Houses for Sale

What Do I Need To Know About Buying A House That’s For Sale By Owner (FSBO)?

If you’ve been looking for homes to purchase and come across as for-sale-by-owner (FSBO), do you know what to expect? Is it a good deal or will it be a hassle?

In this article, we will take a look at the most important things to consider when purchasing a FSBO home.

What is a FSBO Home?

A FSBO home is a type of home that is just like its name implies: “For Sale By Owner”. In most real estate home sales, a homeowner will hire a real estate agent to help facilitate the sale of the property in exchange for a commission (a percentage of the final sale price). However, it is not required to have a 3rd-party to sell a property.

Homeowners that choose to go the FSBO route usually do so because a) they want more control over the selling process and b) they don’t want to pay a percentage to real estate agents.

Do I Need a Real Estate Agent to Buy a FSBO Home?

Just like a seller, using a real estate agent is optional for prospective homebuyers.

As a seller, most homeowners choose to sell the home privately in order to avoid commissions from a buyer’s agent. Buyers, on the other hand, can choose to use a real estate agent or finalize the transaction by themselves. Even if a FSBO seller avoids paying the commission to the seller’s agent, the buyer’s real estate will take their percentage of the sale.

That being said, should you choose to hire a real estate agent? First, if you’re unfamiliar with the process of buying real estate, you may want a 3rd-party involved to ensure that you get the best deal possible. Real estate agents have a fiduciary responsibility to uphold in accordance with the law, which means they must act in the best interests of their client. And because they earn a higher percentage for larger home sales, real estate agents have an incentive to get their clients the highest price possible.

It’s also important to understand that hiring a real estate agent as a buyer is generally cost free; instead, the real estate agent’s commission comes from the final closing price of the home. The only potential downside of a real estate agent when dealing with a private seller is factoring in the agent’s commission, which may be off putting for some sellers that want to sell their home for maximum profit.

How Should I Negotiate the Price of a FSBO Home?

Offer Lower than Listed Prices

Negotiations for a FSBO can be a bit more difficult than agent-sold properties. As a standard role in negotiation, always offer lower than the listed price. This is the same for sale by owner properties as it would be with agent-listed properties. Bear in mind that many for sale by owners may be reluctant to lower their price and insist on a firm price due to their attachment to a property, perceived value, and other factors that may or may not be true.

To help facilitate a better sale, it’s important to do research on comparable properties in the area (known as “comps”) and have a list of finalized transactions. Many for sale by owner properties may look to get the highest price they can, but may reconsider when factoring in how long the property will be for sale, whether they are looking to move immediately, and so forth.

Write in Contingencies

FSBO properties are just like other agent-sold properties, so it’s important to add legally-binding contingencies before signing the purchase contact. If a contingency is not met, the contract becomes null and void, enabling a buyer to withdraw from the purchase without negative repercussions.

Having a way out of the transaction is a smart move if you find physical defects in the property that the seller refuses to address or if your loan is not approved - among other issues. Some of the most common contingencies include a satisfactory home inspection, clear title from the seller, insurability of the property, a satisfactory appraisal on the home, and so forth.

Should You Give an Earnest Money Deposit to the FSBO Seller?

Giving an earnest money deposit shows that you’re serious when it comes to real estate transactions. However, because you’re dealing with a private party, there may be some potential problems with recovering the money that you deposit. Some of these problems can range from a delay in receiving money if you choose to consider another home or the seller may even spend the cash (worst-case scenario). No one wants to deal with a tug-of-war in court to add to the stress of finding a property!

A better method is to use a title or escrow company that works as a third-party to hold money for the transaction. These companies will draw up a simple contract based on the real estate transaction, disbursing the funds when the terms of the agreed-upon contract are satisfied. If a seller doesn’t want to use a title or escrow company, consider this a red flag.

Always Get a Home Inspection

FSBO homes are no different than conventional homes when it comes to performing your due diligence. And part of that due diligence is having a professional home inspector perform a thorough examination of the property you intend to buy.

A home inspector will take a look at every aspect of the property to determine what is currently wrong with it, what will be a problem in the future, and any potential code violations that in extreme circumstances may render the home unlivable. If a problem is discovered during the inspection, you can ask the seller to:

  • Fix the problem
  • Credit the repairs from the final closing price so you can hire your own contractor
  • Reduce the sales price

Writing the Purchase Contract

A purchase contract is a real estate contract that establishes the terms of the sale between you and the seller. There are plenty of websites that can guide you through the process of what to include in a purchase contract (including copies of forms).

However, when it comes time to finalize the transaction, you will want to work with a real estate lawyer to ensure that everything is on the up and up. The real estate lawyer ensures that legal proceedings are handled in accordance with the law and any potential conflicts before signing. Having a 3rd-party also helps keep the transaction as neutral as possible, especially when a home may be sold “as-is” and may require additional oversight.