What Is For Sale by Owner (FSBO)?
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. One reason sellers choose this option is to avoid paying the real estate agent a commission on the sale.
- For sale by owner (FSBO) is a term that refers to when an owner sells their property without hiring an agent or a broker.
- Sellers may go the FSBO route to avoid paying a real estate agent commission, which could be thousands of dollars.
- In FSBO transactions, the seller assumes all of the responsibilities and legal risks of completing the sale.
For Sale By Owner (FSBO)
How for Sale by Owner (FSBO) Works
Though the details of each real estate transaction vary, 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.
- Stage the home for sale and make any necessary repairs.
- Manage the marketing, including advertising, online listings, brochures, flyers, and listing the home on the Multiple Listing Service (MLS).
- Schedule and host all of the showings and appointments.
- Negotiate the price and terms of the sale when an offer has been made and accepted.
- Prepare the legal documents, such as the sales contract, residential property disclosure form, mineral and oil rights 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 survey, permits, certificates of occupancy (COs), loan documents, utility bills, property tax bills, homeowner association covenants and agreements, and the property title.
- Prepare the deed (e.g., quitclaim, warranty, or some other type of deed), and ensure it's signed, witnessed, and notarized.
- Close the sale. Depending on the state, the closing will take place at a title company or a real estate attorney's office.
Who draws up the contract when a home is for sale by owner?
In an FSBO transaction, purchase contracts can be drawn up in several ways. Some individuals use fillable PDF contracts they have found 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. Sometimes both the buyer and seller will find a local real estate attorney to write up and review these contracts. Attorneys typically charge a flat rate of $800 to $1,200 per transaction depending on the market and how much work they are doing in the deal. 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.
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. However, commissions can reduce the seller's profits. The average real estate commission in 2020 (the most recent data available) was 4.96%, down from 5.03% in 2018, according to research firm Real Trends.
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 the entire $250,000—sort of. Keep in mind that the commission is usually wrapped into the sales price, which means the buyer ultimately pays the fee. Of course, with no commissions to worry about, the seller can ask for a lower price—and the buyer can get a better deal.
Savings 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 homebuying 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, sellers with little 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. That's a possible savings of thousands of dollars. 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: determining a viable asking price, staging the home for sale, and managing the marketing. Marketing can include advertising, online listings, brochures, flyers, and listing the home on the Multiple Listing Service (MLS). 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.