Tuesday, February 1, 2022 / by Jeff Lovato
For sale by owner (FSBO) is a term that refers to a method of listing a property for sale. When a house has an FSBO listing, it means the owner is selling the property without the help of a listing agent or broker.
How for Sale by Owner Works
Here are some of the tasks the seller is responsible for in an FSBO transaction:
- Determine the asking price by researching neighborhood property values for homes with similar features (aka comps), such as the number of bedrooms and the home's square footage. Has the home had any updates that match the other homes or are there items that other homes have updated and yours does not? Size of the lot of your home, is it a corner lot? On a busy street? What is within walking distance?
- Stage the home for sale and make any necessary repairs.
- Buying 'For Sale' signs and managing the marketing, including advertising, online listings, brochures, and flyers.
- Schedule and host all of the showings and appointments. When you sell yourself, there may not be agents attending showings with buyers. Make sure you have contacted your insurance company in case something happens to someone who is viewing your property.
- Negotiate the price and terms of the sale when an offer has been made. (is the buyer prequalified for a loan, is the buyer doing an inspection, is the buyer going to pay for the appraisal or any of the closing costs, when will the move in date be for the buyers, did the buyers mark in the contract that the seller would pay commission to their agent even though you are selling yourself?)
- Prepare the legal documents, such as the sales contract, residential property disclosure form, occupancy agreement, and lead-based paint disclosure (if the home was built before 1978). Sellers may also need to track down other documents, including the property surveys, permits, loan documents, utility bills, property tax bills, homeowner association documents (which now include more than just the covenants, rules and regulations, and bylaws), and, you will need to have a title company for closing.
- What happens if the seller has an inspection and wants repairs to be made?
Who draws up the contract when a home is for sale by owner?
In a FSBO transaction, purchase contracts can be drawn up in several ways. Some individuals use fillable PDF contracts they have found and paid for on the Internet either through basic Google searches or as part of a "For Sale by Owner" legally reviewed documents package for sale on a site like ForSaleByOwner.com. Please remember that these are not always the most up to date legal contracts. Sometimes both the buyer and seller will find a local real estate attorney to write up and review these contracts. However, in most transactions for which a home is FSBO, the buyers' agent is the one who ends up drawing up most of the contracts. They will also require other documents such as 'seller's property disclosure', 'source of water', 'closing instructions' and more.
How do buyers' agents get paid in for sale by owner?
Buyers' agents are almost always still paid out of the proceeds from the sale in an FSBO transaction. Agents will usually include their commission of 2% to 3% in their initial purchase offer. If a seller refuses to pay Realtor commissions, many buyers won't show the FSBO listing to their clients. In fact, ForSaleByOwner.com specifically urges sellers to include wording communicating "X% commission paid to buyers' agents" on their listings so that agents will show the listing to their clients without fear of losing out on a commission.
Benefits of Listing as FSBO
Going through a real estate agent or broker can save a homeowner a great deal of time and headaches.
A 5% commission on a $250,000 sale would come out to $12,500. If the seller handles the sale themselves, they would get to keep their half of the commission, about 6,250.00.
Saving thousands of dollars in commissions can be tempting. Still, it's important to remember that when a seller doesn't employ a real estate agent, the seller assumes ALL the responsibilities of completing the transaction.
If the seller is unfamiliar with the home buying and selling process, any mistake can be quite costly. If the seller sets the listing price too high, for example, fewer buyers will consider the home. Likewise, too low an asking price means the seller could leave money on the table—potentially more than was saved by selling FSBO.
Also, selling a home via FSBO can pose legal risks if the sale's legal documents are not drawn up properly or if the home has issues that aren't adequately disclosed. Depending on the experience of the seller, avoiding the commission could be a wise financial decision. However, even sellers with knowledge of real estate transactions can find the situation stressful and may be better off working with a qualified real estate agent.
The Bottom Line
When the owner of a property chooses to sell without using the services of a listing agent or broker, it is known as for sale by owner (FSBO). One advantage of selling this way is to avoid paying any commission to a real estate agent. The downside of FSBO is the seller assumes all of the responsibilities and legal risks of completing the sale, not to mention all the work of selling a property.
In addition to showing the property, the owner must manage the myriad tasks that usually fall to an agent or broker. Choosing FSBO requires weighing the pros of possible savings against the labor of actual marketing and selling, as well as an honest assessment of the owner's ability to perform these tasks adequately.
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