How does a for sale by owner work for the buyer?
Homeowners who choose to sell their homes without the assistance
of a real estate agent is commonly called a FSBO, "for sale by
owner", pronounced "fizz-bo." No one knows how many houses are sold
privately, however, the best studies seem to suggest that anywhere
from 15 to 35 percent of homes are sold without a real estate agent.
The National Association of Realtors (NAR) estimates that 15 percent
of homes are sold as "FSBOs". Other experts believe the number of
private home sales are even higher. For sale by owners (FSBOs) can
be an opportunity for the home buyer. You can find houses offered
for sale by homeowners on the internet. Craig’s list is a great way
to run down private sales.
Why do homeowners sell their home?
1. Many “for sale by owners” are home sellers who want to try to
sell their home for a few weeks before they list their home with a
real estate agent. These home sellers usually have a real estate
agent in mind and have a good idea what the home should sell for.
2. Some FSBOs believe that selling a house is not much different
than selling a car or anything else. These home sellers can be the
difficult to work with, because they will usually hold out for as
long as possible until they get their price.
3. Some homeowners were unable to sell their house through a real
estate agent and believe they can’t do any worse than an agent. And
since they do not have to pay a real estate agent, they can reduce the
sales price of the home and still meet their bottom line.
4. Another group of owners cannot pay a commission because the
mortgage balance is so high and there is not much room to pay a
real estate agent.
5. And finally, the real estate market is so hot that homeowners do
not need the services of an agent.
The pitfalls of buying a FSBO
There can be some apprehension contacting the for sale by owner. The apprehension is also shared by the seller, because the seller does not know whether you are qualified to buy their home or if you’re looking at their home for some criminal reason. Some sellers will require a pre-approval letter from a lender before showing you their home. Looking at a FSBO can be awkward without a real estate agent, particularly if you like the house but are uncomfortable with the seller. Make sure you are pre-qualified before meeting with the owner.
Questions to think about when buying a FSBO
- Assuming you’re interested in
making an offer for the home, do you
make a verbal offer on the spot or do you have an attorney write up
the contract?
- Whose lawyer writes the sales contract, your attorney or the
seller’s attorney?
- Did the seller provide you with a home-sale
disclosure as required by many states?
- Is the seller agreeable to a home inspection?
- Can a home
inspection be written into
a sales contract? And what are the consequences of a bad home
inspection? Are you able to void the contract?
- Another concern is the earnest money deposit. Who holds the deposit when the sales contract is signed, and how do you get your money back if the sale falls apart?
Working with a real estate agent
Some real estate agents will intercede between the buyer and seller for a fee. The real estate agent can negotiate the sales contract and arrange the settlement, etc. The cost can be shared by the buyer and seller equally or can be paid by either party to handle the transaction. The agent or the company’s attorney will prepare the sales contract on behalf of the buyer and seller.
Frequently
Asked Questions About FSBO
Q. Can I Save Money with a FSBO?
A. The answer is maybe. It all depends on the reason the seller is
selling their home. As mentioned earlier, some homeowners want to
sell their home at the same price that a real estate agent would
list the home for. These home sellers want to pocket the commission.
They’re not going to pass the savings to you.
The homeowner who is selling their home due to divorce, death,
impending foreclosure, or just wants to make a clean break can be a
real opportunity for a home buyer.
Homeowners who have occupied their home for a number of years and do
not a pressing reason to sell can be hard as nails to work with.
Sellers who are moving to a warmer climate or moving in with family
members can wait until the "right" buyer comes along.
Q. How do I make an offer on a FSBO?
A. You have three options. Buy a generic sales contract at an
office supply store, hire an attorney, or hire a real estate agent.
You should avoid a generic sales contract because it may not contain
specific language for your state, or it may not have enough
protections for you (or the seller). I would only use a store bought
sales contract if I was buying a home from a family member. An
attorney can prepare a contract, although, it would be best to hire
a real estate attorney. Talk to the lender or a title insurance
agent for a referral. Last but not least, hire a real estate agent.
Some real estate brokers will accept a lower commission to prepare
the contract. You can ask the seller (or buyer) to split the cost.
Q. Who holds the earnest money with a FSBO?
A. The easiest way to protect your earnest money in case there's a
disagreement between you and the seller, is to ask the title
insurance company or settlement agent to hold the earnest money. If
you plan on financing the purchase, ask the loan officer who will
provide the settlement services and give that company a call to see
if they are willing to escrow your earnest money.
Conclusion - Do the right thing
If you’re working with a real estate agent, let the agent know that you’ll be looking at private sales. Real estate agents are paid on commission. They do not receive a salary and it's unlikely that they even earn an advance on their commissions each month. They will not earn a commission on a FSBO sale, unless of course, you contract with the agent to represent you in the sale. Some real estate agents will spend a lot of time searching for a suitable home for you and it isn't fair to buy a home behind their back without telling the agent that you are looking at "for sale by owner" homes.