Agent handing couple key to new home

Buying A House That’s For Sale By Owner

6-minute read

For sale by owner (FSBO) homes are sold by the homeowner without the help of a listing agent. Before you buy a home directly from a homeowner, let’s walk through how buying an FSBO home differs from buying a property that’s listed by a real estate agent.

Buying A House That’s FSBO Vs. With A Listing Agent

Benefits

Direct Communication

When you buy an FSBO home, you eliminate the middleman (i.e., the listing agent) and communicate directly with the owner of the home. Speaking with the owner directly 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 an FSBO home, you can learn more about the neighborhood, local hot spots and home features by speaking directly with the owner.

Drawbacks

Inflated Sense Of Home Value

Most homeowners who sell their houses have no experience in real estate. With little knowledge of the housing market, homeowners may have unrealistic ideas about what their home is really worth. This could spell trouble when it comes time for the home appraisal – and of course, 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. Any known defects – like mold, roof damage and plumbing issues – have to be made known before closing.

Unfortunately, independent sellers aren’t always honest and may hide problems from buyers. If you uncover a problem with the home after closing, you may be able to sue the seller, but the process can be difficult and expensive. You have to be able to prove that the problem existed before you bought the home and that the seller knew about it but didn’t disclose it.

Difficulty Getting Repairs Made Or Costs Covered

Since most people who forego using an agent are doing so to save money, you might have a tough time convincing FSBO sellers to make repairs. These sellers typically don’t want to spend more money on a property they’re trying to get rid of, even if repairs need to be made.

How To Buy An FSBO Home

Here are the steps most people will follow to buy a home that’s for sale by owner (FSBO). If you’re thinking about buying an FSBO home, make sure to consult with a real estate professional.

Step 1: Get Approved For Your Mortgage

With any home purchase, the first thing you’ll need to do is get approved for your mortgage so you know exactly how much you can spend. You can do this online with Rocket Mortgage® by Quicken Loans®. It’s a great way to get an approval letter fast so you can get out there and start shopping.

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

The seller usually pays the commission 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, your agent can arrange a showing of the home for you. 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 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’ll be able to offer opinions on how the home is priced so you know whether you should bid below, at or above the asking price.

Step 5: Close On The Home

Once you’ve received a 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 from the owner to you.

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

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Other Considerations For An FSBO Home

Purchase Agreement

A purchase agreement is a contract between a seller and a buyer that lays out the terms of the home sale. The seller’s agent is usually 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 – an agent that facilitates paperwork for both parties – or a real estate attorney to handle this step.
  • Draw up the contract yourselves.

If you choose to draw up your own purchase agreement, here’s what it needs to include:

  • The full names of the buyer and the seller
  • The full property address, including the county and unit number, if applicable
  • The purchase price of the property
  • A description of the property’s condition at the time of sale
  • An indication that you’re satisfied with the property’s condition
  • Removable fixtures and appliances sold along with the home, if any
  • Conditions or repairs that need to be completed before the sale can go through
  •  The target closing date for the sale
  • Signatures from the buyers and sellers involved with the transaction

Before you take the purchase agreement into your own hands, make sure you consult a real estate professional.

Inspections

You should never buy an FSBO home without a proper home inspection. During a home inspection, a trained home inspector reviews the home’s major systems, appliances and structure. The inspection is a great way to find out what may need repairs now or in the future.

Keep in mind that the inspection is different from the appraisal. While an inspection is part of the home appraisal, the appraiser isn’t looking for problems; they’re just assessing the overall condition of the home to figure out how much it’s worth. The appraisal is a required part of the mortgage process, but the inspection isn’t – which means you’ll need to hire an inspector yourself.

If your inspector finds a problem with your new home, you have a few options.

  • Ask the seller to fix the problem. You can ask the seller to fix the problem at his or her expense before you buy the home. This is the easiest solution for buyers, but you can’t guarantee that the seller won’t choose a sub-par contractor.
  • Ask for a credit to fix the problem. You can ask the seller to credit you for the cost of repairs after closing. This ensures that you can choose the contractor, but you may have a more difficult time convincing a seller to agree to a repair bill if they don’t know the cost ahead of time.
  • Ask for a reduction in sale price. You can ask the seller to reduce the price of the home 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 always cancel the sale.

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

Summary

Buying a home that’s for sale by owner (FSBO) won’t always mean savings for you. While the buyer will most likely save by not using a listing agent, it may introduce some problems into the home sale process. As the buyer of an FSBO home, it’s up to you to inspect 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.

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