In most real estate transactions, homebuyers and sellers hire real estate agents to represent them. In many cases, buyers and sellers never interact with each other; the agents work as intermediaries and do all the negotiation.
Every now and again, however, you may run into the acronym FSBO on your house hunt. This means “for sale by owner” — a seemingly minor detail that impacts the sale significantly.
If you’re wondering what FSBO is, you’ve come to the right. This article offers a complete overview of FSBO, including:
- What is FSBO in real estate?
- MLS listing vs. FSBO
- Why homeowners sometimes choose FSBO
- Considerations to make during an FSBO transaction
- How home buyers can potentially benefit from FSBO deals
- The challenges of FSBO
- Frequently asked questions about FSBO
What is FSBO in real estate?
FSBO refers to a method of selling real estate where the owner handles the entire selling process end-to-end without using a real estate broker. Instead, they’re responsible for all of the tasks associated with selling a house, including marketing the property, taking photos, making yard signs, listing it, negotiating with buyers, and closing the deal.
All kinds of properties — both single-family and multi-family homes, including standalone houses, condos, apartments, and townhouses — can be sold directly by the owner. However, the vast majority of real estate deals are not made this way.
In fact, the latest data from the National Association of Retailers (NAR) has FSBOs accounting for just 10% of home sales, with the typical FSBO home selling for $225,000 versus $330,000 with an agent.
MLS listing vs. FSBO
When a homeowner decides to sell their property with the help of a broker or real estate agent, the real estate company typically lists the property in a multiple listing service (MLS) database. There are numerous MLS databases throughout different areas and regions, and each is a network of new listings designed to help real estate professionals.
When a property goes into an MLS database, the listing typically includes details like square feet (sqft), location, features, and asking price. This allows other real estate agents to access and share information with their clients, resulting in greater market exposure.
In an FSBO transaction, the property owner assumes the full responsibility of marketing and selling the property to potential buyers. Since they don’t use a real estate agent, FSBO properties typically do not appear in an MLS.
Instead, property owners usually explore alternative means of advertising FSBO properties like social media, classified ads, open houses, and online platforms like Zillow, Redfin, or Trulia. That said, some MLS systems do offer limited services to FSBO sellers in exchange for a listing fee.
Why homeowners sometimes choose FSBO
Any time you explore a new home that’s for sale, you should always think about why the person is selling their house and what their selling strategy might be. This is especially important with an FSBO property, which deviates from the traditional selling process.
With that in mind, let’s examine some common reasons a homeowner may choose to market their property FSBO instead of using an agent.
One of the top reasons why homeowners choose FSBO is to save money. In most transactions, real estate brokers ask for 5% to 6% of the sale price, with half going to the listing agent and the other half going to the agent representing the buyer. By selling the property themselves, homeowners can avoid paying a real estate commission and pocket the savings instead.
If a person opts to sell their property FSBO to pinch pennies, it may indicate they are a tough negotiator and looking for the best possible deal. In such cases, you should go in ready for a potential price battle and round up as much comp data as you can.
Maintain control over the sales process
Working with a selling agent requires giving up significant control over the selling process. Naturally, not all sellers are comfortable with this.
By selling a property FSBO, the homeowner can set the listing price, retain control over the property’s appearance, and negotiate directly with buyers — all without relying on an agent.
Control the market
Sometimes homeowners want to avoid exposing their property to the general market and target their advertising to a specific group of buyers. FSBO helps reach potential buyers without listing the property on an MLS and attracting the attention of every real estate agent under the sun.
Homes for sale by owner: Considerations to make
In a traditional real estate transaction, buyers often leave the heavy lifting to their real estate agents. But when buying a property for sale by the owner, the process requires more diligence. In addition to securing a mortgage, here are a few other factors you need to keep in mind when you’re considering buying a FSBO property.
First things first: Research the market and ensure the price is fair and in line with similar properties in the area. Here, it helps to get an appraisal or consult with a real estate agent if possible. According to the NAR, 16% of FSBO sellers struggle with getting the price right.
Always insist on a comprehensive home inspection before agreeing to any purchase. This holds true regardless of whether you are completing an FSBO or traditional sale. Asking for an assessment can help reveal potential issues that a seller may be trying to hide — like malfunctioning wells, septic systems that are past their useful lives, or structural damage.
Sellers often try to avoid dealing with real estate agents altogether when putting their houses on the market as FSBO. As such, you may have to get in the trenches and negotiate directly with the seller about things like price, contingencies, and repairs. Before diving in, brush up on your real estate negotiation tactics.
Escrow and closing
In an FSBO transaction, the roles of escrow and closing are similar to a traditional sale. However, there are some key differences to be aware of.
In an FSBO sale, the seller and buyer must decide how to handle the escrow process. The two parties can use a third-party escrow company or attorney to facilitate this unless they want to handle it themselves.
What’s more, during closing the seller is responsible for coordinating all closing details — like scheduling the closing date, preparing all of the necessary documents, receiving signatures, and addressing last-minute concerns. It’s also necessary to meet in person and finalize the sale.
All real estate transactions have a degree of unpredictability to them. When you remove professional real estate agents from the process, things can get a little more chaotic.
To switch to the first person for a second, when I was buying my first house, I was eying a property that was a FSBO listing. After some tense negotiations, we finally had a deal. The sellers were a married couple; the house was in the wife’s name, but the husband didn’t want to sell.
Then things got weird. Even though the listing included a commission being paid to the buyer’s agent, the sellers started trying to weasel out of that clause. After more back and forth, the seller ultimately withdrew from the deal. It was an emotional rollercoaster and a waste of time.
When two real estate agents are involved in a deal, they work together to bring it to the finish line expediently. There’s less likelihood of funny business.
The benefits of FSBO for buyers
While people often think of FSBO transactions as being beneficial to the seller, there are some advantages for savvy buyers who can navigate the process and execute a transaction.
From a homebuyer’s perspective, an FSBO transaction means less competition because the property is usually not included in MLS listings. With less competition comes greater negotiation power, which means you could wind up with a better deal.
When dealing directly with a buyer, you can connect more personally. This can establish trust and understanding and help reach a price that both parties can agree to.
To illustrate, suppose you need a family home in a safe neighborhood with a decent school system. You discover a seller who wants to see their home go to a family that will appreciate the property and put it to good use. In this case, forming a connection with the buyer could help facilitate an easier sale.
In an FSBO transaction, you or your real estate agent can negotiate directly with the seller. This can potentially lead to more flexible and personalized negotiations without someone standing in the way and potentially complicating the process.
The challenges of FSBO
Despite offering a more direct and intimate buying experience, FSBO has several challenges and drawbacks for buyers. Here are a few reasons why buyers tend to struggle when they buy directly from an owner.
Negotiating without third-party representation
The negotiation process goes more smoothly when two licensed real estate professionals with experience closing deals are the ones doing it. In FSBO deals, the buyer may be disadvantaged if the seller has more knowledge or experience negotiating.
Some buyers may also be uneasy about working with sellers without a neutral third party. This can create trust issues, making it harder to reach a deal. Sellers also may not provide as accurate or trustworthy disclosures. Unfortunately, verifying disclosures on your own may be challenging.
Having less market information
Real estate agents have deeper access to market data and local economic conditions than you do. That being the case, it’s typically much more challenging for buyers to determine a property’s actual value.
Buyers who choose to move forward with FSBO transactions should consider going in with as much data as possible. Even better, consult with local authorities for information about the property and surrounding area.
Handling emotional attachment
Selling a home can be an emotional experience, making it hard to negotiate from a business standpoint. It’s common for sellers to throw curveballs into the equation by changing prices or terms, being flakey, and otherwise attempting to back out of deals.
FAQs for FSBO homes
Thinking about pursuing a FSBO property. Here are some answers to commonly asked questions.
Are foreclosures different from FSBO transactions?
A foreclosure is a different type of transaction. It occurs a homeowner defaults on their mortgage payments and the lender takes legal action to repossess the property and recover their outstanding debt. While a homeowner may choose an FSBO sale to save money, it does not necessarily mean they are financially distressed or in danger of foreclosure.
How does an FSBO impact the buyer’s agent?
As a buyer, you can still work with an agent when purchasing an FSBO property. However, it’s up to the property owner to decide whether to negotiate with a real estate agent and pay them a commission.
If you decide to use a buyer’s agent during an FSBO transaction, ensuring that the seller will agree to an agent commission ahead of time is critical. Sellers often try to get out of paying buying agents, leading to disputes and legal issues.
Do mortgage lenders accept FSBO transactions?
Lenders do accept FSBO transactions. As such, you’ll still have to go through the normal mortgage application process.
Without a real estate agent, the lender will most likely require an independent appraisal to ensure the property’s value and sale price are accurate before issuing a loan. You can also expect the lender to complete a title search, review the contract and other documentation, and verify proof of funds for the down payment and closing costs. The lender may also need to work with the seller to get documentation and complete the mortgage process.
What consumer protection services are available to buyers during an FSBO sale?
All purchasers are entitled to various consumer protections to ensure a fair and secure homebuying process. This includes the right to review property disclosures, inspection contingencies, financing contingencies, and the right to conduct a title search.
In addition, buyers can hire a real estate attorney to review the purchase contract and use a neutral third-party escrow service to hold funds. FSBO sellers must also comply with state and federal consumer protection laws, and fair housing laws which prohibit discrimination based on race, color, sex, religion, disability, national origin, or familial status.
What is a flat fee MLS listing?
A flat fee MLS listing is a real estate service that allows homeowners to list their properties in an MLS database for a one-time, flat fee instead of paying the traditional commission fees to realtors.
The bottom line: Should you buy an FSBO house for sale?
The vast majority of real estate transactions take place between licensed real estate agents. But during your search, you may find a dream house listing in a top market like New York, Chicago, or California with an FSBO acronym attached to it. Should that happen, only you can decide whether you want to move forward with this type of process.
While FSBO transactions are more challenging, they can be a walk in the park if both sides come to the table organized and ready to make a deal. It all depends on the property, the seller’s mindset and strategy, and the buyer’s willingness to negotiate and ask the right questions.
We get it: Buying a property is tricky, and there are countless pitfalls along the way. While research can help, sometimes sites like Realtor.com don’t tell the full story about a property.
Before you start searching for your first property, we recommend checking out our free guide for first-time homebuyers.