FSBO Meaning: Buying A House That’s For Sale By Owner

If you’ve ever looked at a home with a “for sale by owner” sign out front, you may have a few questions. What does for sale by owner really mean, and how does it affect the buyer? Let’s learn all about for sale by owner homes.

What Does For Sale By Owner (FSBO) Mean?

For sale by owner (FSBO, pronounced “fiz-bo”) homes are sold by the homeowner without the help of a listing agent or broker. Sellers typically choose to sell their home FSBO to avoid having to pay the real estate agent the commission fee on the sale of the home. FSBO sales do, however, still require a real estate commission for the buyer’s agent.

If you’re planning to finance a FSBO home, it’s helpful to apply for a mortgage ahead of time. Doing this could help improve your chances of having your offer accepted.

What Does For Sale By Owner Mean For Buyers?

For a potential buyer, a FSBO home can present a variety of benefits and drawbacks. In short, because the property is being sold directly by the seller without help from a real estate agent, the buyer can have a direct line of communication with the seller. This process can lead to the buyer receiving more detailed information about the property from the homeowner’s point-of-view, as well as potentially better negotiating terms.

With that said, this can result in more effort to properly assess the home’s value and any potential defects or issues. It may be best for buyers to consult an experienced real estate agent and attorney for guidance.

How Does For Sale By Owner Work?

With a FSBO transaction, the seller will assume all the responsibilities and risks associated with the sale of a home that a real estate agent would typically take on. These include:

• Researching real estate comps in their neighborhood
• Setting a fair asking price for the home
• Marketing the sale of their home, which may include listing it on the multiple listing service (MLS)
• Staging the home
• Hosting open houses and other showings
• Negotiating the sale price, terms and conditions
• Gathering and having all legal closing documents drawn up
• Having the deed prepared, signed and notarized
• Coordinating the closing process

Before you buy a home directly from a homeowner, let’s walk through how buying a FSBO home differs from buying a property that’s listed by a real estate agent.

The Pros And Cons Of Buying A House For Sale By Owner

Here’s a look at some of the major pros and cons of buying a FSBO house.

Benefits Of Buying A House For Sale By Owner

While dealing directly with a homeowner may sound intimidating, potential buyers can enjoy these advantages:

• Direct communication: When you buy a FSBO home, you eliminate the intermediary (the listing agent) and communicate directly with the homeowner. This might give you more room to negotiate.
• Detailed information about the home: No one knows more about a home than its owner. When you buy a FSBO home, you can learn more about the neighborhood, local hot spots and home features by speaking directly with the owner.

Drawbacks Of Buying A House For Sale By Owner

Unfortunately, a FSBO sale can be more difficult and complex than other real estate transactions for the following reasons:

• Inflated sense of home value: Most homeowners who sell their houses have no experience in real estate. These homeowners may have unrealistic ideas about their home’s value. This could spell trouble when it’s time for the home appraisal – and it could mean you’ll pay more for the home than you should.
• Shaky disclosures: Sellers are required by law to disclose known problems with a home during the sales process. Unfortunately, independent sellers aren’t always honest, or they may be unaware of disclosure requirements.
• Difficulty getting repairs made or costs covered: You may have a tough time convincing FSBO sellers to make repairs or add a contingency to the sale. FSBO sellers typically don’t want to spend more money on a property they’re trying to get rid of.

How To Buy A House For Sale By Owner

The process of buying a house can feel overwhelming in general. To make matters less confusing, here are the five main steps most people will follow to buy a home that’s for sale by owner.

Remember: If you’re thinking about buying a FSBO home, make sure to consult with a real estate professional.

Step 1: Get Approved For Your Mortgage

With any house purchase, you’ll first need to get approved for your home loan so you know exactly how much you can spend. You can apply online with Rocket Mortgage®. If you’re approved for the mortgage, you’ll receive an approval letter from your lender that you can use to get out there and start shopping. Some home sellers may not let people in the door without preapproval from a lender.

Step 2: Consider Working With A Buyer’s Agent

Once you’re approved for your mortgage, you can engage the services of a real estate agent or REALTOR®.

A buyer’s agent can be beneficial even if you already have a specific home in mind. With a FSBO transaction, your agent will negotiate on your behalf and handle the complicated paperwork for you. This is crucial when the seller is doing their own paperwork because your agent will make sure everything checks out, so you don’t run into any problems.

The seller usually pays the commission fees for the buyer’s real estate agent, so working with a buyer’s agent can offer a huge opportunity with very little downside. Just make sure the homeowner agrees to pay your real estate agent’s commission as part of the purchase agreement.

Step 3: Take An In-Depth Look At The Home

If you’re working with a real estate agent, they can usually arrange showings for you through the multiple listing service, but some FSBO homes won’t be listed there. Instead, you and your agent might have to search for open houses or listings by word of mouth, with a different platform. An established real estate agent may also hear about FSBO homes through their personal networks.

If you’re not using an agent, you can get a showing by contacting the seller directly. If the seller is present at the showing, it’s a great opportunity to ask questions and get to know the home and the area.

Step 4: Make An Offer

When you find a home you like, it’s time to make an offer. If you’re using a real estate agent, they can offer opinions on how the home is priced so you know whether you should bid below, at or above the listing price.

Step 5: Close On The Home

Once you’ve received final approval on your mortgage and completed all the necessary inspections, it’s time to close. This is when the ownership of the home will officially be transferred to you.

At closing, you’ll pay your down payment and closing costs. If you’re immediately taking occupancy of the home (in other words, the seller hasn’t negotiated to stay in the home past closing), you’ll get the keys to the house.

FAQs About Buying A FSBO Home

Navigating a FSBO transaction may raise a few questions. To help, we’ve answered a few of the most commonly asked questions from FSBO home buyers.

Who draws up the purchase agreement in a FSBO transaction?

In most real estate transactions, the seller’s agent is responsible for the purchase agreement. If the home is for sale by owner, then drafting the purchase agreement might become the responsibility of your real estate agent.

If you’re not using a real estate agent, then you and the seller have a couple of options:

• Hire someone to draft the agreement. You may want to hire a transactional agent – a real estate professional who facilitates paperwork for both parties – or a real estate attorney to handle this step.
• Draw up the contract yourselves. If you choose to create the purchase agreement, you’ll need to ensure that it contains all the required information. Make sure you consult with a real estate professional before using a homemade purchase agreement.

Do I need a lawyer to buy a FSBO home?

Whether or not a buyer needs a lawyer to purchase a FSBO home depends on where you live. Some areas, such as New York City, require both the seller and buyer to have an attorney to represent each party and handle paperwork, while others do not. With that said, it can be beneficial to have an attorney review contracts to guarantee the transaction goes smoothly.

Do I have to get an inspection when buying a FSBO home?

Although it's not required, we would recommend you never buy a FSBO house without a proper inspection. A trained home inspector reviews the house’s major systems, appliances and structure during their visit. This process is a great way to find out what may need repairs now or in the future.

What can I do if the FSBO home needs a repair?

If your inspector finds a problem with your new for sale by owner home, you have these options:

• Ask the seller to fix the problem. You can ask the seller to fix the problem at their expense before buying the home. This is the easiest solution for buyers, but you can’t guarantee that the seller won’t choose a subpar contractor.
• Ask for a credit to fix the problem. You can ask the seller to credit you for the cost of repairs after closing so you can choose the contractor. However, you may have a more difficult time convincing a seller to agree to pay if they don’t know the cost ahead of time.
• Ask for a reduction in sale price. You might convince the seller to lower the home’s asking price so you’ll have money to make the repairs yourself.
• Cancel the sale. If the problem is severe and you can’t reach a solution with the seller, you can cancel the sale, depending on the contingencies in your purchase agreement.

Make sure to consult your real estate professional for help in figuring out how to navigate any inspection problems that arise.

The Bottom Line

Buying a home that’s for sale by the owner won’t always mean savings for you. While the owner will most likely save by not using a listing agent, it may introduce some problems to the home-sale process.

As the buyer of a FSBO home, it’s up to you to scrutinize the property carefully and do your research to make a fair offer. Working with a real estate agent can protect you from overpaying for the home and running into problems with the purchase agreement and other documents.

If you’re thinking of purchasing a for sale by owner property, be sure to start the mortgage process to impress sellers with solid home financing.