What Does For Sale By Owner (FSBO) Mean?

What does FSBO mean? | Pros of FSBO for buyers | Cons of FSBO for buyers | Pros of FSBO for sellers | Cons of FSBO for sellers | FSBO FAQs

FSBO meaning

For sale by owner (FSBO) is when a homeowner sells a house without using a real estate agent.

FSBO homes are often sold by sellers who want to save money on realtor fees or who are in unique situations, such as those who:

• Are trying to sell to cash investors
• Already have an interested buyer
• Are in hot real estate markets and don’t need a realtor to get bids over their asking price
• Are in no hurry to sell and are willing to wait for a good offer

If you’re considering buying a FSBO property, you're free to hire an agent. A buyer’s agent can even protect you from the risks that a FSBO transaction may present.

» LEARN: Do I Need a Real Estate Agent?

In theory, FSBO helps sellers — and sometimes buyers — save money since there are few or no real estate agent fees to pay. However, FSBO sales present downsides, both for the seller and the buyer. FSBO sellers often don’t save any money compared to hiring a realtor and buyers open themselves up to costly mistakes caused by inexperienced sellers.

If you’re looking to save on a home sale or purchase — without the risks of going it alone — we suggest an alternative route. Clever Real Estate, for example, offers full-service real estate agents and pre-negotiated listing fees of 1.5% — just a fraction of the 2.5-3% you’ll pay elsewhere.

And eligible buyers can get Clever Cash Back after closing.

» Find a great agent and save thousands

Pros and cons if you’re buying a FSBO home

Pros

Potential for a better deal

Experienced buyers — or buyers represented by a great agent — can find deals when buying FSBO. A FSBO seller may have little to no negotiating experience or they may be more open to selling at a lower price.

For example, FSBO sellers are already saving anywhere from 2.5-6% on real estate agent commissions. That often gives them more wiggle room to come down in price than they would using an agent.

Plus, some FSBO sellers may be in situations where they're open to selling fast and for less.

Sellers who have negative equity in their home and can't afford a realtor, for example, are more likely to try FSBO to lower their costs. These sellers need to sell quickly to get out of a bad financial situation, so they may be more willing to entertain a lower offer.

FSBO sellers may also be open to suggestions that could save you and them time and money. A FSBO seller with negative equity, for instance, may be especially eager to accept a cash offer. A cash offer can reduce overall closing costs and is generally less complicated to handle, both for the buyer and seller.

Direct communication could give you an advantage

You can communicate directly with the seller in a FSBO transaction, as opposed to a traditional sale where you communicate via an agent. This direct line of communication has advantages when buying a home for the best price.

For example, the seller may have "insider knowledge" about the property or neighborhood that a realtor may not know. They can let you in on things like how much they pay per month in heating, how long the hot water lasts in the morning, or even the best side of the house to plant a garden.

Direct communication also provides a good opportunity to convince a buyer that you’re the best "fit" for the property. Pulling at a seller’s heartstrings can be the tipping point if you’re competing with other buyers. Redfin data, for instance, revealed that writing a personal cover letter improves a competitive offer’s chance of success in a bidding war by 52%.

Being able to communicate with the seller directly gives you a chance to convey in person why you love the property and what it would mean for you to own it — rather than having to explain it in a letter delivered via a real estate agent.

Similarly, a direct line of communication with the seller reduces the chances of miscommunication that may occur when one or both parties are represented by agents.

» MORE: How to Make a Competitive Offer on a House Without a Realtor

Cons

Seller mistakes could prove costly later on

A FSBO seller may not be fully aware of their legal requirements when selling a home, which can create unwanted surprises for you if you’re buying.

For example, a seller — intentionally or not — may fail to disclose a defect with the property, such as an addition that didn’t have the proper permits, a lien on the property, or a structural problem with the foundation.

Even seemingly innocent mistakes — such as mistaking the age of the property or the types of materials used in construction — can have a serious impact on the value of the home. Such errors can cost you time and money to fix, and they may negatively impact the property’s resale value.

» LEARN: What to Do if There Are Problems With a House After Purchase

A listing agent will know what sellers are obligated to disclose and can help ensure that the paperwork is in order. Without a realtor, sellers may inadvertently make mistakes that end up costing you later on.

Home may not be priced right

A FSBO seller may have trouble pricing their home fairly, which can leave you with a home that you’ve paid too much for if you’re buying. Some FSBO sellers may inflate the price, either intentionally or because they assume the property is worth more than it actually is.

For example, 50% of FSBO sellers price their homes based on sale prices of other homes in their area. This pricing method can lead to misvaluations if the FSBO seller isn’t taking into account other factors that may affect price.

So, a seller may see a similar-sized home in their area selling for $500,000 and assume that their house is worth the same — without taking into consideration extra features, such as renovations, age, and upgrades, that could affect property values.

If the home is overvalued, you may have trouble getting a mortgage to cover the asking price. Most mortgage lenders require an appraisal and won’t approve buyers for a mortgage for more than what the home is worth.

Some FSBO sellers aren’t serious about selling

While a FSBO seller may be serious about selling quickly, it’s less of a sure thing than a seller who has already gone through the work of finding an agent.

For example, 64% of FSBO sellers who don’t already have a buyer lined up feel no urgency to sell. That’s compared to just 44% of agent-assisted sellers. Some FSBO sellers simply put their houses up for sale to test the market and see what price they could get if they chose to sell.

These types of FSBO sellers may be willing to sell if the price is right, but they’re unlikely to be in a rush to do so and are often less open to negotiating. A seller represented by a listing agent is more likely to be serious about selling sooner.

A listing agent will want to get the house sold faster in order to get paid, and they may have a listing agreement with an expiration date that further motivates them to sell quickly.

Pros and cons of FSBO for sellers

Pros

Save on realtor fees

The main reason for selling by owner is to save on realtor fees. According to a Zillow report, 49% of sellers who don’t use an agent say it’s because they want to save money.

In a traditional sale where both the buyer and seller are represented by real estate agents, the total realtor commission amounts to 5-6% of the sale price — with half going to the seller’s agent and the other half to the buyer’s agent.

By selling without a realtor, you could potentially save the amount equivalent to what you’d pay for the seller’s agent — about 2.5-3% — and even the full 5-6% if the buyer doesn’t have an agent or they pay for their agent out of pocket.

» MORE: Do Buyers Pay Realtor Fees?

Test the market or wait for a good offer

Many homeowners choose FSBO not because they're eager to sell, but because they want to get a sense of how much they can get for their house. Simply putting up a "For Sale" sign in your front yard can give you a good idea of how much interest your property would generate if you choose to sell in the future.

Plus, by going the FSBO route, you’re under no pressure to sell quickly. You can wait for as long as you like until you get an offer that you’re happy with.

For example, if you’re recently retired, you may be looking to downsize, but you also may have no firm deadline for when you need to move. You can take your time by selling FSBO. This is a common scenario, with the median age for FSBO sellers being 57 years, suggesting that many are at or nearing retirement and not on a tight schedule to sell.

In contrast, if you're represented by a real estate agent, you may feel pressured to sell sooner rather than wait indefinitely to see what buyers are willing to offer. Plus, your agent may be incentivized to get your home sold within the timeline laid out in your listing agreement.

You may already have a potential buyer

If you already have a potential buyer for your property — such as if you’re selling to a family member — then an agent may offer limited value.

Many of the things an agent does — like listing your property, staging, and conducting open houses — are unnecessary when you already have a buyer lined up. In fact, according to a Zillow report, over a third of sellers who chose not to use an agent say it was because they already had a buyer.

That said, you may still want a real estate agent to ensure you’ve priced the property fairly and that the sales contract doesn’t unduly favor the buyer.

While it may not make sense to pay the standard 2.5-3% commission for a seller’s agent in a scenario where a buyer has already been found, many agents will represent you for less.

Clever Partner Agents, for example, charge a listing fee of just 1.5% — so you can still get the peace of mind that comes with a full-service realtor, but at a fraction of the cost. Contact Clever today to learn how we can help you save money.

Cons

FSBO homes sell for less on average

FSBO homes, on average, sell for less than homes sold with a realtor. Some investors target FSBO homes in order to make lower offers and take advantage of a seller’s lack of representation and possible lack of experience.

If you're negotiating with an experienced buyer or a buyer’s agent, you may be at a disadvantage and feel pressured to sell at a lower price. You may also not know what is fair or standard in a buyer's offer, such as the closing costs they're asking you to cover or the repairs they're requesting.

One study found that FSBO homes sell for about 5.5% less than those sold with an agent. Interestingly, that’s almost exactly the average real estate agent commission rate, suggesting that you may end up with the same amount of money in pocket whether you go the traditional route or FSBO — but with FSBO you’ll be doing all of the work yourself instead of letting a realtor handle it.

Selling a home by owner is a lot of work

Selling a house isn’t easy — you have to do everything a realtor typically does, such as showings, staging, photography, marketing, negotiations, and listing the property. And as we pointed out above, you may end up with the same or even less amount of money once the sale closes as you would have if you let a realtor do the work for you.

That work not only eats up a lot of time, it could lead to out-of-pocket expenses. For example, a real estate photographer can cost anywhere from $100 to $15,000 depending on location, house size, and extra features, like twilight photography and drone photography.

You may also end up investing in repairs and upgrades that offer a low return on investment. A realtor can usually give you a good idea of how much value specific repairs and upgrades add to your home so that you’re in a better position to decide whether or not they’re worth taking on.

» LEARN: How to Sell Your House For Sale by Owner

FSBO sales often fail

Many FSBO sellers eventually lose patience with how much work FSBO requires. According to Zillow, while 36% of sellers attempt to sell by FSBO, only 11% actually succeed.

Your success may depend on whether you already have a buyer lined up. For example, research shows that FSBO sellers who already know their buyer sell their homes on average within one week. But FSBO sellers who don’t know their buyers take two weeks to sell.

Plus, FSBO sellers who aren’t selling to a friend or relative are more likely to find the process difficult. That same study found that 63% of FSBO sellers who already knew their buyer said they didn’t find any task to be especially difficult when selling. But that share drops to just 43% when the seller doesn’t already have a buyer lined up.

You may waste time with unlikely buyers

As a FSBO seller, you may waste your time with buyers who aren’t serious about purchasing or who are unlikely to get approved for a mortgage. A realtor can ask the right questions to gauge how likely a buyer is to close on a deal.

For example, an agent can usually get a sense of how serious buyers are by asking them certain questions, including: 👍

• Do you have a buyer’s agent?
• How long have you been looking for a home?
• Do you have a desired move-in date?
• Do you have questions about repairs, schools, transportation, etc.?

An experienced agent will also be able to intuitively sense a serious buyer from one who is "just looking" by paying attention to questions the buyer asks. This sort of intuitiveness comes only with years of experience and is something sellers on their own are unlikely to pick up as quickly.

Mistakes usually fall on the seller

Liability usually rests with the seller in a home sale. If you misrepresent the property in any way — either intentionally or not — the consequences usually fall on you.

In some states, for example, you’ll have to disclose all known defects with the property to the buyer. Failure to do so could result in legal troubles later on — and you may be required to pay for the mistakes or fix them.

And misrepresentation is much broader than just having to disclose defects with the house. You could unintentionally misrepresent features of the house and inadvertently inflate its value.

For example, you may think you have real marble countertops, but you may in fact have cultured marble counters — they look almost identical, but real marble can cost twice as much as cultured marble. That seemingly innocent error could lead the buyer to hold you liable for the error and seek compensation for it.

A real estate agent usually has the experience to look for issues like this that many homeowners don’t notice. That experience could save you a lot of trouble and money.

FSBO FAQs

Why should you not sell FSBO?

Selling for sale by owner (FSBO) is a lot of work and FSBO homes, on average, sell for less than those sold with the help of a realtor. What you save in commission you may lose in a lower sale price.

What does FSBO mean for a mortgage?

You can still get a mortgage when buying a FSBO home. However, your mortgage lender will want the property appraised. If the seller has overpriced their home, your lender will only approve your mortgage for the appraised value, not what the seller has listed it for.

Can I use a buyer’s agent for a FSBO home?

Yes, you can use a buyer’s agent when a home is for sale by owner. A buyer’s agent helps reduce some of the risks of buying from an unrepresented seller, such as paperwork problems or a home that isn’t priced properly.

However, some FSBO sellers may not be willing to cover the buyer’s agent commission, in which case you’ll likely need to cover it yourself out of pocket.

Who draws up the contract in a for sale by owner home?

In a traditional sale, the seller’s agent draws up the sales contract. But when the seller doesn’t have an agent, usually the buyer will have their own agent prepare the sales contract. However, this technically makes the buyer’s agent a dual agent and dual agency isn’t legal in every state.

Alternatively, either the buyer or the seller can ask an attorney to draft the sales contract. This may be a good option if neither the seller nor the buyer have an agent.

Is FSBO the best way to sell if I have negative equity?

Not necessarily. While you may be tempted to go the FSBO route if you are underwater on your mortgage in order to reduce your realtor fees, in the long run this may leave you worse off financially.

FSBO homes sell for less on average than homes where the seller is represented by an agent. So you may end up with more money if you have a realtor, even after paying the realtor commission.

A Clever Partner Agent can help you sell your home for a reduced fee of 1.5%. Contact us today to learn how you can get a full-service real estate agent without paying high fees.

Do I need a lawyer at closing if I don’t have a real estate agent?

Maybe. In some states, such as New York and Georgia, an attorney needs to be present at closing. In others, including California and Illinois, only the title company or escrow company needs to be present.