If you’re in the market for a home, you may find homes listed for sale by owner. This means that the owner is selling the home without a real estate agent. Often abbreviated as FSBO, such homes come with their own set of pros and cons that you should be aware of before you buy one.
Key Takeaways:
- For sale by owner means that the owner is selling the home without a real estate agent. Many buyers hope to get a good deal on a home by working directly with the seller.
- There will be some cost differences in buying an FSBO home. The owner still needs to pay your agent’s commission, even if they don’t have to pay one to an agent of their own. You also may need or want the help of a real estate attorney to ensure a fair and airtight deal.
- Be prepared for the process of buying an FSBO home, which may differ in key respects from a typical transaction.
FSBO Explained
The most common reason sellers choose to sell their homes themselves is to avoid paying a commission fee to a real estate agent. During a home purchase, it’s customary for the seller to pay the commission fee for both their agent and the buyer’s agent. This fee is typically 5% to 6% of the purchase price and is evenly split between the agents.
So, if a home sells for $400,000, the real estate commission would be $20,000 to $24,000 — no small chunk of change. It’s important to note that even if the seller doesn’t use an agent, the buyer’s agent still needs to be paid.
According to the National Association of Realtors, 7% of sellers sold their homes via FSBO in 2023. The report also found that 57% of those sellers already knew the buyer.
How does FSBO work?
In an FSBO transaction, the seller generally takes responsibility for the role typically performed by a listing agent. This usually includes:
- Researching comparable properties in the area.
- Setting the asking price.
- Staging the home to be shown.
- Listing and marketing the home.
- Scheduling open houses and private showings.
- Negotiating offers with buyers and their agents.
- Preparing legal documents.
- Conducting the closing.
“While they can save on commission, there is lots of research showing an FSBO will get about 10% less for their property and will still have to manage the marketing, paperwork, timelines, and negotiations themselves,” says Erin Hybart, a Realtor at Clients First Realty in Baton Rouge, Louisiana.
Can you buy an FSBO home on your own?
If the seller doesn’t need a real estate agent, you might be wondering if you also can go without one. While it’s possible to buy a house without a Realtor or agent, you may be placing yourself at a disadvantage by not having an experienced agent to advocate on your behalf. At the very least, your agent can help make sure you get a fair deal and ensure that the process is conducted fairly and legally.
Your agent also can help when it comes to negotiating the sales price with a seller who doesn’t have professional representation. Remember, the seller typically pays the commission fee for the buyer’s agent, so using an agent won’t cost you more.
Factors To Consider Before You Buy an FSBO Home
If your heart’s set on a specific home that’s for sale by owner, it may be worth making an offer and working with a seller who isn’t using a real estate agent. If the seller has sold a home before, they may be familiar enough with the process to avoid problems or delays. However, there can be downsides to buying an FSBO home.
“These sellers can lack a deep understanding of the necessary paperwork and legal disclosures in real estate deals,” Hybart says. “It’s similar to a game of chess, where knowing each piece’s role is key to strategic success. Sellers may not understand how all the pieces work independently and how they can work together to come out on top.”
Costs of Buying an FSBO Home
While buying an FSBO home saves the seller money, the typical costs of a real estate transaction remain mostly the same. Here are a few areas where the buyer’s costs may differ from a typical transaction.
Attorney fees
Some states and lenders require you to use an attorney who is licensed to practice real estate law to oversee the closing process on a home sale. A real estate attorney also can draft and review the purchase and sale agreement, and any other documents that crop up. If you don’t hire an agent, then you definitely should consider hiring a real estate attorney. This cost will depend on the extent of their services and their hourly rate, which you can expect to range from $150 to $350 per hour.
Agent commissions
As mentioned, the seller typically pays the commission fee for the buyer’s agent and the seller’s agent. However, it’s possible with an FSBO home that the seller may try to bake that commission fee into the sale price of the home. For example, the buyer’s agent and seller’s agent typically split a commission fee of 6% of the home purchase price. An FSBO seller may add 3% to the asking price so that the buyer ends up paying for their own real estate agent. An experienced real estate agent working on your behalf can spot such tactics and help you get a better deal.
Down payment and closing costs
The seller’s decision not to use an agent should have little to no effect on the buyer’s need to make a down payment and pay closing costs.
If you’re taking out a mortgage, then you’ll typically need to make a down payment. A conventional loan requires a down payment that’s at least 3% of the purchase price — though many lenders will require a down payment of at least 5%. If you’re buying a $400,000 home, then that means a minimum down payment of $12,000 to $20,000.
Your closing costs are all the fees required to fund your mortgage and transfer legal ownership of the property to you. Common closing costs include the home appraisal fee, lender origination fee, title search, home inspection fee, and recording fees. You can expect closing costs to total 2% to 5% of the purchase price. To buy a $400,000 home, your closing costs could range from $8,000 to $20,000.
Where To Find FSBO Homes
While you may be able to find some FSBO loans on the multiple listing service, some FSBO sellers don’t bother using that platform. Some popular online listing sites include sections for FSBO homes, and some sites specialize in this type of transaction.
“Some FSBOs are online on various websites, but others may just be a sign in the yard or on social media,” Hybart says. “Any property can be an FSBO if someone offers to purchase a home not listed or advertised for sale.”
7 Steps To Buying an FSBO Home
For buyers, there are only a few differences between buying an FSBO home and buying a home with a listing agent.
1. Do your research
Whenever you buy a home, it’s important to research the property to understand its sales history and get a sense of its value in the current market. FSBO homes often aren’t listed on the multiple listing service, so you may need to search platforms dedicated to FSBO homes. This can help you get a better idea of whether the asking price is reasonable and fair.
2. Get mortgage preapproval
Mortgage preapproval is a letter from a lender that states how much it expects you can borrow to buy a home. This is a good way to know in advance how much house you can afford. Many real estate agents require mortgage preapproval before they’ll start showing you homes. Just keep in mind that preapproval letters typically expire after 30 to 60 days, so hold off on getting one until you’re ready to buy.
3. Find an experienced real estate agent
An experienced real estate agent can help you find FSBO homes in your price range, negotiate directly with the seller, and help you close the deal. Be sure to interview a few candidates and ask questions before choosing an agent.
4. Tour FSBO homes
Here comes the fun part: touring homes and getting a feel for what it might be like to live in them. Since you are dealing directly with the seller, you can ask them about the home, its condition, and its history. You also might want to ask why they’re not using an agent, and try to get a sense of how prepared they are to handle the transaction themselves.
5. Make an offer
If you think you’ve found the right home, then your real estate agent can help you make an offer. Be ready in case the seller makes a counteroffer. Once a price has been agreed upon, your real estate agent or attorney can draft a purchase and sale agreement for both parties to sign.
6. Get approved for a mortgage
If your finances are in order, then it’s time to get a mortgage. When you apply for a mortgage, you’ll receive a loan estimate from the lender within three business days that shows your estimated interest rate, monthly payment, and closing costs. All lenders are required to use the same loan estimate form, so you can apply with multiple lenders and directly compare offers before deciding which one is best for you. The terms will be finalized in the closing disclosure, which you’ll receive three days before your scheduled closing.
7. Close on the FSBO home
Before closing, you’ll do a final walk-through to confirm the house is in acceptable condition and that any agreed-upon repairs have been completed. At closing, you’ll sign the loan documents, make your down payment, and pay your closing costs. The seller will transfer the deed to you, and you’ll be handed the keys to your new home.
Pros and Cons of FSBO Homes
Let’s take a look at some of the upsides and downsides to buying a home that’s for sale by owner.
Advantages of FSBO homes
Some of the perks of purchasing an FSBO home include:
- You could get a good deal. FSBO homes typically sell for less than comparable homes sold using a listing agent. The 2023 NAR report found that FSBO homes sold at a median of $310,000, while agent-represented homes sold at a median of $405,000.
- The seller still has to pay the buyer’s agent. Just because the seller doesn’t use a real estate agent, that doesn’t mean they get out of paying your agent’s commission fee. This typically comes out to be 3% of the purchase price of the home.
- You’ll likely face less competition. FSBO homes typically aren’t listed on the multiple listing service, so they can be harder to find.
- You’ll have direct communication with the seller. Without a listing agent, you and your agent will be able to communicate and negotiate home prices directly with the seller.
- You may learn more about the home. Dealing directly with the seller could also reveal interesting or important details about the home’s history and the neighborhood.
“The biggest pro of FSBO homes is that they often attract less buyer competition due to lower market visibility,” Hybart says. “This can lead to sellers becoming more flexible over time, potentially accepting lower offers or terms less favorable to them. Additionally, FSBO sellers might initially undervalue their properties, creating opportunities for savvy buyers.”
Disadvantages of FSBO homes
Buying an FSBO home can also come with certain drawbacks, such as:
- You could end up overpaying. In the same way that the seller may underprice the home out of inexperience, it’s also possible that they could overprice it. After all, they’re going to want to get as much as they can for the sale.
- The seller may fail to disclose problems with the home. Sellers are required by law to disclose any known problems with the home to the buyer before the sale. But unlike a licensed real estate agent or Realtor, sellers aren’t bound by a code of ethics and could plead ignorance on certain issues with the home.
- FSBO sellers might be stingy with repairs. If a seller is unwilling to hire a real estate agent, it also could mean they are unwilling to put money into the property and are selling it as is. This could make it more difficult to negotiate with them to compensate for any necessary repairs.
- The seller may not be willing to pay your real estate agent’s commission. If the seller doesn’t want to pay for their own agent, they may try to add your agent’s commission to the sale price.
“On the cons list, FSBO sellers may not understand complex real estate issues, which experience and professional guidance typically mitigate,” Hybart says. “This can lead to unforeseen challenges during the transaction. Also, FSBO sellers balancing other commitments might be less accessible and prone to missing crucial timelines in the selling process.”
FAQ: How To Buy an FSBO Home
Here are answers to common questions about buying homes that are for sale by owner.
Buying an FSBO home means you’ll have more direct communication with the seller, which can give you more information about the house and a direct line for negotiation. This could also get you a better deal on the home, since FSBO homes tend to sell for a lower price than comparable homes sold with a listing agent.
However, a homeowner who’s selling their own house may also try to inflate the purchase price. They also might be unwilling to make additional repairs.
No. Owner financing — also known as seller financing — is when the seller finances the buyer’s purchase in place of a lender. In this arrangement, the buyer pays the seller in installments instead of through a mortgage. FSBO means the sale is conducted without a seller’s agent, while owner financing means the sale is conducted without a lender.
In a typical real estate transaction, it’s the seller’s agent’s job to draw up the purchase and sale agreement. If the home is FSBO and the seller doesn’t have an agent, then the buyer’s real estate agent typically takes the reins. You also could hire a third-party real estate professional or real estate attorney to draw up the purchase agreement.
The Bottom Line on Buying FSBO Homes
Sellers save money by listing their homes for sale without using a real estate agent. Sometimes, buyers also save money on an FSBO home, as they statistically sell for less than homes that have a listing agent. However, you aren’t guaranteed to save money buying an FSBO home, and the process may be more complicated. If you decide to purchase an FSBO home, be sure to thoroughly research it and work with an agent or attorney to confirm you’re getting a fair deal.
