Why do people sell FSBO? | Should I buy a FSBO house? | Pitfalls of FSBO | Benefits of FSBO | What to ask when buying a home from the owner
What is FSBO?
In real estate, the term "for sale by owner" means the owner of a home is selling their house without a real estate agent. For sale by owner is often abbreviated as "FSBO," which is pronounced "fizz-boh."
Typically, people sell their home FSBO to save money on realtor commission fees. However, selling FSBO may not be a smart financial choice overall, since FSBO statistics show that FSBO homes usually sell for less than those sold by a real estate agent.
If you're using a real estate agent, buying a house for sale by owner is mostly the same as buying one sold by a realtor. However, there may be some unique challenges and benefits to keep in mind before making an offer.
Key Takeaways
- "For sale by owner" means a homeowner is trying to sell their home without the assistance of a real estate agent.
- Most people sell FSBO to save money on realtor fees.
- FSBO homes typically sell for lower prices, so buyers may be able to score a deal.
- Without a listing agent guiding the seller, buying a FSBO home may come with some unique challenges.
Why would someone sell FSBO?
For the most part, homeowners who opt to sell FSBO want to save money on realtor fees.
Traditionally, sellers pay the commissions of both their listing agent and the buyer's agent. This is generally 5-6% of the home sale price — with half going to each agent.
| Blank | Percentage | Cost* |
|---|---|---|
| Buyer's agent commission | 3% | $12,000 |
| Listing agent commission | 3% | $12,000 |
| Total | 6% | $24,000 |
When selling FSBO, the seller doesn't have to pay a listing agent, which saves them half on commission.
💡 Learn more: How Much Do Realtor Fees REALLY Cost?
FSBO sellers may choose to sell without a realtor for other reasons, too, like:
- They want to be in complete control of the transaction without influence from an agent
- They're trying to attract cash buyers and investors
- They're in a hot seller's market and don't need a realtor to get bids over asking
- They already have a buyer lined up
- They don't need to sell on a timeline and just want to see what kind of offers they'll get
Should I consider buying a house for sale by owner?
If you work with a realtor, buying a house for sale by owner is pretty similar to buying one listed by an agent, so you should consider the option. That said, there are a few things that make the process unique.
We think it's important that at least one party in the transaction be represented by an agent. Otherwise, without a knowledgeable professional leading the way, you may:
- Jeopardize the sale
- Overpay for the home
- Cause the transaction to take longer than it should
Clever Real Estate can connect you with a top-rated local realtor who will help guide you through the process of buying a FSBO home — and save you money at the same time! Clever offers eligible buyers Clever Cash Back when their home sale closes.
Potential pitfalls of buying a FSBO house
⛔ Mistakes and oversights
One of the major drawbacks of buying a FSBO house is that there's a greater potential for error. Without professional real estate knowledge, the seller could make mistakes that cost you big in the future.
For example, sellers may be unaware of their legal responsibilities and fill out paperwork incorrectly. The seller could fail to disclose important information, such as property defects or liens that are expensive to remedy. Something as simple as incorrectly listing construction materials could cause big problems for you in the future.
⛔ Inaccurate pricing
Without the same resources and experience as a licensed realtor - who are skilled at completing comparative market analysis (CMA) reports - many FSBO sellers list their home for more than it's worth.
Overpriced homes tend to stay on the market longer, with the seller dropping the price several times. Numerous price drops are often a red flag for buyers, who assume there must be something wrong with the house if nobody has snatched it up yet.
In some cases, you can use this to your advantage and negotiate a good deal on a home with little interest from other buyers. Or you may encounter a stubborn seller who feels their home is worth more than it actually is and refuses to negotiate.
Keep in mind that if you purchase a home for a price far beyond its appraised value, you'll likely encounter issues with your mortgage approval.
⛔ Bad reputation
Some seasoned realtors have had negative experiences with FSBO homes and won't even show them to buyers.
Often, negotiations are difficult without a listing agent acting as an intermediary. FSBO sellers are emotionally invested in the home, so they may find the deal-making process personally insulting.
Additionally, FSBO sellers don't have the same professional acumen as realtors. Working with someone who doesn't know what they're doing makes the job harder for your buyer's agent.
Some sellers even refuse to work with a buyer's agent. They don't want to pay any commission and may mistrust real estate professionals.
And, frankly, some people are just unpleasant. The seller may be rude, disorganized, or a poor communicator. This can lead to plenty of headaches without a listing agent serving as a professional buffer.
⛔ Not committed to the sale
Occasionally, a seller may list their home FSBO just to see what kinds of offers they get.
Sellers who aren't in a rush to sell their home can be frustrating if you need to move on a timeline.
This type of FSBO seller is also less open to negotiating anything. They've just cast a line to see what bites — they're waiting to see if someone will offer a price that makes a move worthwhile.
Potential benefits of buying a FSBO house
✅ You may be able to score a good deal
Since your agent is a skilled negotiator and the FSBO seller is likely not, you may be able to get a better deal on a FSBO home. Also, because FSBO sellers are saving on commission, they may have some extra wiggle room with the price.
Some FSBO sellers choose to sell this way because they're in financial distress and can't afford a listing agent's commission. These sellers might be especially eager to take any reasonable offer to sell quickly.
✅ You'll communicate directly with the seller
Though some FSBO sellers can be difficult, others are perfectly pleasant. When buying a FSBO home, you'll get to interface directly with the seller, without the listing agent serving as an intermediary.
This may help you better understand their motivations and negotiate a win-win deal. Additionally, less gets lost in translation as it sometimes does when two agents are communicating on behalf of the buyer and seller.
Plus, you'll be able to get the lowdown on details like which neighbors are nice and how long it takes a pot of water to boil on the stove.
Questions to ask when buying a FSBO home
Since buying a FSBO home is a unique experience (only 8% of homes were sold FSBO in 2020 according to NAR), following are some questions to ask sellers when considering a FSBO home purchase.
Will you pay a buyer's agent commission?
Most FSBO sellers want to pay less commission. But they still need to offer a buyer's agent commission to keep the sale competitive.
However, there are some FSBO sellers who may be unwilling to pay any agent commission. And if your agent isn't getting paid, they may not be willing to work with you on a FSBO sale.
If you want to keep your buyer's agent, you may have to pay their commission. So, you'll want to know if this is a possibility upfront, as it may impact your offer on the home.
What is your timeline?
Some sellers choose the FSBO route because they're not planning to move on a traditional timeline, so you'll definitely want to understand their goals before you make an offer.
The seller might need to close quickly if they're in financial distress. Or they might not know what their plan is once the house sells, necessitating an extended closing period.
Since this can impact you and your budget (for example, you might need a rental home or storage unit between the sale of your home and moving into this one), it's helpful to know this sooner rather than later.
Always make sure the closing date is specified in any offer you submit or contract you sign.
Was the house previously listed with an agent?
If the answer is yes, this may be a red flag.
Some sellers may be difficult to work with and have unrealistic expectations, causing their former agent to drop the listing once their contract expired. Or there may be something seriously wrong with the house if an agent couldn't sell it before the end of the listing agreement and didn't renew the contract.
Either way, this isn't necessarily a deal breaker, but you'll want to know what you're potentially getting into before making an offer.
Why are you selling the home?
This question can give you important insights to inform your negotiation strategy.
If the seller is in a tough spot financially and needs money fast, you may be able to offer less money in exchange for a rapid close.
If they just put the house on the market to see what they could get for it, you'll have to come in with a competitive offer.
Can I see the CLUE report?
Insurance providers report claims history to a central database called the comprehensive loss underwriting exchange (CLUE). A CLUE report shows any previous insurance claims on a home.
Only the homeowner can request a CLUE report on their property. But as a potential buyer, you can ask the seller to obtain a CLUE report and offer to pay for it (they usually cost about $20).
In a FSBO situation when a buyer doesn't have the counsel of an agent to ensure disclosures are properly presented, a CLUE report can give you peace of mind about the property's condition and history. Or it may reveal some major red flags!
Are you open to an appraisal contingency?
An appraisal contingency is a common contingency that gives you a chance to back out of the deal if the home doesn't appraise at the sale price or higher. Since accurate pricing is frequently an issue with FSBO homes, make sure it's a part of your contract.
You can encounter problems with your financing if the home doesn't appraise at the sale price or higher, so give yourself a way out if this becomes an issue.
Who will be handling the earnest money?
When you make an offer on a house, you typically pay earnest money, which is like a deposit on the home. Earnest money is usually 1-10% of the purchase price depending on a number of market factors.
Earnest money is held in an account until close, at which time it is applied to your down payment or closing costs. The account may be managed by the seller's agent or the title company — or it may be the seller's personal bank account.
Since FSBO homes don't have a listing agent, make sure the title company holds on to your earnest money as a trusted third party. Don't give your money directly to the seller.
If the seller holds the deposit, they could potentially back out of the sale and never return your money. If they're unwilling to allow the title company to hold the earnest money in an escrow account, that's a big warning sign!
Bottom line: What does for sale by owner mean and is it right for me?
For sale by owner means a home is sold by its owner without the assistance of a realtor. The buyer can still have an agent — and it's a smart choice to have one leading you through the process and negotiating on your behalf.
Whether or not purchasing a FSBO home is right for you depends on your unique situation and comfort with risk. You may be able to get a great price on a FSBO home, but you also may have to jump through some hoops along the way.
A smart buyer's agent will help you successfully navigate a FSBO sale. Clever can connect you to a top-rated local agent who'll provide all the support you need. Eligible buyers who purchase a home with a Clever agent will receive cash back upon closing.
FAQs
Is FSBO safe?
Yes, it is generally safe to buy a FSBO home. However, we recommend doing so with the assistance of a licensed real estate agent. Your realtor will ensure all contracts, disclosures, and processes are handled correctly.
Does FSBO really work?
Some FSBO sellers are able to sell their home without a real estate agent, saving about 2.5% of the home price by eliminating a listing agent's commission. However, the majority of FSBO sellers fail. A Zillow study found that 36% percent of sellers try FSBO, but only 11% succeed. A better approach to save money when selling your home is to use a service that connects you with reduced commission rates.
Related reading
How To Sell Your House Without A Realtor: What You NEED To Know!: FSBO can be hard, but we're here to help with this comprehensive guide.
Do I Need A Real Estate Agent? Learn The TRUTH: Confused about what exactly realtors do to earn their commission? Read this to learn more.
Read This Before You List Your FSBO on Zillow: Zillow is undoubtedly one of the hottest real estate sites around. Check out these tips if you're ready to list your home for sale there.