Buying Or Selling A “For Sale By Owner” House: A Complete Guide

In 2021, 10% of all home sales were listed for sale by the owner, according to the National Association of REALTORS^® (NAR). But what does “for sale by owner” (FSBO) really mean and how does it affect the selling or buying process?

No matter if you’re a potential buyer looking for your dream home or a seller trying to reduce your costs, a FSBO (pronounced fizz-bo) real estate transaction can come with many advantages and disadvantages. Here is a guide to help you through either side of the process.

What Are For Sale By Owner (FSBO) Homes?

When you see a home offered “for sale by owner” (FSBO), it means that the homeowner is selling without professional assistance. They didn’t hire a listing agent or REALTOR^® to help them during the process.

While selling your own property is completely legal in all states, many sellers opt to use a licensed real estate agent to save time and hassle, and to help with buyer-seller negotiations. However, there are a variety of reasons a potential home buyer or seller may consider going the FSBO route.

For example, the selling homeowner doesn’t have to pay a listing agent the cost of commission if they act alone. The property’s appeal or the market’s conditions may lead sellers to believe they can sell the home easily on their own.

But there are challenges for both sides of the transaction when a home is FSBO. As a result, it’s important to know what the process may entail before you get involved.

What’s Different About A FSBO Sale?

Buying a FSBO listing is like purchasing an agent-sold property in many ways. Although, FSBO homes introduce a few distinct differences in the sales process:

• Unassisted Seller’s Disclosure: Every homeowner has to fill out a Seller’s Disclosure in order to list their property, but since a FSBO seller is working alone, they won’t have any help with this legal document. That means some issues with the property might not be disclosed properly.
• Dual agency: Because the seller is working without a listing agent, the buyer’s agent might be asked to facilitate the transaction. This situation means the agent will have to balance the needs of both parties. In other words, they’ll need to be a dual agent.
• Sentimental pricing: Hiring a real estate agent does more than help a seller find a buyer. They also help owners calculate a fair listing price, but without a professional’s input, a seller may base their asking price on their emotions, rather than market conditions.
• Unreasonable expectations: Besides pricing, a FSBO seller may have high expectations about the timeline of the transaction or which repairs should or shouldn’t be completed before a buyer purchases the home.
• Difficult negotiations: Along with high expectations, the buyer’s agent may have a hard time negotiating with a seller that is working alone. If you’re buying a FSBO home, be prepared to practice some patience while negotiating with the seller.

How Does A For Sale By Owner Transaction Work?

Whether agent-assisted or FSBO, the basic steps to buying a house are the same. Let’s review the steps to buying or selling a for sale by owner house.

1. Seller Puts Their Home Up For Sale

Like any real estate transaction, the homeowner will first need to decide to sell their property. They may also take the time to prepare the home by completing routine maintenance, making small renovations and staging the rooms with new decor.

If you’re a seller, you might complete a competitive market analysis (CMA) at this point, too. A CMA allows you to compare your house to similar nearby properties. This step will allow you to more easily determine a fair price for your home.

2. Buyer Secures Preapproval From A Lender

The home buyer’s first real step should be the mortgage preapproval process. When a buyer gets preapproval, they’re proving that they have enough assets to get a mortgage for the house they want. Their lender will look at things like credit history, credit score and income level during this step.

Buyers earn different levels of approval this way, and the stronger their approval, the better their offer will look to sellers. This can help buyers win over FSBO sellers and beat out aggressive competition.

3. Buyer Chooses An Agent To Work With

A good real estate professional makes a world of difference, stress-wise and cost-wise. So, choosing a real estate agent requires serious consideration. Buyers need to make sure that their agents have experience with the market where the home is located, and have credentials to back that up. A buyer may also want to look for an agent with strong interpersonal skills and the ability to negotiate.

A good agent ensures every step goes smoothly and reduces a buyer’s overall costs, especially against a FSBO seller. If you’re a buyer, you should consider whether your potential agent offered a full disclosure about how they get paid, too. That will let you know how much it will cost to buy a FSBO home.

You can also examine your agent through your buyer’s agency agreement. This is essentially the contract between you two that includes both parties’ written agreements. So, you know what each person is expected to do, whether it’s how you pay them or their ethical responsibility. 

4. Buyer Tours The FSBO Home

Once the buyer is ready, they’ll start looking for properties that fit their needs. Their agent will help them locate desired neighborhoods, schedule showings and narrow down their list of potential homes. And, once a buyer finds the perfect FSBO house, their agent will reach out to the seller to set up a viewing.

If you’re the buyer in this process, you’ll want to make sure to review a FSBO home’s disclosure before making an offer. Since FSBO sellers may not know or understand their responsibility in a sale, they might fail to make an adequate disclosure or let buyers know about crucial information, like a record of previous repairs.

That means it’s even more important you use your own detective skills. Take a good look at the home to ensure it fits your needs before you move forward with anything.

5. Buyer Makes An Offer

After the buyer finds the right house, they’ll need to make the seller an offer. But a buyer doesn’t come up with an offer out of thin air – it may take some research and negotiation.

Determine The Purchase Price

As a buyer, you can ask your real estate agent to use real estate comps, or “comparable sales.” Essentially, your agent reviews local sale prices on similar homes to find a fair price to offer. The comparisons support your number and gives you more negotiation power. It can also give your offer an advantage if there’s little interest in the home.

Negotiate Contingencies

Buyers beware: you want any home inspections, appraisals, and mortgage contingencies written into the offer from the get-go. A seller in an FSBO transaction may be working from inaccurate information and not disclose certain issues. But the home inspector may find serious defects in the property. You can choose to use a set of contingencies that allow you to walk away and recoup your earnest money.

6. Seller Accepts The Buyer’s Offer

When the seller receives a buyer’s offer, they’ll have a set amount of time to review the paperwork. They can evaluate the suggested purchase price and any contingencies the buyers include. But keep in mind that a FSBO seller will have no listing agent to help them determine if the offer is a fair one.

If you’re the seller, you have two options: accept the offer or reject it. If you choose to reject the offer, the buyer may send a counteroffer or walk away from the deal. If you accept the offer, the sale will continue on to the next step.

7. Buyer’s Agent Drafts A Sales Contract

Usually, the listing agent draws up the purchase agreement. This document typically includes information about the buyer, seller, property, fixtures and appliances in the home, pricing and financing details, the earnest money deposit amount, closing costs and conditions of the contract. This may also involve naming contingencies as well.

Without a seller’s agent, the buyer’s agent may have to write the agreement instead. Or, as the seller, you can reach out to a real estate attorney. Regardless, take precautions to ensure the document is done correctly. Mistakes can cost both parties.

8. Seller And Buyer Come To An Agreement

Most of the home buying process comes with stress. But the timespan when you approach closing may be the most stressful and busy in the FSBO process. There are multiple things to accomplish, including the home inspection and appraisal. Depending on the results from the appraisal, the buyer’s lender decides the value of the home.

This is a crucial step in closing on a FSBO home sale. As a buyer, you need an objective, professional evaluation of the home. That can sometimes counterbalance any claims the seller makes. However, if you feel the home is worth paying more than the appraised value, you can renegotiate with the seller or make a larger down payment.

9. Buyer Closes On The House

Once the buyer makes it to this final step, they’ll receive the Closing Disclosure. This typically comes around 3 days before closing and describes closing costs, fees and other final terms.

If you’re the buyer, make sure you read this document carefully, especially in a FSBO deal. Check that all costs are properly split between the buyer and seller.

The Pros And Cons Of A FSBO Home

Now that you know the steps of the FSBO selling and buying process, you still might wonder what are the benefits and drawbacks of FSBO? Below are the main pros and cons for both buyers and sellers.

Pros Of Homes For Sale By Owners

Many homeowners who choose to sell their homes themselves do so for the following reasons:

• They don’t have to pay a listing agent’s real estate commission.
• Sellers can directly control the selling process, such as setting the asking price or scheduling showings.
• The FSBO selling process may take less time than a traditional purchase as many sellers and buyers already know each other.

Pros Of FSBO Homes For Buyers

Sellers aren’t the only ones who receive benefits by going the FSBO route. A few main advantages to buying a FSBO home include:

• Buyers can have direct communication with the owner.
• Buyer’s agent can directly negotiate with the seller.
• The owner has insider knowledge of the home and neighborhood.
• The buyers could snag the home at a lower price since there is only one agent to pay.

Cons Of Selling A House By Yourself

Unfortunately, selling a FSBO house comes with a few disadvantages, including:

• Homeowners typically lack selling experience and in-depth knowledge of the current real estate market.
• Sellers might have to pay commission to the buyer’s agent.
• A homeowner might not have the time to manage the selling process, such as marketing the home, hosting open houses or researching market trends.

Cons Of Buying A House From The Owner

While buyers face less risks from the FSBO process, there still drawback they should be aware of, such as:

• It can be hard to find FSBO listings as they might not be included in the multiple listing service (MLS).
• The Seller’s Disclosure may be inaccurate since a listing agent didn’t help the homeowner fill out the form.
• The seller might be tough to negotiate with, especially since they won’t have their own agent to provide advice.

FSBO Home Buyer FAQs

You might still have some questions about FSBO homes. Here are some answers to the most common questions buyers have.

Am I responsible for paying my agent’s commission if the seller refuses?

If the seller refuses outright when the real estate agent first reaches out and you want to move forward regardless, it may become your responsibility. However, you may be able to negotiate that the seller pays if your offer is accepted. Who pays the buyer’s agent’s commission will be outlined in the purchase agreement.

How can I find out if the seller has undertaken major repairs recently?

As a buyer, you can ask the seller to provide a Comprehensive Loss Underwriting Exchange (CLUE) report, available through LexisNexis. If the seller refuses, you may need to reevaluate your interest in the FSBO home.

Who holds escrow money when you buy a FSBO home?

A third-party escrow company should hold any earnest money. When you’re looking for an escrow company, make sure you look for certain characteristics. A good choice should have a high reputation, strong communication, experience, clear fees and in a reasonable location.

The Bottom Line

FSBO properties should not be approached lightly, whether you’re a seller or buyer. They come with a variety of challenges that require the help of a real estate agent or attorney to navigate. But by researching the advantages and disadvantages, you can make a well-informed decision to sell or buy a FSBO home.

If you’re in the house-hunting process, apply for initial approval and talk to a Home Loan Expert today.