- For sale by owner (FSBO) is when a house is being sold without the involvement of a listing agent or broker.
- Most sellers who list their homes as FSBO do so to avoid paying a real estate commission on the sale.
- Buyers who are considering a home that’s listed FSBO can work with a buyer’s agent, but they may be on the hook for the agent’s commission.
Homes have always been one of the biggest purchases anyone will make, and additional costs such as closing fees and taxes can really make things even more expensive. And selling a home can also cost money.
The typical real estate commission runs 5% to 6% of a home’s final sale price. So if a home sells for $350,000, the commission would be $17,500 to $21,000, which is no small chunk of change. The seller’s agent and buyer’s agent usually split the commission 50/50, though the exact breakdown varies by agent, broker, and company.
Sellers are generally on the hook for the commission, so it’s no surprise that some homeowners opt for a DIY approach. A for sale by owner (FSBO) — pronounced fizz-bo — listing is a way to sell a home without hiring a real estate agent or broker — or paying the traditional commission. But how does the process of buying a home being sold FSBO work? Here’s what buyers and sellers need to know about for sale by owner listings.
What is for sale by owner?
An FSBO listing means the homeowner has listed their property without the help of a real estate agent or broker. A common reason homeowners go this route is to avoid paying the real estate commission in hopes of maximizing their sale profits. Sellers might also choose FSBO if they already have a buyer lined up — say, a friend or a relative — and don’t need a real estate agent’s help marketing the home.
While FSBO sellers don’t hire a real estate professional, buyers can — and generally do — work with a buyer’s agent when purchasing an FSBO home. That’s because buyers have nothing to lose (and usually a great deal to gain) by working with a real estate pro.
“Just because the seller is declining the expertise, support, and know-how of an agent doesn’t mean the buyer has to,” says Tabitha Mazzara, director of operations at Mortgage Bank of California, a lender geared toward self-employed borrowers and investors. “An agent can help the buyer make a reasonable offer, help arrange the inspection, and be on hand to guide a buyer through any or all of the myriad issues that can, and often do, arise during escrow.”
If the buyer has an agent, the FSBO seller may be willing to cover the “buy” side of the commission since an agent can help ensure the transaction goes smoothly. However, some FSBO sellers will balk at paying any commission. In these cases, the buyer can either look for a different property or pay the agent’s commission if they really want the home.
How does for sale by owner work?
An FSBO transaction works the same way as a traditional real estate sale, except the seller isn’t represented by a real estate listing agent. Instead, the seller is responsible for a fairly long list of tasks that an agent traditionally handles. FSBOs can work well for sellers who have the time and experience to list on their own.
Here’s a quick rundown of seller tasks in an FSBO listing:
Stage the home for sale. Good staging makes your home stand out and helps potential buyers picture themselves in the space. Be sure to clean, declutter, stash personal items, tidy the landscaping, and make the house look bright. Also, tackle minor repairs, update worn hardware, and hide valuables or irreplaceable heirlooms.
Determine the asking price. Setting the right asking price is essential: too high, and you won’t attract buyers; too low, and you leave money on the table. “Most FSBOs overprice their home,” says Kristina Morales, Realtor at eXp Realty. “As a result, the property will sit on the market and likely sell at a price much lower than it would have had it been priced properly at the start.”
To set a reasonable asking price, sellers can research recently sold homes in the area using public records, ask a real estate friend for a comparative market analysis, hire an appraiser, or check out real estate websites for estimates.
Advertise and market the home. Most buyers look for homes online, so professional photos and an engaging listing description are a must. Several FSBO websites exist, and real estate aggregators like Zillow and Trulia allow sellers to list their homes for free. Sellers can also get the word out with street signs, Craigslist ads, Facebook posts, local magazines, and newspapers.
Schedule and host viewings. Another part of the process that FSBO sellers will be responsible for is scheduling viewings of the home. And showings can be tricky, especially if pets or small children are at home. Virtual tours are an option, but serious buyers (and inspectors) will eventually need to see the house in person. Try to be as accommodating as possible: the more people who view the home, the better the odds of finding a buyer.
Negotiate the price and terms of the sale. Many buyers want to include contingencies that make the purchase dependent on mortgage approval, the inspection, and the
. If the buyer has a buyer’s agent, any contingencies, offers, counteroffers, and other negotiations will go through that agent.
Prepare legal documents. Sellers have to prepare paperwork such as the sales contract and residential property disclosure form. Depending on the complexity of the sale, it might make sense to work with an attorney. “Unless a seller is a licensed agent or broker, an FSBO seller may not be aware of all the disclosures that are required to provide a buyer nor be aware of the local rules and regulations,” says Morales. “This may open a seller to litigation risk.”
Prepare the deed as well. The seller prepares the deed (e.g., warranty or quitclaim), signs it, and has it notarized in front of witnesses. The deed is the legal document that transfers ownership of the property to the buyer.
Close the sale. An FSBO transaction works the same as a traditional home sale, minus the listing agent. The buyer pays any remaining costs and signs a settlement statement, mortgage note, and mortgage or deed of trust. The seller signs documents transferring property ownership.
Is for sale by owner a good idea?
While real estate commissions can seem expensive, good agents and brokers will earn that money. After all, most homeowners don’t have the time, interest, or expertise to manage a sale.
“At the beginning, the biggest challenge is getting your listing seen, and at the end, it’s correctly completing all of the paperwork,” says Mazzara. “An FSBO home won’t be in the multiple listing service, meaning it won’t be as widely seen. And getting the paperwork right is a challenge for someone without the proper training.”
There are also potential legal consequences. “A mistake could lead to a lawsuit,” says Mazzara. “Anything you saved from not hiring an agent might be more than canceled out by the expense of hiring a lawyer.
Still, these challenges don’t mean FSBOs are impossible, but sellers should be ready to work if they don’t already have a buyer lined up.
From the buyer’s standpoint, the transaction will be similar to a traditional sale, especially if the buyer is represented by a buyer’s agent. Perhaps the biggest potential pitfall is trying to buy a home from an unscrupulous FSBO seller who either willingly or unknowingly misrepresents the home. Of course, a good inspection will uncover any defects, and buyers should always conduct their due diligence to avoid any surprises after leaving the closing table.
Here are a few pros and cons to consider when buying FSBO:
How to buy a house for sale by owner
The steps for buying an FSBO home are generally the same as purchasing a traditionally listed home.
Step 1: Get approved for a mortgage. The lender will review your credit, assets, and income to determine how much you can afford to borrow. You can share the pre-approval letter with your real estate agent so they can focus on homes within your budget.
Step 2: Consider working with a buyer’s agent. “An agent will help ensure that the buyer is not overpaying for the property, assist in negotiation throughout the transaction, ensure that the buyer has received all required disclosures, [and] assist the buyer with contractors and inspectors,” says Morales.
Step 3: Make an offer. Once you decide to make an offer, you must submit a letter that includes the price you’re willing to pay for the home and how much of an earnest money deposit you’ll be making. The seller can accept your offer, reject it, or make a counteroffer. If you have a buyer’s agent, they’ll help with the negotiations.
Step 4: Take an in-depth look at the home. Once the seller has accepted your offer, it’s time to do your due diligence to ensure there are no deal-breaking problems. Most home buyers get a home inspection and a survey, but you might also need to hire other professionals, depending on the property. For example, if the home is in a flood plain, you might want to get an erosion engineer’s opinion. You’ll also need an appraisal and a title search if you’re financing with a mortgage.
Step 5: Close on the home. As mentioned earlier, an FSBO closing works the same way as a traditional home sale. You’ll pay any remaining costs and sign a settlement statement, mortgage note, and mortgage or deed of trust (if a mortgage is involved). The seller signs documents transferring property ownership.
Estimate your monthly mortgage with our calculator
Your estimated monthly payment
- Paying a 25% higher down payment would save you $8,916.08 on interest charges
- Lowering the interest rate by 1% would save you $51,562.03
- Paying an additional $500 each month would reduce the loan length by 146 months
The bottom line
Buyers interested in an FSBO can still enlist the help of a buyer’s agent to help ensure the process goes as smoothly as possible. So, the transaction is likely to be similar to a traditional sale from the buyer’s standpoint.
However, FSBOs are extra work for sellers. As Morales points out, “there is coordination of the showings, being available for showings, hosting open houses, following up on all calls and emails, preparing all of the paperwork, etc.” While it may be tempting to avoid the real estate commission, the effort and risk of going it alone could ultimately outweigh the benefits.