How To Buy A House That’s For Sale By Owner

Buying a house for sale by owner is exciting, but it can also have problems if you aren't careful.

Be sure you understand what it means to buy a house directly from a seller and what precautions you should take.

What Does For Sale By Owner Mean?

A house for sale by owner (FSBO) means the sellers skipped listing with a real estate agent and plan to handle the selling process themselves. Most sellers do this to avoid paying the typical real estate agent commission.

This means home buyers will deal directly with the seller instead of going through the listing agent.

Do You Need A Real Estate Agent To Buy A FSBO Home?

You aren’t required to use a real estate agent to buy a FSBO home. However, you are welcome to do so if you want.

If you have a buyer’s agent, the agent will deal directly with the sellers regarding negotiations, questions and scheduling. If you represent yourself, you handle all aspects of buying the house.

The one obstacle is whether the seller wants to deal with a buyer’s agent. Many will be happy to do so because it may mean they sell their house faster. However, most agents will negotiate an agent’s commission that the sellers may have to pay if their buyers purchase the house.

Pros Of Buying A FSBO Home

There are many advantages to buying a FSBO house. Check out these pros to see how you might benefit from including for sale by owner homes in your home search.

Direct Communication From The Owner

Working with real estate agents usually means buyers and sellers don’t communicate directly. With FSBO homes, though, buyers and sellers talk directly.

This can be an advantage for some buyers because it allows you to get personal with the sellers and may give you the advantage to buy the house if you develop a connection.

Possibly A Better Deal

According to the National Association of REALTORS^®, FSBO homes sell for $95,000 less than homes a listing agent sells. The actual “deal”  varies by area and seller, but there may be more room for negotiation since the seller doesn’t have to pay a real estate agent’s commission.

May Have A Larger Selection Of Homes

Including FSBO homes in your home search increases the number of homes you can view and consider purchasing.

If you exclude FSBO homes, you may limit your options. According to NAR, FSBO homes made up 7% of sales in 2023, so including them in your search could work to your advantage.

Feel More Informed

Getting information second-hand through a real estate agent doesn’t feel as personal and limits the opportunities to ask more questions. When you can talk directly with the seller, you may have more opportunities for open conversation and to learn more details about the property.

Cons Of Buying A Home FSBO

It's always important to consider the downsides of any financial transaction, especially buying a house. Here are some disadvantages to consider.

Potential Legal Issues

When a real estate agent represents the transaction, they cover all legal aspects, including important disclosures. Buying a house without a real estate agent puts you at risk of buying a house with problems you didn’t anticipate, such as asbestos, mold and foundation cracks.

Seller May Not Want To Pay Buyer’s Agent Commission

You may work with a buyer’s agent if you want representation for the purchase. However, this could limit your opportunities to purchase a FSBO home because some sellers don’t want to be responsible for the seller’s commission.

Pricing May Not Be Accurate

Because sellers don’t have professionals advising them on the home’s value, sellers may overprice their home. This often happens because sellers are emotionally invested in their homes and may think they are worth more than the market dictates.

How To Buy A House That’s For Sale By Owner

Knowing how to buy a house for sale by owner can help make the process easier. Here’s what to expect:

1. Get Preapproved

Getting preapproved lets you and the sellers know how much you can afford. The preapproval process is simple: You complete a loan application and supply the lender with proof of your qualifying factors, including your most recent paystubs, last two years of W-2s, and bank statements.

If approved, the lender provides a letter that states how much you can borrow, the terms, and any outstanding conditions you must satisfy. A preapproval letter helps sellers understand you are a serious buyer.

2. Consider Working With A Real Estate Agent

A buyer’s agent represents you in the home-buying process.

Finding the right real estate agent means hiring someone familiar with the area who can help you find the home that best fits your needs and budget. Be sure the agent is willing to include FSBO homes in your search and will negotiate on your behalf when you find a home you like.

3. View The Home

When touring the home, evaluate if its layout, features and number of rooms suit your needs. Look at the kitchen, living spaces, bathrooms and bedrooms. Also, inspect the home's exterior.

During your inspection, look for any home issues, such as foundation cracks, leaks or obvious problems. If you're working with a buyer's agent, the agent can ask for disclosures about any major issues like mold or asbestos. If you represent yourself, ask the seller about all current or past problems with the home.

4. Make An Offer And Negotiate

When you find the home you want, it’s time to make an offer. If you represent yourself, you will negotiate directly with the seller. But if you have a buyer’s agent, they will handle negotiations.

During the offer phase, you will propose a sales price and any terms you want, such as a closing date, repairs you want, or items you want left in the home, such as window treatments.

You’ll usually discuss these things with the seller before making an offer, so that you’ll know what to expect and if it’s worth making an offer.

The seller has the right to accept or decline your offer. They can also make a counteroffer, which puts the ball in your court.

5. Work With A Real Estate Attorney And Home Inspector

The real estate attorney and home inspector are two important people in any real estate transaction.

A home inspection is crucial whether you're buying a FSBO home or one listed with a real estate agent. The home inspector inspects the entire house, looking for problems that could be detrimental or expensive if you purchase it.

They provide a lengthy report, and you then decide how to proceed. You may ask the seller to fix the issues, ask for a credit off the price of the home, or back out of the sale.

The real estate attorney ensures the contract protects your rights and recommends any changes he feels aren't in your favor. The attorney may also handle all legal aspects of the closing, whether or not you use a real estate agent.

6. Close On Your Home

The final step is to close on your home! The closing is the same for agent-listed and FSBO homes.

The mortgage title company’s agent handles the closing, where you will sign a new mortgage and note and take possession of the home. At the closing, you will make a down payment and pay any closing costs required for the transaction.

FAQs About Buying A House That Is For Sale By Owner

Buying a FSBO house allows more opportunities to find the perfect home. Here are more questions people have about FSBO homes:

Can I Buy A House From Someone I Know?

In most states, you can buy a house from someone you know. This non-arm’s length transaction has strict guidelines however. You should use a real estate attorney and tax professional to guide you through the transaction when buying a house from family or friends.

What Does FSBO Mean?

FSBO stands for “for sale by owner.” This means the sellers didn't hire a listing agent. Buyers can look at and purchase the home on their own or with the help of a buyer's agent.

The only downside is that the sellers must be willing to pay the buyer's agent a commission if you bring an agent with you.

What Are Some Questions I Should Ask If I’m Looking At A FSBO Home?

When buying a FSBO house, ask sellers the following:

• Will you pay a commission to a buyer's agent?
• Are there any major problems with the home?
• When do you need to close?

What Should I Keep In Mind When Searching For A Buyer’s Agent?

When looking for a buyer's agent, you want someone familiar with the area and with extensive experience buying/selling homes similar to the type of home you’re interested in.

Look for an agent who will handle all aspects of the buying process, including negotiations, legal paperwork, and troubleshooting if the inspection turns up many problems.

The sellers don't have anyone representing them, so it could be important to have at least one real estate professional involved in the transaction to guide you through it.

The Bottom Line

Buying a house for sale by owner may open up more possibilities to find your dream home. Be sure to protect yourself with the right professionals, including a home inspector and real estate attorney. It's also not a bad idea to consider a buyer's agent.

Before jumping in headfirst, get to know your budget and how much you can afford. Download the Rocket Money^SM app today to fully understand your financial life before buying a home.