to find. 

• Zillow FSBO: this is the most user-friendly site for finding FSBOs. This information is also used on the Trulia website because they are part of the same company—The Zillow Group. 
• Redfin: to find the for sale by owner listings use the “listing type” functionality to filter through listings.  
• Trulia’s FSBOs: search the town you are interested in. You can find the filter under “More.” 
• FSBO.com: this is another website to check. 
• Local Craigslist and Facebook Marketplace also have FSBO listings but beware of scams.  

Disadvantages of buying a FSBO

As a buyer, if you choose to work with a real estate agent, you will have to pay for their commission. So that would be an extra expense for you. If you decide not to pay for an agent’s expertise, the due diligence will fall on your shoulders, so you will have extra work to do.

Sentimental value can be a problem, too, especially if it was a family home. The seller can have a sentimental attachment to the property and feel like it is worth more than it is. 

If you do not use a buyer's agent, it is wise to get an attorney to look over your real estate sales contract. Although the fee should be nominal, you will have to pay for that. The other point to keep in mind is the seller may not be experienced. That is where working with real estate agents has its advantages.  

FSBOs—what to avoid

The first thing you will want to do is protect your earnest money deposit. It should be given to a neutral third party like a title or escrow company rather than directly to the seller. You want to make sure that you can get your earnest money back if the home fails inspection or if you are not approved for financing. 

Sometimes a seller will price their property higher than it is worth and be unwilling to come down. In that case, a lender will only lend on the actual market value. You may just have to walk away from the deal and look for another property in that situation. 

Buying a home does not have to be complicated, but it can be. So, if you get stuck, get help—ask a friend who has real estate experience for guidance, or hire an attorney. And when it comes to the paperwork, many title companies are willing to help out or give you some tips. 

Buying a home directly from the owner can work well for all parties involved, so do not avoid looking at homes listed FSBO. But make sure to do your due diligence.