For sale by owner
(FSBO) is a type of transaction where the owner of a property chooses not to hire a real estate agent
or broker to help them sell their own home. That means the owner will handle the typical functions of an agent, such as pricing and marketing the property, as well as negotiating with buyers. FSBOs are generally done to avoid paying a real estate commission, which is a percentage of the sale price paid to an agent or broker.
How a FSBO works
FSBO transactions allow the home seller to save the commission fees that they would pay to industry professionals like the buyer’s and seller’s agents. For example, a six percent commission on a $300,000 home is $18,000—money that might be saved with an FSBO transaction. However, there is a tradeoff. FSBO transactions require the homeowners to handle all aspects of pricing and marketing the property, as well as entertaining potential buyers and the paperwork.
Preparing a FSBO: The for sale by owner process
Sellers considering a FSBO transaction must be prepared to handle the detailed tasks that an agent otherwise would, such as staging the home and listing it on various real estate websites.
Marketing goes beyond putting up a yard sign. It’s wise to put some of the money that will be saved on commissions toward advertising and promoting the property—consider virtual tours, drone photos, and high-quality interior photography. Some of that money can even be used to offer additional compensation to buyer’s agents as an incentive to show the property. Consider hosting an open house, too. Other marketing avenues may include Zillow and other listing sites.
Owners considering FSBOs must also handle all the administrative details. That includes scheduling viewings, answering calls and emails, and keeping up with ad relistings. Thus, having a system for this is necessary to ensure timely responses and to avoid scheduling conflicts.
How to have a successful FSBO
Setting the right purchase price is key. To get an idea of fair value when doing a FSBO, it’s advised to get an appraisal, which will cost $300 to $400. Appraisals can also highlight issues that may need fixing ahead of a sale. You can also contact title companies for a list of comparable sales. Knowing and understanding your local real estate market is key—without an expert's advice, you could wind up wildly overpricing (or underpricing!) your property.
Part of marketing may include getting the property listed on your local multiple listing service
). Paying to list on the MLS, which costs around $400, is still cheaper than paying the seller’s agent commission. Being on the MLS allows the property to be easily searched and found by agents. However, listing on the MLS may mean you have to pay a buyer’s commission.
One common FSBO struggle is emotional detachment. Being too emotionally attached to a home or property can lead to pricing the home too high and rejecting otherwise fair offers. An FSBO transaction is most successful when sellers consider the deal a straightforward business transaction.
The other key for a successful FSBO? Negotiation. Seller’s agent typically handle this part. Being a good negotiator means rejecting low-ball offers and balancing patience with emotions. Buyers may offer a price below “market” value for a FSBO property because they know the seller is not paying a commission. The onus also falls on the seller during a FSBO to assess buyers and to reject ones that might be hard to close or that might have a difficult time coming up with the down payment.
Downsides of FSBO
While the upside is evident—the money saved by not paying commissions—don't ignore the downsides. The seller of a FSBO transaction assumes all responsibility for completing the transaction. This can be a difficult or time-consuming task for those who have never bought or sold a home. Overall, real estate transactions can be cumbersome, with plenty of legally required paperwork. Real estate agents can help with time-consuming tasks and help make the transaction less emotional for sellers.
This includes pricing the home “right,” which can be difficult, especially if emotions are involved. An agent can help determine a fair price for the property and avoid having the house sit on the market for an extended period of time.
Even with a FSBO, where you’re looking to avoid paying real estate commissions, you may still have to pay the buyer’s agent or broker if you use the MLS.
FSBO sale prices
Real estate agents and related associations point out that homes sold via FSBO sell for less than homes that utilize an agent or broker. That is: Real estate agents sell homes for higher prices. The statistics might be true, but they could also be skewed, as many FSBO transactions are done for cheaper properties in the first place, such as mobile homes.
Selling properties, such as condos and manufactured homes, via FSBO is easier for individuals than multifamily structures or large homes. These types of properties are inherently cheaper. A duplex is likely to sell for more than a condo, and a single-family home will usually sell for more than a mobile home. So, it’s not that real estate agents necessarily get higher sale prices (although some surely can); it’s that they sell higher-priced properties to begin with.
When a FSBO makes sense
FSBOs are quicker and easier to move in high-demand markets. But an FSBO could also make sense if you have plenty of time and aren't in a rush to sell, as the process can be slower.
An FSBO transaction is generally best done when there is already a trusted and interested buyer, such as a friend or relative. In this case, a real estate attorney can be used to handle the paperwork, and the commission can be saved. Already having a buyer takes out a big responsibility for a seller—marketing.
Where can home buyers find FSBO properties?
Some buyers specifically seek out FSBO properties. Maybe you're intrigued by the idea of paying less and avoiding the commission—or you think you'll be better-able to negotiate a fair price face-to-face with the seller. There are a few places to look for FSBO homes:
The MLS: Many FSBO sellers pay the fee to list their home on the MLS.
Yard signs: Some sellers have an old-school approach, and refuse to do any marketing at all. Looking for FSBO signs is the best way to hunt down seriously under-the-radar deals.
FSBO listing sites: Sites like REDX, ForSaleByOwner.com, and FSBO.com specialize in FSBO listings.
Can I use a buyer's agent to buy a FSBO home?
Yes, buyers can buy a FSBO home using a real estate agent—although not all FSBO sellers may be willing to work with you. Sellers most interested in reducing the amount of commission they may reject any offer with an agent attached. If you find a property that fits with your life or investing plans, though, it may be worth a face-to-face conversation.
What are the risks of buying a FSBO home?
While buyers might be able to score a low-priced, off-market deal, there are risks to buying FSBO. Most importantly: You're not dealing with a professional agent, but rather a seller—who could easily be emotionally invested. Someone overly attached to their home may not be as willing to consider reasonable inspection requests, and may be more prone to backing out on a whim.
Additionally, FSBO deals may take longer to close. If you're not in a rush or think the deal perfectly complements your portfolio, that may be fine. But it's worth considering.