If you are buying a house and see the words ‘For Sale By Owner’ (FSBO) then it can be tricky to know what this means exactly. Many people think that it means that the seller will save a lot of money, but this doesn’t always equate to savings for the buyer. Homes that are sold by an owner are called “FSBO” homes and the seller lists their home without using a real estate agent in order to save money on paying a commission.
But what does a FSBO sale mean for the buyer? Well, you will still need to do all the same things that you would if the home was being sold in the typical way through a Real Estate Agent. These include…
~You will first want to see if the price of the home is fair market value by checking out some comparable properties.
~Then you need to check the property yourself and also have a thorough home inspection done by a professional.
~Finally, you can make an offer on the property and then work out a contract with the seller. More times than not, that’s where it will end.
People who sell their homes FSBO usually find an asking price by looking at a number of local listings in the same area. Remember however that they are looking at listing prices and not actual sales prices which are different. If you look at comparable homes sold in the area, (The actual selling price) then you will be able to make the best offer for the property. Some questions that you may want to ask the home owner include:
~How long has the home been on the market?
~Was it previously listed with an agent? If yes, how long was it listed with an agent?
~If the home has been on the market for over a year, why does the seller feel that it hasn’t sold?
If the owner tells you that their home didn’t sell because the real estate agents helping to sell it didn’t do their job properly then this can be a red flag. In this case make sure that you get a thorough inspection of the home and realize that you might have to spend a long time working on a contract. Also know that some sellers have very unrealistic prices in mind for their home and it may be that they used multiple agents to the point where no agent wanted to work with them at their price point.
When you buy a house FSBO there are lots of things to consider and you will probably have a lot of questions. We take a look at some of the main ones…
- Can I still use an agent when I buy a home FSBO?
Of course! Just because the seller is not using a real estate agent makes no difference to your situation and you can use one if you wish. Many good real estate agents will still look at FSBO listings when they are trying to find a home for their client. That said, they also need to be paid for their time which is why a buyer’s agent may also ask for a commission of around 3 percent from the seller. They may also ask for a 3 percent closing credit which the buyer will then pass to the agent. At the same time, a seller does not have to agree to this and may not want to work with a buyer’s agent. This can save them money but it will also mean that they limit the numbers of potential buyers for their property as well.
If I find a FSBO home will I still have to pay a commission to an agent?
This depends on your contract. It is also a good idea, however, to think about why you want to get an agent in the first place. Real estate transactions need skill and expertise to be done effectively which is something that most homeowners do not have experience with. When you hire a real estate agent you are hiring them for their skills in finding a home, getting you a good deal, and negotiating through the process. If the FSBO seller doesn’t want to work with a buyer’s agent then it can be an issue, but using an agent is the best way to get a good deal on your home and sort out all the other essential issues like appraisals, mortgage brokers, attorneys, abstracts, & so much more, easily.
Do I need a lawyer when I buy a FSBO home?
It depends on your state. Some states, or regions within that state, require you to have an attorney for a real estate transaction. In some states, both parties need an attorney and some don’t as the sale can be done through a title company or lender. Even if you do not strictly need an attorney, it can be a good idea to get one who can help you to understand the process and work through any legal issues.
If I buy a home through a FSBO sale do I need a mortgage pre-approval?
It is better if you are pre-qualified or pre-approved for a mortgage, the seller will deal with someone who has completed the process, rather than someone who has not. That’s like going shopping for food at your local grocery store without any money! So always start with the pre-approval process before looking for a home!
What happens to escrow money when you purchase a FSBO property?
Usually, a listing agent’s broker (The firm the agent works for) will hold the money in escrow until the close of the sale. If you are not using an agent than an attorney or title company will need to work as the escrow agent. Certainly, the seller will never hold the money in escrow.
Is a C.L.U.E Report important?
A C.L.U.E Report is a Comprehensive Loss Underwriting Exchange report that will tell you if the seller has made any insurance claims on the property over the past five years. To get a copy of the report the seller will need to make a request, although this should be standard procedure if there are no issues with the property. The report is quite detailed and will tell you the dates of any claims as well as the amount paid and the reason for the loss. It will also tell you if the claim was linked to a disaster such as a flood or a tornado so you can then check if this may have caused any lasting problems like water damage. A C.L.U.E Report only costs around $20 so it is a good thing to apply for through the seller and often the buyer will pay for the report themselves.
Do I need a home inspection?
The short answer is yes! The reality is that you will never know if the seller is being upfront about their home unless you get a home inspector to check it out. There may be issues that are not the seller’s fault related to the property that the seller didn’t even know about. As such get a professional in to check everything so that you are not faced with any nasty surprises once you move in.
If you found this article helpful, please pass it on to others who may also find it useful! If you are in the market to buy a home, please contact me I’ll be happy to help! In the mean~time, please feel free to use the “Search for Properties” tab it’s free!
Wendy Mundy Realtor,