Blog

Welcome to the BeSmartee blog. Enjoy a wide selection of articles related to mortgages, the industry, and real estate.

FSBO (For Sale By Owner) Real Estate: What You Need to Know

By Arvin Sahakian · Sep 30, 2015 · Real Estate

FSBO (For Sale By Owner) Real Estate: What You Need to Know

Image courtesy of Google Images, Vectorink

FSBO is a method by which a home owner seeks to sell their property without using a real estate broker. There are advantages and disadvantages to selling your home using this method which we will review in this article.

The trend to sell a property without the use of a real estate agent or broker has been declining since 1997. The popularity of the internet has ushered in countless low commission and flat fee real estate brokers to assist home owners in selling their property, which has contributed to the declining trend in FSBO sales. In addition, increased regulation has made the legal aspects of the transaction more difficult as well, which has also contributed to home owners shying away from going the FSBO route alone.

In this article, we will discuss what FSBO is, how the process works for the seller and what the advantages and disadvantages are of selling your home FSBO.

What is FSBO?

FSBO means For Sale By Owner. It is a method of selling property without using a real estate broker. The primary reason that a home owner chooses to list and sell a property on their own is because the seller doesn't want to pay a commission to a real estate brokerage to handle the transaction.

A typical broker can charge a home seller anywhere from 2 percent to 6 percent of the selling price to list, market, and negotiate the selling of the property. This commission is shared by the brokers representing the seller and the buyer.

According to a National Association of Realtors (NAR) 2014 report profiling home buyers and sellers, sellers who were surveyed said that the primary reason they chose to sell a property using FSBO was because they did not want to pay a commission fee.


Most Important Reasons For Selling A Home As FSBO

How Does the FSBO Selling Process Work?

The process of selling your property as an FSBO is not unlike selling your property by using a real estate broker. There are typically five general steps involved:

1. Determine if Selling Your Home is Beneficial

Conduct research to find how much you owe on your mortgage, whether or not you owe any back taxes and if there are any liens on your property. You can do this by contacting your mortgage company, your local county tax assessor and a local title company to pull property records.

Take the total amount from your findings and use this as the basis for which you will price your home for sale. There are numerous websites such as Zillow and Trulia that will help you determine a rough estimate to what your property is worth.

If you find that you owe more on your property than your home is worth, then it may not be a good time to sell. In this case, you would have to come out of pocket to make up the difference in the end if you sell a property that is worth less than what you owe. If you find that you do have equity in your home, particularly a substantial amount of equity, then this would be a better time to consider a sale.

2. Prepare Your Home and Set the Pricing

Make the inside and outside of your home look desirable. This means deep cleaning your floors, kitchen and bathrooms, fixing squeaks and leaks in and around your property, painting interior and/or exterior walls and doing some landscaping for better curb appeal. Don't be lazy about getting this work done, you will scare away many buyers and you will attract lower purchase offers.

When setting a price to list your home, you must do research. A place to start is by using real estate listing websites like Zillow, Trulia & Realtor.com to see what other properties have sold for within the last six months. Check sold properties with similar square footage, bedroom and bathroom count to your own property and make sure they are within a driving distance, preferably within one mile from your own.

Next, begin searching properties that are currently listed for sale with the same search criteria as the one's you used above. Determine the average price for sold properties and an average price for properties listed for sale before making a determination to what price you should list your own property for.

Don't shoot for the moon here, be reasonable with your pricing, otherwise no one will want to see your home if priced too high.

3. List Your Home and Begin Marketing

The majority of buyers find the property they eventually purchase online. You must list your home on websites that buyers frequently visit. The most popular destinations for home buyers are Zillow, Trulia and Realtor.com.

Outside of these real estate listing websites you can take whatever direction you wish to market your home to potential buyers, such as placing a For Sale and/or Open House sign on your front lawn and listing your property with classified directories. Some sellers even shell out cash to buy advertising space in local newspapers.


BeSmartee TipTip: It’s important to note that you must make disclosures on the condition of your property. Check with local and state laws to see what you must disclose. For example, if there are any known plumbing, sewage, roofing or pest problems, you must let potential buyers know this before finalizing your sale, otherwise you may be faced with a lawsuit in the future.


4. Negotiate the Purchase Offers

This is where FSBO sellers feel the most stress. If you are not well versed in real estate transactions and contract negotiations then going the FSBO route may not be right for you without getting help. Chances are good that whoever is making an offer to buy your home will have a real estate agent on their side to look out for their own best interests.

Some of the areas within a purchase contract that you should pay close attention to are the price, close of escrow date, loan contingency date, inspection contingency date and when you must vacate the property after the sale just to mention a few. Many FSBO sellers find it useful to hire a low cost or flat fee broker to help them with this negotiation process.

5. Close the Deal

After you have come to an agreement and signed contracts to finalize the purchase offer, it's time to close the deal. At this stage in the game, you will need the services of an escrow company or closing agent, depending on the state you're in.

Escrow acts as facilitators of the closing and recording process between yourself, the buyer and the buyer's mortgage lender. You cannot avoid these services, nor should you try to avoid them. Escrow will make sure the money is received and distributed to the appropriate parties on time, and they will also record the sale with the county recorder's office to be sure ownership is transferred properly. The escrow closing process can typically take anywhere from 30 - 45 days, depending on the details of the transaction.

According to the National Association of Realtors (NAR), on average, it takes FSBO home sellers 19 more days to sell their home than a home owner using a real estate agent.


Average Days On Market Before A Home Sells

Advantages of FSBO

You're in Control

You get to list the home, set the price and remove the listing whenever you want. There is no time sensitive contractual agreement with an agent so you have a lot of freedom to choose what methods you want to use to sell your home, how long you want to list it for, and whether or not you should remove the listing to hold out for a rise in property values.


BeSmartee TipTip: If you hire an agent and your agent finds a willing and able buyer to pay the price you want, then you must sell that property or refuse to sell but compensate your agent for doing their job as outlined in your contract. If you do not, your agent will have authority under the contract to pursue you to be compensated for the costs involved to list, market and find a willing buyer.


Talk Directly with the Buyer

You will have many opportunities to speak directly with the buyer to discuss your specific goals and attempt to build a rapport with them, which helps to make a personal connection which in turn helps with the sales process.

Pay No to Low Commission

Without using a real estate broker to represent you, you can avoid the typical 2 percent to 6 percent commission sellers pay to have brokers list, market and sell their home. However, you may come across a buyer interested in your property that is represented by an agent. In this case, although you are not legally required to do so, you may have to come to an agreement with the agent to compensate them by paying their portion of a commission or a finder's fee for bringing their buyer to you. Take note that buyers with an agent have signed a contract with one another to use the agent's services in finding the right home.

Disadvantages of FSBO

No Agent Representation

Without a professional to represent you, you are left to your own devices when it comes to strategy, negotiation, marketing, liabilities and best practices. There is no agent looking out for your best interest, who also happens to be insured against errors and omissions in case of any liabilities that may arise from the transaction. If you insist on going the FSBO route and are not an experienced real estate buyer/seller, then you should at least seek some type of professional advice to be sure you are taking the proper steps.

Industry Disclosures and Regulations

The trend in homes sold FSBO have been decreasing substantially over the past two decades, primarily due to increased regulation and technology giving way to a rise in low cost online real estate brokers.

In order to protect sellers, buyers and lenders, many state and federal regulatory bodies have increased regulations surrounding real estate transactions. Navigating these regulations requires a considerable amount of industry know how, and this is where the professionals really show their value. In addition, these regulations have given way to more disclosure requirements, which means more legal documentation.

Reduced Visibility

Marketing is the key to any successful sale. If no one knows about what you're selling then there is no deal to be had. When you hire an agent to sell your property, the agent has a proven marketing system in place with many resources at their disposal to make sure other agents with buyers know about your property, such as listing your property on the Multiple Listing Service (MLS), which is an industry database of properties for sale represented by agents.

Also, it is not uncommon for your agent to come out of pocket to pay for marketing material, such as fliers, signs, and other forms of advertising to promote your property. The commission they make in the end is what they use to recoup many of these out of pocket costs. When you choose to go FSBO, then you are taking on all of the marketing responsibilities unto yourself.

Lower Sales Price

Industry surveys suggest that a typical home listed and sold using a real estate agent will tend to sell for approximately $46,000 more than a home that sells FSBO. Though this may be true, it's important to note that there is no commission to pay when you sell for the lesser price. However, your agent has an incentive to sell your property for the highest possible price, because this in turn increases their commission amount.


FSBO vs Real Estate Agent: Typical Sold Price

Know Before You Go FSBO

For Sale By Owner (FSBO) can be financially beneficial to a home seller who is well versed with the ins and outs of real estate transactions. Many of these sellers can save as much as 2 - 6 percent of the selling price in commissions typically paid to real estate agents.

For those who are not experienced, they will find the FSBO process a very stressful transaction with some risks and liabilities involved. For these sellers, we highly recommend seeking some type of professional advice or guidance if you insist on not using a real estate agent.

Ultimately, anytime there is a project that needs to be completed and has a lot of moving parts can either be done using a professional who is trained and insured or become a do-it-yourself project where you take on all the responsibilities. Yes, there is a possibility that you will save money by doing it yourself if you are experienced, but you must weigh the pros and cons to see if it may be better to simply hire the professional instead.


Real Estate Commission: Explained, Revealed and Compared
By Arvin Sahakian · Aug 17, 2015 · Real Estate Data

Real estate agents receive commissions from home buyers and sellers, collectively earning over $50 Billion per year. Learn how commission amounts are set, who pays them, and how they work in this article. Read more.

197,754

California Property Tax: Complete List by County 2014-2015
By Tim Nguyen · Nov 26, 2014 · Real Estate Data

List of secured property tax rates for all counties of California fiscal year for 2014-2015. Read more.

126,877

California Proposition 60 and 90: Your Complete Guide
By Tim Nguyen · Nov 28, 2014 · Real Estate Data

If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home. Read more.

66,429

What to Expect During the Home Loan Closing Process
By Arvin Sahakian · Feb 24, 2015 · Mortgage

You've heard the term used before, but what does loan closing mean? Find out all you need to know about the process. Read more.

54,323

The Surge in Foreign Real Estate Investment in the United States
By Laura Agadoni · Feb 24, 2016 · Real Estate

Foreign real estate investment in the United States, both commercial and residential, is a huge phenomenon that is only expected to accelerate, maybe even to skyrocket, in 2016. Read more.

50,353

Houston vs. Dallas: Which One is Better to Live in?
By Amanda Curry · Oct 11, 2016 · Real Estate

Houston Vs. Dallas? If you are considering moving to either of these major metropolitan areas, we've created a resource to help you make the decision process a little easier. Read more.

49,159

5 Illegal Borrowing Activities: Things That Are Illegal When You Try to Get a Home Loan
By Laura Agadoni · Jan 22, 2016 · Mortgage

Whenever there is money to be made or money to be spent, some unscrupulous folks will take advantage, trying to game the system or commit all-out fraud. Read more.

48,460

Does Homeowners Insurance Pay Off your Mortgage if the House is Burned Down?
By Amanda Curry · Feb 8, 2017 · Mortgage

In this article, we explore how homeowners insurance works and what happens in the event of a house fire. Read more.

25,892

16 Ways to Improve Your Debt-to-Income (DTI) Ratio
By Veronica Nguyen · Nov 29, 2014 · Mortgage

Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips. Read more.

25,356

5 Tips on Getting a Mortgage Loan after Bankruptcy
By Veronica Nguyen · Apr 15, 2015 · Mortgage

A bankruptcy will make it very difficult to attain a home loan. These 5 tips will help you re-establish your credit quickly in order to qualify for a home loan. Read more.

20,793