Ready to sell your home but don’t want to pay the commission fees charged by a real estate agent? You might decide to sell your home on your own. But be careful: Going this route – commonly known as for sale by owner or FSBO – can prove challenging.
And what if you are a buyer? Buying a FSBO home isn’t much different than buying a home represented and listed by a real estate agent. You might have to be careful, too: You could end up paying more than you bargained for.
What Is For Sale By Owner And What Does It Mean?
Selling your house yourself without the help of a real estate agent is known as “for sale by owner.” Essentially, you’re listing, marketing and selling your home on your own.
Homeowners take this route when they believe that their homes are appealing enough to fetch a strong price without the marketing help of real estate agents. By selling on their own, homeowners avoid paying the commissions charged by these agents.
The savings can be significant, though it can vary. Most listing agents charge their seller clients a commission of 6% of the home’s sales price, with part going to the buyer’s agent. Owners who sell their homes for $350,000, then, would pay a commission of $21,000 that is split between their listing agent and the agent working with the home’s buyers, not a small sum of money. By going the for-sale-by-owner route, owners can save some of this money and take more of the profit from selling their homes. Sellers may still be responsible for paying the commission of the buyer’s agent.
Selling a home by yourself isn’t easy, though. Real estate agents take on a lot of work when marketing your home for sale, everything from listing it on the multiple listing service (MLS), staging its interior and scheduling professional photographs to scheduling showings, negotiating the highest sales price and helping guide the closing process.
You, then, need to know exactly what goes into selling a home by yourself before you decide to offer your home as a FSBO. And if you’re buying? You need to be wary of the potential pitfalls of making an offer on a FSBO home.
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How Does For Sale By Owner Work?
When owners take on the challenge of selling a house on their own, they’ll take on additional responsibilities that they otherwise wouldn’t face if they were working with a listing agent.
Sellers will have to:
- Determine the right listing price for their home that’s low enough to attract buyers but high enough to make a solid profit.
- Stage the home to appeal to possible buyers.
- Take photos for the property’s online listing.
- List the home for sale on sites such as ForSaleByOwner.com or FSBO.com. Owners can also opt to pay a brokerage for a flat-fee listing on the MLS, the nationwide online listing of homes for sale. Owners can’t list their properties on the MLS directly.
- Schedule showings and grant those buyers and their real estate agents access to the home.
- Negotiate with buyers after they receive an offer.
- Prepare a sales contract after they accept an offer.
- Attend the closing, when the buyers sign the paperwork to close their mortgage loan and sign the title to their new home.
Pros And Cons Of FSBO Homes For Buyers
As with all ways of buying a home, buying a property offered for sale by owner comes with its own pluses and minuses.
Pros
On the positive side of buying a house that’s FSBO include:
- Direct communication with the seller: Instead of communicating with a real estate agent representing a seller, you can ask questions and negotiate directly with the seller. This could help the sale move faster.
- Access to knowledge about the home and neighborhood: The home’s owner might have plenty of information about both the residence that they’re selling and the neighborhood in which it sits. They can tell you how long it takes to walk to a bus or train stop, how far the morning walk to the nearest public school is and whether there are any highly rated restaurants nearby.
- The possibility of snagging a lower price: The owners of FSBO homes aren’t paying any commission to a listing agent. Even if you’re working with a buyer’s agent, the home’s owner will still save money: Instead of paying the standard commission of 6% when selling, the owner will only have to pay a commission to your agent, typically 3% of the home’s sale. If the owner sells the home for $300,000, instead of paying 6% of that, or $18,000, the seller will only pay 3%, or $9,000 in commissions. Because sellers pay less to close a FSBO sale, they might be willing to sell their property for a lower price tag, which could help you save potentially tens of thousands of dollars.
Cons
There are potential pitfalls, though, when buying a for-sale-by-owner home. These include the following:
- Potential for an inaccurate Seller’s Disclosure: The Seller’s Disclosures that homeowners are supposed to provide might contain omissions. These disclosures are supposed to list known problems with a home, such as a basement that floods during heavy rains. Owners might not include all the information that should be on these forms if a real estate agent didn’t help them fill out these disclosures.
- FSBO listings could be difficult to find: Most buyers search for homes on the MLS. Many FSBO sellers, though, don’t list their homes on this online database of homes for sale. That’s because only real estate agents can list properties on this service. Buyers may have to search lesser-known sites to find for-sale-by-owner listings in their neighborhoods.
- FSBO listings might come with an inflated price tag: Owners who sell their homes without the help of a real estate agent might list their properties at a price that is too high for the market. Owners often have a sentimental attachment to their homes and think they are worth more than the market demands.
- A FSBO sale might come with commission drama: Some FSBO owners might balk at paying any commission, even the commission of 3% that is typically paid to the agent representing a buyer. If an owner refuses to pay this commission, you might need to pay it yourself if you want to continue working with your agent.
Pros And Cons Of FSBO Homes For Sellers
Sellers face their own challenges and stand to nab different benefits with for-sale-by-owner deals.
Pros
On the positive side:
- You’ll get to keep more profit from the sale: When you sell a home the traditional way, you’ll typically pay a commission of 6% of the home’s final sales price, a fee that is split between your listing agent and the agent representing the buyer. If you sell on your own, you can save tens of thousands of dollars, even if you pay a commission of 3% to the real estate agent working with your home’s buyer.
- You’re in complete control: If you’re not working with a listing agent, you can set your own listing price, schedule showings and negotiate offers without consulting with anyone else first.
- The sale might take less time: Because you can negotiate directly with buyers after they make offers, you might be able to close the sale faster. You won’t have to wait for buyers to first communicate with your real estate agent and then for that agent to communicate the buyers’ requests to you.
Cons
There are some significant challenges, though, to selling a home on your own:
- You’ll have to do a lot of work: You’ll be responsible for everything from marketing your home to staging it, scheduling showings, negotiating a final sales price and presenting buyers with contracts to sign. This is a lot of work and can be difficult to take on if you’re also raising a family and/or holding down a full-time job.
- Your home may sell for less than expected: You might overprice your home, something that could keep buyers away. Real estate agents prepare comparative sales analyses when helping owners determine a sales price. You’ll miss out on this expertise when selling without an agent.
- You’ll still have to pay commission for the buyer’s agent: If your buyers are represented by a real estate agent, you might still have to pay that agent a commission, usually 3% of your home’s sales price. Your buyers might agree to pay their agent on their own, but that’s unlikely.
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How To Buy A House That’s For Sale By Owner
Ready to consider a home that’s listed for sale by owner? Here’s how the process works.
1. Get Preapproved For A Mortgage
The first step to buying any home, including a FSBO, is to get preapproved for a mortgage by a lender. Having a mortgage preapproval before looking at homes makes you a more attractive buyer to sellers and tells you how big of a mortgage loan lenders are willing to give you. This prevents you from looking at homes that are outside your budget.
To get preapproved, you’ll provide a lender with copies of your last two paycheck stubs, last 2 months of bank account statements, last 2 years of income tax returns and last 2 years of W-2 forms. Your lender will use these to verify your income. Your lender will also check your credit score. Once they do this, they’ll give you a preapproval letter stating how large of a loan for which you qualify.
Getting preapproved is free and you are under no obligation to take out your final loan with a lender who gives you preapproval. You can still shop around with other lenders.
2. Find A Buyer’s Agent
Once you’re preapproved, it’s time to find a buyer’s agent, a real estate agent who will represent your interests as you search for a home. The good news is that you will not pay the commission for this agent. Instead, home sellers pay this fee out of the profits from their home sale.
A buyer’s agent can help you find homes, including for-sale-by-owner properties, that meet your needs and that are offered at a fair price. This agent will also handle the negotiation process after submitting your offer to any sellers.
3. Find And Tour The FSBO Home
It’s not as easy to find FSBO homes. You might find one by driving through a neighborhood and seeing yard signs with the words “For Sale by Owner” on them. You can also check websites such as FSBO.com and ForSaleByOwner.com. If you find a FSBO home that you want to tour, your real estate agent will schedule a showing time and take you through the home.
4. Make An Offer
If you find a FSBO home that you do like, it might be time to make an offer. Your real estate agent will work with you on this. You might decide to offer a bit less than what the owner is listing the home for. If you are afraid of losing the home, you might make a full-price offer.
Once your agent submits your offer, you’ll wait for a response from the owner. Owners can accept the offer as is, reject it or make a counteroffer, usually asking for a higher price than the one you offered. Your agent will lead the negotiations until you and the seller reach an agreement or until you decide that you won’t be able to find a price on which you can both agree.
5. Get A Home Inspection
Once you and the seller agree on a final offer, it’s time to order a home inspection. During an inspection, a licensed inspector will tour the home you want to buy looking for possible problems. If the inspector finds them, you can ask the owner to fix them, lower the home’s asking price or provide you with a credit so that you can hire contractors to resolve any issues. If the inspector finds serious problems with a home, you might be able to walk away from the deal without facing any financial penalties.
It’s especially important to order a home inspection with a FSBO property. FSBO owners haven’t worked with a real estate agent who can help them identity and resolve issues before listing their homes.
6. Close On The Home
The final step? The closing. This is when you sign the papers transferring ownership of the home from the sellers to you. You’ll also pay any closing costs to your mortgage lender during the closing. These fees vary, but you can expect to pay from 3% to 6% of your home’s final purchase price in closing costs.
How To Sell Your House For Sale By Owner
Selling your house on your own can prove challenging. Here are some of the steps you’ll need to take.
1. Determine The Asking Price
Setting the right asking price is key to selling your home. Set a price that’s too high and buyers who know your market will either offer you a lower price or avoid your home entirely. List your home at too low of a price and you could lose tens of thousands of dollars in profits.
Before setting your home’s asking price, make sure to look at local real estate comps, the sales prices earned by nearby homes that are similar to yours. Once you know what similar homes in your market are selling for, you can make a better decision on how to price your FSBO home.
2. List Your Home For Sale By Owner
One of the bigger challenges of selling a home on your own is attracting buyers. It’s important to list your home on as many sites as possible.
To get your home on the MLS, the site that most buyers use to search for homes, you’ll typically have to pay a real estate brokerage. Under what is known as a flat-fee arrangement, you’ll pay the brokerage a one-time fee for it to list your home on the MLS.
3. Conduct Tours
After your home is listed, you’ll need to schedule showings from interested buyers. Buyers who work with a real estate agent will tour your homes with their agent present. It’s best if you are not at home during any showings.
Make sure before you open your home to showings, you stage it. During the staging process, you’ll remove any excess furniture, decorations and personal items to make your home’s interiors look as large and airy as possible. You want buyers to be able to envision themselves living in the home. You can stage on your own or you can hire a professional stager.
4. Negotiate And Accept An Offer
Once you receive an offer from a buyer, it’s time to negotiate. You can either accept the offer, reject it outright or make a counteroffer. Maybe the buyer is offering a price that you think is too low. You can make a counteroffer for a price somewhere between what the buyer is offering and what your home is listed at.
You can also negotiate over contingencies, which are clauses in an offer stating that a home sale can’t close until certain events happen. The most common is the home inspection contingency. Buyers will state in their offers that they will order a home inspection of your property before they close on the sale. Other buyers might state that they can’t close on the purchase of your home until they sell their own. This last contingency is usually open to negotiation: You might give buyers a deadline, say 30 days, in which they must close on your sale.
FAQ
Here are some answers to some of the most commonly asked questions about FSBO homes.
The Bottom Line
Buying and selling a for-sale-by-owner home may come with challenges. But the process can also be rewarding.
Take the first step toward buying a house.
Get approved to see what you qualify for.
Dan Rafter
Dan Rafter has been writing about personal finance for more than 15 years. He's written for publications such as The Washington Post, Chicago Tribune and Wise Bread.
