Things to know before purchasing a For Sale By Owner (FSBO) home5 Minutes
A “for sale by owner” or FSBO listing is one where the seller decides to not sell their home through a real estate agent. This decision is usually made in an effort to save money, as the seller doesn’t have to pay commission fees to a real estate agent.
In an effort to save even more money, the seller won’t want to work with a buyer who has a real estate agent because if they did, the seller would have to pay the buyer’s agent a commission as well.
Buyers should be aware that while there are some advantages to FSBO listings, there are also some potentially big disadvantages to not working with a real estate agent.
- Real estate transactions can be complex, so involving a real estate lawyer or transaction coordinator can help.
- Buyers may find FSBO listings to be overpriced initially, but ultimately they sell for less.
- Buyers might still be able to work with a buyer’s agent.
Pro: FSBO listings can be overpriced, but sell for less
In two different studies, FSBO listings were found to sell between 5% to 26% less than homes listed through an agent. It’s safe to assume that most homeowners lack the intimate knowledge required to accurately set a price for real estate transactions, which leads to the home selling for less.
Initially, it’s common to find FSBO listings that are actually overpriced. Selling a home is an incredibly emotional event, as the seller has to part ways with an untold number of memories connected to the home. This can cause sellers to over-value the home, and become stubborn when it comes to lowering their price or making concessions.
With enough time however, sellers wind up accepting a lower offer than they could have received had they worked with a seller’s agent.
Pro: You still might be able to work with a buyer’s agent
In a typical real estate transaction where the buyer and seller both worked with a real estate agent, the seller pays both agents a 3% commission on the purchase price of the home. FSBO sellers are usually trying to avoid paying those commissions, so they might not want to sell to a buyer who is working with a real estate agent. Some real estate agents won’t show potential buyers any FSBO listings, because there’s a chance the seller won’t accept the buyer’s offer unless the agent is out of the picture.
If a buyer finds a FSBO listing and is already working with a real estate agent, all hope isn’t automatically lost. You can ask your agent to reach out to the seller to see if they can reach an agreement about paying the buyer’s commission, or a portion of it. That way, you can continue the transaction with the help of your agent.
The seller will still have to manage the process on their own, but they’ll save a good amount of money by not having to pay a seller’s commission. Plus, you’ll be protected by the industry knowledge of your agent and won’t have to worry about handling the transaction on your own.
Con: Managing a real estate transaction without a real estate agent can be complicated
Most people aren’t aware of everything that goes into a real estate transaction. There’s a lot of money, paperwork, and critical timing involved. Simple mistakes made on your end might wind up costing you a lot of money. If you make an offer on a FSBO without the help of a real estate agent, there are additional responsibilities you’ll have to take care of, which you may know very little about.
If you’re not comfortable managing the transaction on your own, there are two things you can do. The first is to hire a real estate lawyer to handle the purchase contract. They’ll make sure contingencies are properly written to protect you, the buyer, in case the transaction falls apart.
The second is to hire a real estate transaction coordinator. They can help you set up your escrow account, make sure documents are submitted on time, coordinate appointments for the home inspection and appraisal, and coordinate the closing.
Since the costs for hiring a lawyer or transaction coordinator is typically less than paying a commission to a buyer’s real estate agent, the FSBO seller may be willing to pay for some or all your costs for hiring them.
Con: Directly negotiating with the seller because you don’t have a real estate agent
Like we’ve said before, selling a home is a highly emotional event. There’s no easy way to ask someone to lower the price on the home where they grew up, have owned for decades, or raised their family. Typically your buyer’s agent shields you from these conversations, as you and the seller would normally have third party agents involved so the buyer and seller don’t have to negotiate directly.
Even if you’re happy with the price of the home, there are other fees that will need to be negotiated. You’ll have to agree on who will pay for the transfer taxes, title search fee, closing costs, and how the property taxes get prorated.
Whatever you do, make sure everything that’s agreed upon is put in writing and signed by both you and the seller.
Do you need a mortgage for a FSBO home?
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