How to Buy a For Sale by Owner Home
Technically, most homes you see on the market are being sold by their owners. So you might wonder why some homes are specifically referred to as “for sale by owner," also called FSBOs. Here's the distinction: Most people use a real estate agent to aid in the home's sale, but a FSBO does not. Either you or your agent directly contacts the seller in a FSBO home sale. A FSBO home sale, though, isn't the norm. In 2017, for example, only 7% of homes on the market were FSBOs.1 Given that, you might not be familiar with buying a home that's for sale by owner. But we're here to walk you through the process.
Why buy a FSBO?
A FSBO home on the market is for sale just like any other. So if you find a home you like and it's a FSBO, there's no reason not to take a look. Plus, you might even save some money. Sellers who use a real estate agent need to compensate that agent (typically 6% of the purchase price), and they might ask more for the home simply because they know they have to pay that commission. Therefore, you might get a slightly discounted price if you buy a FSBO home.
Who can shop for a FSBO?
Anyone looking for a home can buy a FSBO home. You can do so on your own or with an agent. Note that most real estate agents use the Multiple Listing Service (MLS) to locate homes for sale.2 FSBO homes, however, are not on the MLS. So if you're interested in seeing a particular FSBO home, you need to tell your agent about that home. Also note that many FSBO sellers won't pay your agent a commission, so you might need to pay your agent. How much is something between you and your agent (typically around 3%).
You might be able to get a FSBO at a lower price.
Step-by-step guide to buying a FSBO on your own
Although real estate agents are helpful when you're buying a home, you aren't required to have one. You can buy a FSBO without the help of a real estate agent—the trick is knowing how. Here are eight steps on how to buy a FSBO without using an agent.
1. Search for listings
The best way to find FSBO homes is through an online search. You can find FSBO homes interspersed with all homes when you do a regular search using the large real estate websites, such as Zillow and Trulia. However, most of the homes you'll find this way will not be FSBOs simply because there are fewer FSBO homes on the market. Note that with Zillow.com and Trulia.com, you can filter your search to view only FSBOs.
Some sites feature only FSBO homes, such as For Sale by Owner, FSBO.com, and Fizber.
2. Set up an appointment to see the house
Once you find a home you like, contact the seller to set up a viewing. Note that many sellers will require you to have a preapproval letter to even make an appointment, since they don't want to waste time showing their home to someone who isn't qualified to buy.
It's wise to bring someone with you instead of going alone to a stranger's house. The seller or their representative will likely be in the home while you're visiting. Make sure you don't disclose any personal or financial information at this time.
While you're looking around, look past the furnishings and even the new upgrades. You're looking for potential troubles. Although you'll want to get a formal inspection when you're serious about buying a house, you can look for some obvious problems at this stage yourself. Look for the following, which might indicate that you should pass on the home:
- The foundation: Look for large cracks in the basement walls and doors throughout the home that don't close properly. Both are signs of a failing foundation. Also note whether water in the yard drains toward the house instead of away from it. Water pooling in the yard is also problematic. Any standing water around the house could damage the foundation.
- Pest or insect infestation
- The neighborhood: Check the crime statistics and school ratings before you go, and note whether the neighborhood looks well maintained or in decline when you get there.6, 7
- Water stains on ceilings and walls: This indicates a possible roof leak or plumbing issue.
3. Evaluate the comps
This is real estate lingo for conducting a comparative market analysis (CMA), or in other words, determining the value of a home based on similar home sales in the neighborhood.8 You evaluate the comps prior to making an offer to ensure you aren't overpaying for a home. A home that's listed significantly below market value could be trouble as well; something might be wrong with the house. Here's how to perform a CMA:
Search websites like Realtor.com or Zillow.com for recently sold homes in your area, typically by city or ZIP code. When you find a site that offers this information, look at homes similar to the FSBO you're thinking of buying:
- Number of bedrooms and bathrooms
- Square footage
- Neighborhood/school district
- Lot size
- Age of home
Look at amenities as well, such as whether the comparison home has a finished basement, fenced-in yard, or garage. You can then make adjustments up or down in price to account for whether your home of interest has those amenities or not. The more similar the homes are to yours, the more accurate your CMA will be.
When comparing homes, you can also look at homes that are listed for sale, which will give you an idea of what sellers are asking. This is helpful to see whether your home of interest is listed at about the same price as other similar homes.
Another option is to use a valuation tool like this one,9 which uses a computer model to determine a home's value.
4. Make an offer
After you determine the price you want to pay, it's time to reach out to the seller and make an offer. At this point, you might wish to consult with a real estate attorney, but you don't have to. Each state has offer forms you can use to make a formal offer on a home.10 Include the following in your offer:
- The home's address
- The price you wish to pay
- The terms (all cash deal or mortgage)
- The closing date
- How much earnest money you're putting down (this is usually about 1% of the purchase price)
- Any contingencies (financing, inspection, etc.)
5. Negotiate with the buyer
Once you've presented your offer, the seller might simply accept it, and it will be time to celebrate. But what typically happens is a back-and-forth negotiation process.11
If your offer is less than asking price, the seller might counter your offer with a higher price. Or if the seller is happy with your offer price, they might negotiate in other ways. For instance, they might want a shorter or longer closing period than normal. (A normal closing period is one month.)
Once the seller presents the counteroffer, you can either accept or counter again. Note that the best negotiations often require both sides to compromise a little. You need to ask yourself what would be a deal breaker and where you can compromise.
6. Have an inspection done
No matter how much you want the house and how thoroughly you think you inspected it, you're not ready to buy just yet. It's important to first have an inspection done by a professional housing inspector.12 Don't be alarmed if the inspection report shows some things that need fixing. This is routine.
You can fix minor issues yourself, such as replacing a few damaged boards on a deck or slats on a fence. You probably don't want to kill the deal because of a failed window seal or a crack in the garage door. However, if the HVAC system or the roof is on its last legs, you'll probably want the seller to fix those issues before you close — or to decrease the price of the home enough to compensate for the problems.
For problems that require extensive repairs, like major plumbing or electrical issues, you'll probably want the seller to make repairs before closing, since the extent — and potential cost — of the project may not be totally clear until work has begun.
If the inspection report reveals big problems, such as a failing foundation or extensive water damage or mold, you might want to walk away from the deal entirely. That's why you have an inspection contingency. It allows you to cancel the deal if there are major problems with the house — or if the seller won't work with you around problems you find. There are no penalties to you (except for the cost of the inspection).
7. Hire the right professionals
Buying a home is a big deal. Because a significant amount of money is changing hands, you should hire a real estate attorney (especially if you don't have a real estate agent) once you've decided to buy a FSBO home. At the very least, you'll need to hire a title company when you get to the pre-closing phase. A title company ensures that the seller is indeed the rightful owner and can legally sell the home. States vary in the sort of paperwork required for buying and selling a home, so you'll need a professional to guide you during this important step.
8. Close on the house
Walk through the home one last time before you buy: You'll want to ensure any agreed-upon repairs were completed and that there has been no damage since you were last there. If everything looks good, you go to closing, typically held at the seller's closing attorney's office. Bring proof of homeowner's insurance (if you are getting a mortgage to buy the home), your contract, and your photo ID. After signing all the paperwork, you get the keys to your new home.
Important Disclosure Information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- National Association of Realtors, “Quick Real Estate Statistics" https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics, accessed April 22, 2019. Back
- National Association of Realtors, “Multiple Listing Service (MLS): What Is It" https://www.nar.realtor/nar-doj-settlement/multiple-listing-service-mls-what-is-it, accessed April 22, 2019. Back
- CrimeReports, “Welcome to CrimeReports," https://www.crimereports.com/, accessed April 22, 2019. Back
- GreatSchools, “Guide your child to a great future," https://www.greatschools.org/, accessed April 22, 2019. Back
- For Sale By Owner, “Do-It-Yourself Comparative Market Analysis," https://www.forsalebyowner.com/sell-my-house/deciding/do-it-yourself-comparative-market-analysis/, accessed April 22, 2019. Back
- For Sale By Owner," What's My Home Worth?" https://www.forsalebyowner.com/sell-my-house/pricingscout/, accessed April 22, 2019. Back
- RocketLawyer, “Intent To Purchase Real Estate," accessed April 22, 2019. Back
- Forbes, “5 Things To Negotiate When You Buy Your First House," https://www.forbes.com/sites/juliadellitt/2018/06/20/5-things-to-negotiate-when-you-buy-your-first-house/#64c5aea72d0e, accessed April 22, 2019. Back
- American Society Of Home Inspectors, “ASHI Certified Inspectors (ACI), https://www.homeinspector.org/ashi-certified-inspector-definition, accessed April 22, 2019. Back
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