What Does ‘For Sale By Owner’ Mean? The Ins and Outs of a Direct Home Sale
If you’ve been house hunting for a while, chances are you’ve encountered at least one or two homes for sale with a “FSBO” sign in the yard. FSBO, or “for sale by owner” is exactly what it sounds like, a home that’s being sold directly by the owners — as in, they aren’t represented by a real estate agent.
And while these types of sales are less common, you may still encounter them in your home search. So what’s the difference between this type of sale and more traditional ones? When you get down to the details, what does for sale by owner mean?
Here’s everything you need to know before jumping into a FSBO deal.
What Makes a FSBO Home Different?
On the whole, FSBO deals are very similar to typical home sales. You’ll start with a viewing, make an offer, get the necessary inspections and paperwork completed and close the deal.
So what makes them different?
Said John Gluch, Realtor and founder of The Gluch Group: “When purchasing a home listed FSBO you’ll be negotiating and dealing directly with the owner of the property rather than through an agent representing the owner,” he says. “Commonly this makes the transaction far more emotional and personal.”
While real estate agents often act as an emotional buffer between sellers and buyers, deals without them can start to become a negotiation nightmare. Many sellers believe their homes are worth more than they actually are. Plus, it can also be harder to work with sellers to get things fixed on the property — especially since these requests can be taken more personally without the involvement of a seller’s agent.
Another thing to keep in mind about FSBO homes is that the seller doesn’t really owe you anything from a legal standpoint.
“It’s critical to keep in mind that the seller has no duty to you whatsoever beyond their obligation to follow the letter of the law,” says Gulch. While real estate agents are bound by their local and national licensing boards to certain ethical standards, sellers are not. That means that while a seller’s agent would be legally obligated to share critical details about a home’s history, including things like if it’s ever been flooded, or the scene of a crime, a seller is not obliged to disclose such information.
This is one reason sellers might opt for a FSBO sale. But more often, they just don’t want to pay a real estate agent.
Why You’ll Want an Agent (Even if They Don’t Have One)
Just because your seller isn’t working with a real estate agent, doesn’t mean you should follow suit. In fact, their lack of professional expertise is perhaps the best reason to make sure you have a pro on your team.
“This is where having a buyer’s agent is a good thing,” says Brittany Hovsepian, owner of The Expert Home Buyers. “Your agent will still make sure that all of the required steps get done when they need to. If you don’t work with an agent, it’ll be up to you to be in talks with your loan advisor, and get all the necessary inspections ordered on time.”
Unless you know your way around all the details of buying a home, having an agent will be helpful. Just make sure you know in advance who’s going to pay them.
Ask Early About Buyer Agent Compensation
Since sellers are typically responsible for paying buyer agent fees, with a FSBO it’s less clear. While your budget-minded seller might be reluctant at first to pay your agent’s commission, they may change their mind if they know it’s their best (or only) shot at making a sale.
“If you’re not sure if the seller is willing to pay a buyers’ agent, be sure to ask the seller early in the process — and even better, get it in writing (like email or text),” says real estate agent Leize Gaillard. By asking early, you’ll be able to loop your agent into the process from the beginning. More importantly, you’ll have a game plan in place if the seller says no.
“If the seller is not offering compensation, but you still want an agent to represent you, then you can either offer to pay your buyer’s agent yourself or negotiate a deal with the seller that’s contingent on buyer agent compensation,” she says.
Don’t Expect a FSBO to Be a Steal
One of the biggest myths about FSBO homes is that they can be a good way to score a low price on a house. After all, if sellers aren’t working with an agent, how will they know what their place is worth?
This is true, but not in the ways you’d expect. As mentioned, sellers often overprice their homes (rather than undervalue them) because their emotional attachment can lead them to believe their home is worth more than it is.
“Many buyers think that a FSBO may be a way to get a better deal, but this is often not the case,” says Gaillard. “Sellers primarily sell homes themselves in order to save money, not necessarily to pass savings on to a prospective buyer.”
It might also be the case that your seller was originally planning on working with an agent, but couldn’t come to an agreement on the value of the home.
“Many FSBO sellers are listed as such because they’re asking a price that no good agent would even bother listing the home for,” says Gulch. “It’s rare indeed to find a good deal on a FSBO. But as long as the buyer is represented by a good agent there’s nothing to be afraid of — it’s just unlikely you’ll get some kind of deal on the home.”
Closing the Deal on a FSBO
When it comes time to close on your FSBO deal, you should be prepared to shoulder most (if not all) of the burden. Writing contracts, keeping track of appraisals and inspections, and even hiring the title company are all things that might fall on the buyer — especially if you choose to forgo working with a real estate agent.
Sometimes a seller might have a preference for certain stipulations, as in a particular title company. But for the most part, making sure all the I’s are dotted and T’s are crossed will be up to the buyer.
Whether you work with an agent or not, the closing process is pretty similar in a FSBO to any other deal. Depending on how you plan to pay for the home (with a lender or in cash) there will be more or less paperwork to complete and sign. Lenders often make certain requirements of buyers, such as appraisals and inspections, which the buyer will be responsible for tracking.
If you’re paying in cash, you may not be required to do these things, but it’s a good idea to do them anyway. After all, skipping steps might feel like getting to the finish line faster, but there’s a reason these practices are in place— and often, it’s to protect the buyer.
The Bottom Line with FSBOs
Buying a FSBO home does break from tradition in quite a few ways — mainly, how negotiations will be handled. Since most sellers opt to work with a real estate agent, you’re far more likely to find a home you like that’s been listed in all the typical channels. But if you do happen to drive by a drop-dead gorgeous house with a FSBO sign out front?
Just be prepared. Get a feel for your seller early on and ask an experienced agent to get involved. Make sure you know who will be paying them, and keep your expectations in check. While you may not score the deal of a century on a FSBO home, that doesn’t mean it can’t still be a worthy investment — especially if you know what to expect from the outset.