Understand the dynamics of FSBO transactions and open more possibilities for finding a home.

Roughly 10% of home sellers list their property as “For Sale By Owner,” (FSBO, pronounced fizz-bo). In a tight housing market, you don’t want to overlook this potential source of homes. What does a FSBO listing mean for buyers? Let’s take a look.

The home may be overpriced

Many, but not all, FSBO listings are overpriced. Most homeowners don’t know how to accurately value their home and there are often a lot of emotions involved. For example, a seller knows how much they paid for upgrades and repairs. Or they may arrive at a figure based on a personal financial need, such as how much they need to buy a different home. Because of factors such as these, it’s possible that the current owners overpriced the home.

If a FSBO listing catches your eye, you’ll want to do your own price comparisons. Comparisons are based on actual sales data of similar homes in the same area. This data can be used to set your goal for negotiations.

Understand the dynamics of FSBO

The primary motivation for folks who list their home FSBO is to save money on real estate commissions. Most agents won’t show FSBO listings because there’s nothing in it for them unless the seller agrees to pay them.

For buyers, buying a FSBO home doesn’t change their out-of-pocket and loan costs, but it could mean more hassle. The typical homeowner doesn’t have much experience in handling real estate transactions.

There are two ways a buyer can protect their interests when it comes to buying a FSBO home:

First, you could enlist a buyer’s agent. A buyer’s agent is a real estate agent who will approach the homeowner to see if they’re willing pay for the agent’s services. If the buyer’s agent and homeowner come to an agreement, the agent will handle the offer, negotiations and sale as well as act as your advocate.

The second way homebuyers can protect themselves is by hiring a real estate lawyer to handle the purchase contract. An attorney will make sure contingencies are clearly spelled out in a way that releases you from the contract if things such as inspections, repairs or loans are not approved.

Hire a home inspector

Whenever you buy a home, an inspection is a wise idea. By law, all home sellers must complete and sign a disclosure about the property and any known defects. However, not everyone completes these forms accurately and it’s possible that there are some things they simply aren’t aware of.

Get an inspection. If it shows repairs are needed you have three options: the seller can fix it, you can negotiate a lower price to cover the repair or you can walk away from the deal. Keep in mind that if the seller fixes it, you might not share their standards for a quality repair. In order to walk away from the deal, this contingency must be clearly spelled out in your purchase contract.

Deposit earnest money in escrow

If your offer on a FSBO is accepted, deposit the earnest money in an escrow account held by a third party. Escrow protects your money in case the deal falls apart and you have to cancel the contract because contingencies aren’t met. If you pay the money directly to the home seller and cancel the contract it could be difficult to get your money returned.

If the deal goes as planned, the escrow money goes to the seller.

Consider a transaction coordinator

There’s a lot of paperwork and critical timing involved with a real estate transaction. A transaction coordinator can help with setting up escrow, making sure documents are submitted, coordinating the closing process and more. If you’re not using a buyer’s agent, see if the seller will cover the cost of a transaction coordinator.

Who pays for what

When buying a FSBO home, you and the seller can negotiate who pays for what. You’ll need to determine who pays for transfer taxes, title fees and how property taxes are prorated. Document your agreement so there are no misunderstandings later.

Financing a FSBO home

Homes sold by owner can be financed with a home mortgage, at Consumers, we make things simple for buyers with fast online and in-app applications. Check out today’s rates.

Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.