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How Does a For Sale By Owner Sale Work for the Buyer?

Buying a FSBO listing is a notoriously thrifty way to get a deal. It’s also a way to end up with unforeseen headaches. Hiring an experienced local agent will protect you while you’re hunting for a deal.
Buying a FSBO listing is a notoriously thrifty way to get a deal. It’s also a way to end up with unforeseen headaches. Hiring an experienced local agent will protect you while you’re hunting for a deal.

Given that the typical home listed for sale by owner sells for tens of thousands of dollars less than one listed by an agent, many buyers are attracted to these properties. However, not all FSBO listings are created equally.

While some are sold by experienced home sellers, others are listed FSBO in order to save on fees and get around some of the legal constraints that come with working with an agent.

Here are a few things that buyers should know and why they should always work with an experienced local agent.

You’re Not Dealing With a Code of Ethics

When you’re negotiating with a listing agent, you’re dealing with someone who is bound to a code of ethics. While they have a fiduciary duty to help the sellers they work for, they also have a legal duty to let buyers know of any problems with the property.

Homes that have been stigmatized, are violating zoning laws, or recently suffered damage are going to have to be investigated by buyers. The seller is not obligated to tell you anything about the home that you don’t ask. They may have to fill out a disclosure form but if you fail to look for it or investigate the details of it, you could be left with a home riddled with problems.

Thankfully, you can still hire an agent, even if you’re buying a home listed for sale by owner.

Beware of Overpaying

While some buyers might assume they have room to negotiate with a FSBO seller, the FSBO seller might be more informed than you think. Since they’re not working with a listing agent, they have to handle all the elements of the sale on their own. That means they may have run a comparative market analysis on their own and know how much their home is worth.

Under the terms of a typical home sale, the seller covers commission costs for both agents. If they’re not working with an agent, you might have to foot the bill for your own agent. However, when dealing with a FSBO seller, this is the best way to pay what a home is worth rather than what the seller claims it’s worth.

There Could Be an Unconventional Sales Contract

When a seller is listing a home on their own, they don’t have a listing agent to help them hammer out important contract details. If you’re also working without an agent, you could end up in a bad position when it comes time to sign the contract.

Buyers need to have contingencies in place to release them from the sales contract. If the inspection turns out to reveal that the home is a dud or you find out there are liens against the property, you need a way out.

To keep from being forced to complete the transaction, make sure you have an agent or attorney look over anything you’re asked to sign. In many states, attorneys are required to be involved with real estate transactions just to ensure no trouble arises.

Sellers Don’t Have to Use Escrow

It’s common for sellers to ask for earnest money upfront to commit the buyer to the property before going through the steps to close the sale. In most cases, this money is placed in an escrow account to protect both parties. A third-party bank or insurance company will hold onto the money before applying it to the buyer’s down payment at closing.

The escrow account also ensures that buyers can get their money back if there are any problems with the home. If both parties fail to agree on terms of the FSBO sale, buyers could lose that down payment if they gave it directly to the seller. Giving earnest money to a FSBO seller without an intermediary might be a loss.

Closing Costs Aren’t Always Negotiated

At closing, most states have standards for who pays for what. There are transfer taxes, appraisal fees, HOA dues, title search costs, and more. Knowing which party is responsible for what is hammered out during contract negotiations.

In a FSBO sale, the seller could force the buyer to foot the bill. All the fees and expenses could end up costing 5% to 10% of the closing price. If a buyer goes into a real estate transaction without representation, they’re more likely to end up covering the entire set of fees.

Make sure that there’s a specific closing date and if you’re not working with an agent, make sure to at least hire an attorney.

Buying a Home For Sale By Owner Can Bring You a Deal

In some cases, the sellers who are listing a home for sale by owner know what they’re doing and are just looking to save money on their sale. Whether or not they’re reputable sellers, it’s always better to work with an experienced local agent who can negotiate on your behalf.

Fill out this form and we’ll match you with an agent who has access to all the latest FSBO listings.


Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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