FSBO meaning: Buying a house that’s for sale by owner

If you’re in the market for a new home, you might have seen houses with a sign out front reading “For Sale By Owner.” If so, you might wonder whether that’s a great buying opportunity, or an opportunity for a legal nightmare. The truth is that, depending on many factors, it could be either. So, let’s dig into whether this approach is right for you as a buyer.

What does for sale by owner (FSBO) mean?

As the term states, for sale by owner means that the owner of the house is not using a real estate agent to show and sell their home. Instead, they’re handling the negotiations and sale. Sellers do this for a number of reasons, but the most common one is to avoid paying the commission that real estate agents normally charge. Of course, this means that they have to take care of listing, pricing and showing the property themselves, as well as the negotiations and paperwork, which can be significant.

Perhaps this is why it’s not common for sellers to go this route. In fact, in 2024, only 6% of sellers listed their homes FSBO, according to the National Association of REALTORS®. This is historically low, perhaps hinting at how complex many real estate transactions can be.

There is also a new wrinkle in the FSBO game – and in the real estate world overall. Traditionally, the seller was responsible for the entire commission of both the seller’s agent and the buyer’s agent. This usually worked out to between 5% and 6%, split between the seller’s and buyer’s agents.

However, as of August of 2024, new NAR guidelines say the seller is no longer required to pay the commission of the buyer’s agent. Effectively, unless it’s otherwise negotiated, that shifts the responsibility of their payment to you, the buyer.

This means understanding the details of any real estate deal is even more vital for buyers. You need to be proactive in clarifying what your agent, if you use one, will charge for representing you.

Another thing to consider as a buyer is getting preapproved for a mortgage. When dealing with an owner who is handling their own sale – or in any real estate transaction, for that matter – preapproval shows that you’re a serious and qualified buyer. That could result in more negotiating power. It also tells you how much house you can afford and what your monthly payments will be. So there are many reasons to get preapproved for a mortgage before shopping for homes.

What does for sale by owner mean for buyers?

If you’re considering a FSBO home, there are many potential advantages to you as a buyer, and some distinct drawbacks that you need to be aware of and try to mitigate.

One benefit is that you get to communicate directly with the seller. If they’ve owned and/or lived in the home for a significant length of time, it gives you a great opportunity to gain detailed knowledge about things like when the roof was last replaced or repaired, what the neighbors are like, the safety of the neighborhood, and more.

You also enjoy the opportunity to form a personal connection with the owner and therefore potentially have a more pleasant and beneficial negotiating experience. And, since there will be no real estate commission for them to pay, and possibly you if you choose not to employ an agent, you may be able to save some money and buy the home for less than market value.

All these benefits, however, come with potential downsides and challenges. Possibly the most important is assessing and verifying the value of the home. If you work with your own real estate agent, they will do this. If not, you’ll have to find comps – sales or listings of similar properties in the same neighborhood or area. You shouldn’t rely on the seller’s valuation as they have both a monetary and potential emotional interest in the property, so they can easily overprice it.

Another challenge is making sure that the seller makes all necessary disclosures. This is an important legal obligation, one that professional real estate agents and firms take seriously. But owners selling properties on their own can either be unaware of or unwilling to follow these rules. This increases the importance of home inspections.

When and if disagreements do arise between you and the seller, if you don’t have an agent, the direct communication advantage could turn to a negative. This is because an agent serves as your advocate, with no emotional stake in the transaction, allowing them to potentially negotiate much more forcefully on your behalf.

For these reasons, many buyers hire their own real estate agent to negotiate the sale of a FSBO home.

How does for sale by owner work?

When a homeowner decides to sell their home themselves, they take on all the responsibilities that their real estate agent would normally handle. This is more than just negotiating a sale price and filling out some paperwork.

Here’s a quick list of what a FSBO seller is in for:

• Setting a sale price: To value their home correctly, an owner needs to evaluate comparable home sales in their area. Often, however, homeowners have an inflated idea of what their home is worth.
• Marketing the home: This can be as simple as posting a sign out front. But it can also involve staging and photographing the home, and placing ads on FSBO websites, conducting social media campaigns, and listing their home on the multiple listing service (MLS).
• Hosting showings and open houses: A big part of a real estate agent’s job is to show the property to potential buyers, including hosting all-day open houses. That burden falls to the seller.
• Negotiating a sale: Without a seller’s agent, the often-complex negotiation of a sale falls to the seller. This involves more than just agreeing on a sale price. It also includes negotiating terms, escrow times and more.
• Preparing paperwork: The sale of a high-value asset such as a home demands a well written contract, as well as collecting and creating other legal documents. These include everything from mortgage contracts, tax bills and certificates of occupancy to titles, warranties and utility bills. Often a seller will work with an attorney for many of these.
• Closing the sale: Without an agent, the seller must work with your (the buyer) lender, the title company, and any other professionals involved in the sale.

Because the seller is taking on so much responsibility and he or she might not be versed in all of it, it’s essential that you consider getting your own legal or professional advice. The sale of a home is a complex endeavor, so a small investment now could save a lot of headaches and expense down the line.

The pros and cons of buying a house for sale by owner

As we’ve said, buying a house that’s for sale by owner comes with many potential advantages and some possible risks. Here’s a breakdown of the most common ones, from the buyer’s perspective, on both sides of the ledger:

How to buy a house for sale by owner

If you’re considering pursuing a FSBO home, there are some important steps you should consider to ensure a smooth negotiation and sale.

Step 1: Get preapproved for a mortgage

Getting preapproved for a mortgage is a smart move whether you’re considering a FSBO home or one listed through an agent. It shows that you are a serious and qualified buyer, so it can give you an advantage when negotiating, especially if other buyers are not preapproved. Preapproval also shows you how much house you can comfortably afford and what your monthly payments will be.

Step 2: Consider hiring a buyer’s agent

Yes, you might be able to save some money by avoiding a buyer’s agent and their commission. However, an experienced professional agent could save you money in the long run, not to mention a lot of work and headache. They can advocate for your interests, potentially catch costly issues, and ensure a fair price.

Step 3: Schedule a showing

Obviously, you’ll want to tour the home you’re thinking of buying. But do this right. Bring a checklist of items you want to inspect and ask about. This is also a great opportunity to ask about the history of the home, any known issues past or present, and what the neighbors and neighborhood are like.

Step 4: Make an offer

Okay, you like what you see, you’ve gotten good feedback from the seller, and you’re ready to make an offer. Remember to include contingencies for a sale, such as financing timelines, whether you need to sell your home first, inspections, appraisals, and anything else you want to get nailed down before closing. This is an area in which an agent or attorney can really earn their commission.

Step 5: Prepare to negotiate

Maybe you’ll get lucky and your offer and terms will be accepted right away. More likely, there will be some negotiating. In fact, you might go back and forth a few times, with counteroffers, and counters to the counter. When dealing directly with a homeowner, this can get delicate, especially if they’re emotionally attached to the home. So be prepared for this.

Step 6: Get a home inspection

This is a must, for both your pocketbook and your peace of mind. If the seller does not have an agent, they may not have done their due diligence in this area, making it all the more important for you to do yours. A licensed home inspector will check all the home’s major systems and appliances, the structure, and more. They’ll give you a full report of what they find. You might also want to consider specific inspections, such as septic systems, pest assessment, or other issues specific to your location.

Step 7: Finalize the deal

Congratulations! You and the seller have agreed on a price and terms and you’re ready to hand over money and move in. Well, hold on a minute. It’s probably wise to have a real estate attorney draw up the purchase agreement and other contracts. In fact, in some states, this is mandatory, so you should check local laws. Also, ensure you have title insurance and the necessary disclosures, and are clear on contingencies and deadlines.

Step 8: Close the sale

The day has finally come for closing on your new home. You’ll sign a lot of documents, do an official walk-through, pay closing costs and the down payment, if applicable, and get the keys if this is the possession date. Now congrats are in order.

FAQ

Who writes the purchase agreement? The seller usually writes the purchase agreement, unless your state requires an attorney to do it. But if you have a buyer’s agent or attorney, you may suggest they write the contract to ensure no legal snafus crop up later.

Do I need an attorney? In some states, an attorney might be required. But even if they are not, it might be a good idea to hire a real estate attorney or agent to ensure your interests are protected and all legal contracts are well-written.

Is a home inspection required? Home inspections are generally optional, even if you are financing a home. However, for your sake, they are highly recommended. They can catch current or potential issues with the home. In addition to giving you an objective assessment of the home, any issues discovered through inspection can be used as bargaining chips when negotiating price and terms.

What if the seller won’t make repairs? If you discover items or systems that need costly repairs, and the seller refuses to fix them, you have options: Use them to negotiate a lower price, reducing the asking price by the cost of the repairs. Ask for closing credits, reducing your closing costs. Finally, you can decide to walk away from the sale, or accept the home as is.

The bottom line: Buying a FSBO home has challenges and rewards

Buying a FSBO home comes with many potential opportunities, as well as some risks. You could score a great deal on your dream home, saving money on agent commissions and learning reassuring facts about your new neighbors and neighborhood.

On the other hand, if you aren’t careful, you could wind up discovering problems with the purchase agreement or home after your deal has closed. That could spell headache and financial loss.

But if you go in prepared and do your due diligence, asking the right questions and utilizing professional help when needed, buying a FSBO home can be more dream than nightmare.

At Rocket Mortgage®, we make it easy to keep the dream alive and finance a FSBO home. Start the mortgage approval process online or give us a call at (833) 326-6018.