What Is For Sale by Owner (FSBO)?
"For sale by owner" (FSBO) indicates that a property is being offered for sale directly by the owner rather than through the services of a real estate agent or broker.
Some sellers choose this option to avoid paying the real estate agent a commission on the sale. The commission is usually 5% to 6% of the sale price, split between the seller's agent and the buyer's agent.
There are, however, costs associated with an FSBO sale, including paying the commission of the buyer's agent, which is typically 2% to 3% of the offer price.
- Sellers go the FSBO route to avoid paying a real estate agent commission, which is usually 5% to 6% of the sale price.
- In FSBO transactions, the seller assumes the responsibilities and risks of completing the sale.
- FSBO home sales represent only about 7% of all sales.
For Sale By Owner (FSBO)
How For Sale by Owner (FSBO) Works
The seller who goes the FSBO route takes on the following responsibilities that are done by real estate agents. These tasks include:
- Determining the asking price by researching neighborhood property values for homes with similar features (called comps), such as the number of bedrooms and the home's square footage.
- Staging the home for sale and making any necessary repairs.
- Managing the marketing, including advertising, online listings, brochures, flyers, and listing the home on the Multiple Listing Service (MLS).
- Scheduling and hosting showings and appointments.
- Negotiating the price and terms of the sale when an offer has been made.
- Preparing 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 the property survey, permits, certificates of occupancy (COs), loan documents, utility bills, property tax bills, homeowner association covenants and agreements, and the property title.
- Preparing the deed (e.g., quitclaim, warranty, or some other type of deed), and getting it signed, witnessed, and notarized.
- Closing 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 in an FSBO?
In an FSBO transaction, purchase contracts can be drawn up in any of several ways. Some individuals use one of the fillable PDF contracts that can be found on the Internet. Some companies like ForSaleByOwner.com offer "For Sale by Owner" legally reviewed packages of documents.
The buyer and the seller can also find a local real estate attorney to write up and review the 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.
In most FSBO transactions, the buyers' agent ends up drawing up most of the contracts.
The percentage of home sales that were FSBO as of 2020, according to the National Association of Realtors.
How Are the Buyers' Agents Paid in an FSBO Listing?
Buyers' agents are paid by the seller from the proceeds of the sale in an FSBO transaction. The initial purchase offer usually reflects a buyer's agent commission of 2% to 3%.
If the seller does not have a real estate agent, the home will not be listed in the multiple listing services that all agents use to find homes for their clients.
Costs for FSBO Sellers
The seller can pay an agency to list it, which entails a substantial charge. Or, the seller can list the property on an FSBO listing site such as ForSaleByOwner.com. The marketing-savvy owner can also post the listing on Realtor.com and send it to content aggregators.
If a seller refuses to pay a realtor commission, realtors are unlikely to show the FSBO listing to their clients. In fact, ForSaleByOwner.com 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
Commissions reduce the seller's profits, but probably not by as much as they may hope. The seller still must pay the buyer's commission. A wise seller also hires an attorney to handle the paperwork. Listing and marketing the home have costs, too.
Sellers on a tight budget can opt for a flat-fee service from some realtors. This covers only the MLS listing, with other services available on a per-fee basis.
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 home buying and selling process, a mistake can be costly. If the seller sets the listing price too high, fewer buyers will consider the home. Setting the price too low cuts into the profits, and could prove more costly than hiring a realtor.
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.
How Do Real Estate Agents Get Paid?
An estate agent who represents a seller is paid a percentage commission based on the sale price. The agent who represents the buyer also is paid a percentage commission based on the sale price. Both commissions are paid by the seller from the proceeds of the sale
The commissions are paid at the closing. They add up to an average of 5% to 6% of the sale price.
How Much Does an MLS Listing Cost?
Say you want to forego the full services of a broker and pay only to list your home on a multiple-listing service (MLS). That could cost about $100 to $500 depending on the level of service you receive.
Some realtors offer MLS listing alone for a flat fee, with additional services available a la carte. MLS listing services can be obtained online.
Unless you already have a buyer lined up, you need an MLS listing to alert potential buyers and their agents that your home is for sale.
What Are the Risks of an FSBO Sale?
Some real estate agents representing buyers avoid showing FSBO listings or even outright refuse to do so. They've been burned before by FSBO sellers who refuse to pay their commission or generally behave in an unreasonable manner, in the agents' view.
You shouldn't undertake an FSBO sale unless you are confident that you have the expertise that an agent would bring to the project. That includes setting a reasonable asking price, marketing the house effectively, showing it to its best advantage, and getting together the paperwork that is required to complete the transaction.
The Bottom Line
FSBO holds out the possibility of saving thousands in commissions. The risk is that the seller is giving up the professional services that can get them the best result. Agents have the skills and expertise to price a house correctly, market it efficiently, and show it at its best. Not to mention the fact that they handle the burden of paperwork that a home sale requires.
There are still commissions and costs involved in an FSBO sale. Notably, these include the commission charged by the buyer's agent and the costs involved with getting the house listed in a multiple listing service.
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.