For Sale By Owner

You’ve seen the red and white signs behind windows and in yards, proudly proclaiming those four magic words: “For Sale By Owner!”  But have you ever wondered what that means exactly, and how a For Sale By Owner (FSBO) deal would work?

By cutting Realtors out of the equation, some homeowners hope to keep money in their pocket when they sell their home. And the truth is that a FSBO (pronounced fizz-bo) sale really does save money, for both the seller and the buyer. The problem is that FSBO’s also bring their own set of headaches to the table.

Buying a FSBO

If you’re interested in buying a FSBO or selling your home on your own, then you’ll benefit immensely from a quick overview of the pros and cons of the For Sale By Owner approach. In order to talk about FSBOs, we need to contrast it with the base case—working with a Realtor. (Check out this post on Choosing the Right Real Estate Agent for tips on how to select a Realtor to help you buy or sell a home.)

Realtors provide three main services: Access to the MLS, Expertise, and Reality Checks. As we discuss FSBOs, we’ll look at how each of these three service areas come into play when buying or selling a home without a Realtor.

Advantage: Price

Most sellers who go the FSBO route are trying to eliminate Realtor fees. If the seller drops their price by the amount that they’re saving, then that benefit gets passed on to the buyer. But what happens if you’re a buyer who’s already begun working with a Realtor?

As a general rule, if you’ve signed an agreement with a Realtor, you’ll need to involve them in the transaction. It’s ethical (you gave your word that you’d use that Realtor) and it’s just good sense. In fact, if you do encounter an owner who won’t even consider working with your Realtor it’s a sign that they’ll likely be difficult throughout the process, and it’s a red flag that you should just walk away.

Why? Because you’ll offer to carry the cost of your Realtor yourself. If you have a Realtor and are considering a FSBO, look for a FSBO that advertises “will co-op”. The co-op language means that they FSBO seller is willing to add on the cost of your Realtor to their selling price. On a 3 percent commission involving a $200,000 home, that would change the selling price to $206,000. Your Realtor will take the $6,000 at closing, and the seller will still get the full $200,000 for their home.

As you can see, there’s no real cost to the seller by involving your Realtor, and the vast majority of FSBO sellers are happy to take this step. And as a buyer you’re still coming out ahead: that same house listed on the MLS would have to have been listed at $212,000 to bring the same net result to the seller; that’s $6,000 less that you need to come up with at closing.

Advantage: MLS Service

FSBOs aren’t listed on the Multiple Listing Service—the primary marketing method for traditionally sold residences. The lack of MLS listing for a FSBO is a problem for sellers but good news if you’re on the buyer’s side of the table. With reduced marketing exposure there’s a correspondingly reduced pool of other buyers to compete with. You’re much less likely to be caught in a bidding war on a FSBO than on an MLS-listed property.

Disadvantage: Expertise

If you don’t have a Realtor, the long slog between signing the offer and closing on the home can be painful and confusing. It can be done, but sorting out issues like inspections and allowances is difficult, especially if you’re a first-time home buyer. Oftentimes the benefit of having a Realtor during the inspection period isn’t so much scheduling the inspections as much as explaining what findings are worth worrying about and which are not big concerns.

But if you’ve got sufficient personal building experience or have a network of friends or contractors who you can call on, then this is much more manageable, and may be something you can work around. And of course, using a co-op agreement allows you to use a Realtor throughout the closing process.

Disadvantage: Reality Checks

It’s good to have someone provide an objective viewpoint when you’re buying a home, but where you’ll really find yourself missing a neutral third party is when you encounter a homeowner with unrealistic expectations.

For example, it’s not unusual to find homes that have had FSBO signs up for years. In these cases, you’ll often find that the home’s owners have set a price that’s well over market value, and they have the mindset that Someday, someone will come along and buy it.  Sellers like this aren’t truly motivated, and during the long closing process, they’re likely to find one reason or another to sink the deal.

Another kind of seller in need of a reality check is the seller who is overly attached to “their home,” rather than the house as the object of a business transaction. Sellers like this price a home based on its sentimental value rather than the reality of the current market. Of course, non-FSBO sellers can have unrealistic expectations as well, but a good Realtor can walk them through the process and get them to an understanding of the actual value of their home.

If you’re working with a FSBO seller with unrealistic expectations, then it’s a waste of your time and theirs. They’ll get their reality check when you walk away from the deal. It’s frustrating, but unfortunately there’s no way to recognize these situations other than hard-earned experience.

Selling a FSBO

I’ve bought and sold real estate with Realtors and without. If you are buying or selling your personal home, especially if it’s your first home, I strongly suggest you use a Realtor. We’re all human, and our emotions run strong on certain topics. For most of us, our homes fall well within that list of hot-button topics. However, if you’ve got the ability to distance your emotions and are willing to put in the work, there’s a very real financial incentive to go FSBO.

Advantage: Price

There’re no two ways around it—selling your home on your own will save you a healthy chunk of cash. Using our previous $200,000 example and typical Realtor commissions of 6%, you’re looking at saving $12,000 by selling the home yourself. That’s a lot of money, and it’s a strong argument for a FSBO approach.

Disadvantage: No MLS Listings

Realtors have access to the Multiple Listing Service (MLS), which is the main marketplace for homes in the U.S. Since you won’t be able to list your home for sale on the MLS, you’re missing out on the single largest pool of potential buyers.

If you’re still living in the home and in no rush, that may not be a problem. But if you’ve already bought your next home and are continuing to carry the costs on the home for sale, then you might be in a much more time sensitive position. Expenses such as mortgage, taxes, and utilities are collectively called “carrying costs” and can dramatically change the mathematics of your home sale.

Pro Tip: Advertising

It sounds like common sense, but you need to let people know your house is for sale! Don’t buy a 6” x 10” FSBO sign and stick it in a second story window. Buy a yard sign and prominently display it. Tell all your friends and relatives that it’s for sale, and ask them to spread the word. Mention it on social media. Ask if you can put a flyer up in your local coffee shop, library, and places of worship. Anywhere people congregate and you can legitimately spread the word, you should do so. You’ll never find a buyer without telling the world your home is for sale, and without a buyer you won’t sell your home.

Disadvantage: Expertise

The challenge with selling your own home isn’t that you can’t do the work yourself, it’s just that it’s difficult and time-consuming to do so. Most FSBO sellers have full-time employment and have to squeeze both selling their home and resettling to a new location during their time off. When you also have to learn the ropes of the real estate industry, you’ll quickly find that there just aren’t enough hours in the day.

As a FSBO seller, you’ll need to educate yourself in two key areas: home valuation and the closing process. Sites like Zillow can help determine what your home is worth, each property is unique, and the only truly accurate way to determine your home’s value is to put it on the market and see if it sells.

Once you do have a contract, it’s time to learn about the closing process. The best strategy here is to do your research thoroughly and find an outstanding title agency to help ensure a smooth closing. The laws on real estate transactions vary by state, so be sure to do your research.

As you can see, you’ll be working for the money you save when going FSBO. But the money saved could make the effort more than worth it.

Disadvantage: Reality Check

As mentioned in the Buying a FSBO section above, one of the most valuable (and least appreciated) jobs of a Realtor is providing a reality check for their clients. Even professionals often benefit from having their assumptions challenged.

If you decide to sell your home on your own, consider talking to a friend with real estate expertise to make sure your valuation and marketing strategy is sound. It helps if that friend is almost annoyingly honest, as it won’t do any good to just have your ideas rubber-stamped. A brutally honest second opinion can be hard to take, but it can mean the difference between a successful sale and a house that you can’t seem to get rid of.

When a FSBO is Perfect Fit

There are some circumstances that make a FSBO the perfect solution by saving money and not creating an excessive burden. If the buyer and seller both have previous experience with real estate, the sales process isn’t overly complex, and the expertise and reality checks of a Realtor are less needed.

Similarly, if the buyer and seller agree on the value of the home, and there is a high level of trust or cooperation, a FSBO transaction can be smooth and beneficial for everyone involved.

Inter-family sales are often essentially un-advertised FSBOs, and with no marketing and often a much-simplified closing process, the cash savings are dramatic when compared to the slight additional effort in these sales.

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