How does for sale by owner work?
If you’ve been exploring real estate options for a while, you’ve probably seen the lawn signs reading “For sale by owner,” but what does that actually mean?
In short, sellers who list their home as for sale by owner, or FSBO, are opting to sell their home without the help of a real estate agent or broker. This distinction might seem like it only impacts the seller’s side of the deal, but it does carry implications that change the homebuying process for everyone involved.
What does FSBO mean?
Sellers usually choose to list their home as FSBO to avoid paying commissions to a real estate agent, typically amounting to thousands of dollars. If they have some experience selling homes in their past, these sellers might be more confident in taking on the responsibilities and legal risks associated with closing the sale on their own.
Buyers should be wary of FSBO homes, but that doesn’t make them a bad choice when buying a home. There is always the potential for problems when one party assumes the role of broker, but as long as you decide to include a licenced real estate professional on your team, you should be able to navigate an FSBO sale without issue.
How FSBO works for the buyer
When you do buy an FSBO home, you’ll take on some additional risks due to the seller preparing the sale on their own. Since these details are handled without an agent on the seller’s end, misaligned documents and overlooked issues are a bit more common in FSBO properties.
As the buyer, that risk can be easily mitigated by assembling a team of mortgage professionals who can help guide you to a successful home purchase.
- Get approved by a lender
- Find a real estate agent
- Scheduling an inspection
- Negotiating a purchase agreement
Get approved by a lender
Tools like mortgage affordability calculators can help you decide if the timing is right for you to buy a home, but the best way to know for sure is by meeting with a lender right from the start.
One of the first steps you’ll need to take is finding a lender who can approve your mortgage application. By applying for mortgage preapproval, you’ll get a clear idea of how much you can spend on your new home and whether you’re eligible for financing.
Find a real estate agent
Your seller won’t be working with a real estate agent in an FSBO transaction, so it is important that you have a trusted, licensed professional on your team, even if hiring one is optional.
In any real estate deal, your agent negotiates on your behalf and works with the seller to agree on an appropriate purchasing agreement. Typically, the seller pays the commission for the buyer’s real estate agent, allowing you to bypass potential problems throughout the homebuying process at little to no expense.
An FSBO home will sometimes include a “no agents” stipulation, allowing your seller to avoid paying these fees for the buyer.
Scheduling an inspection
Before you close on an FSBO home, it is strongly recommended that you schedule a home inspection of the property. While an appraisal determines the overall value of the home to determine an appropriate loan amount, a home inspection is much more thorough.
A licenced home inspector evaluates the state of the home’s structure, appliances, electrical system and plumbing. Any necessary repairs or potential issues are uncovered through this process, saving you from an unwelcome surprise after moving in.
If the inspector does find an issue, such as a structural problem that must be addressed, you’ll be able to negotiate with the seller to find a solution. Depending on the extent of the issue, your seller could repair it themselves, agree to a reduction in sales price or pay for repairs you make after moving in. If the problem is serious enough and you can’t agree on a solution, you’ll still be able to walk away and cancel the sale.
Since the inspection isn’t a required step in the mortgage process, you’ll have to take the steps to schedule an inspection.
Writing a purchase agreement
The actual terms of the home sale transaction are laid out in a binding contract known as a purchase agreement. The terms of the purchase agreement are negotiated between the buyer and seller until both parties are satisfied. In a conventional homebuying scenario, the seller’s agent is responsible for writing the purchase agreement.
In an FSBO scenario, your seller won’t have the expertise of an agent to put this document together. In this case, your real estate agent would be the one to write the agreement, emphasizing the importance of having one of these professionals on your team, especially in an FSBO sale.
Without a real estate agent, it’ll be a good idea to hire someone who can draft the agreement and facilitate the sale for both parties. Transactional agents or real estate attorneys are good candidates to handle this stage of the process. If no other agents are involved, both the buyer and seller should at least get the help of real estate attorneys.
FSBO considerations for the seller
Usually, listing a home as for sale by the owner means additional work for the seller. If you decide to sell your home on your own, you’ll be taking on the role as real estate agent and broker, meeting all the checkpoints that need to be reached in order for the sale to go through:
- Marketing the property
- Negotiate the sales price
- Prepare legal documents
Marketing the property
Prior to listing the home for sale, you’ll want to up its curb appeal as much as you can. Any repairs or gardening improvements that can boost the interest of your home can help attract an eager buyer.
Marketing of the property will have to be done on your own, as will scheduling and hosting showings for any interested parties.
Negotiate the sales price
If you’re selling the home on your own, you’ll have to determine an appropriate asking price for the property. You can find the right price by researching similar home sales in your area or hiring an appraiser for an official estimation.
When an interested buyer comes along, they might want to open negotiations to lower the asking price. Negotiating a purchase agreement that works for all parties usually involves conditional agreements that need to be met in order for the sale to close. If you are selling the home on your own, it would be a good idea to employ the help of a real estate attorney at this stage.
Prepare legal documents
In addition to reviewing the purchase agreement, you’ll also have to handle all the necessary paperwork needed from you to close the sale. Certain documentation and submissions, such as the property disclosure form, the mineral rights statement and the deed, will need to be produced and certifiable without the help of an agent.
Advantages of listing your home FSBO
Selling your home with the help of a real estate agent can help avoid any unexpected problems or unnecessary headaches that could hinder a property sale. The expertise and added security that these professionals provide, however, does come with a cost. Sellers looking to save on commission payments and make a little extra from their property might be inclined to list the home as FSBO.
In conclusion
While FSBO properties do come with some additional risk, a licensed real estate agent can help cut through the confusion and mitigate any potential issues. By working with professionals and home inspectors on your end, you can be sure to uncover any problems that were overlooked by the seller.
If you feel ready to take on an FSBO purchase, you can start your mortgage application today.