How to Buy a Home That's 'For Sale By Owner'

For Sale By Owner — four little words that can mean big savings for the seller, but not necessarily for the buyer. Homes being sold by their owners, also called FSBO homes, are listed without the assistance of a real estate agent so the seller can avoid paying a commission.

But what does a FSBO sale mean to you, the buyer? You'll still want to do all the same things you would if the house were being sold through a real estate agent:

• Determine if the asking price is fair by check comps.
• Inspect the property yourself and have a professional inspection done.
• Make an offer and negotiate a contract.

FSBO sellers often set the price by looking at listing prices in the area, not at comparable actual sales prices. Good comps will help you if you make an offer. It's also helpful to ask the owner/seller:

• How long has the home been for sale?
• Was it listed with an agent or agents before the seller took over and, if so, for how long?
• Why does the seller believe the house has not sold (especially if it's been FSBO for a year or longer)?

If the owner is blaming lazy real estate agents, you may want to look at the house with an eagle eye before making an offer, and be ready for a long negotiation. Some sellers are unrealistic about pricing their property that they have passed from one agent to another until no agents will take the listing.

With all that in mind, some answers to other likely questions about buying FSBO homes:

Can I use a buyer’s agent for a FSBO transaction?

Just because a seller isn’t using a real estate agent doesn’t mean you can’t. Many real estate agents comb FSBO listings as well as agent-assisted listings to find the perfect home for clients. But buyer’s agents have to put food on the table, too. Before they show you a FSBO listing or present an offer, they typically insist that the seller 'cooperate' by directly paying them a commission – usually 3 percent – or by applying a 3 percent 'credit' at closing, which the buyer then turns over to the agent.

Of course, sellers can decide not to cooperate with any agent, which will save them money but reduce the buyer pool.

If I find a FSBO home by myself, does my agent get a commission?

The easy answer is: What does your contract say? But the bigger question is: Why did you hire a real estate agent in the first place?

Most homeowners will make only a handful of real estate transactions in a lifetime, while an agent will close that many deals in a week or month. You’re paying for experience not only in finding a home, but for negotiating and closing that deal. Unless a FSBO seller refuses to work with any agent for any reason, your buyer’s agent can help you get the best price on the home, hire attorneys, title companies, appraisers, mortgage brokers — basically all the moving parts needed to buy the home.

Do I need a lawyer for a FSBO purchase?

Maybe. Every state – and sometimes different regions within a state — has its own requirements regarding real estate transactions and attorneys. Some places require that both parties are represented by an attorney, which means you’ll need one even if you use a buyer’s agent in a FSBO transaction. Some states do not require an attorney to be present at a real estate closing, which can be conducted by a title company or a lender.

Regardless, if you’re buying a property in a short sale or as one that’s part of an estate, you should hire an attorney to help you navigate what can be complicated waters.

Do I need a mortgage pre-approval for a FSBO sale?

It can’t hurt. Many FSBO sellers are, themselves, inexperienced and may have to act quickly while entertaining multiple offers. If you are pre-qualified or pre-approved for a mortgage you reduce the hurdles between you and a sale.

Who holds escrow money when you buy a FSBO home?

Not the seller. Normally, the listing agent holds earnest money in their escrow account until closing. But if there’s no real estate agent, arrange for an attorney or title company to act as the escrow agent.

What is a C.L.U.E. report and do I need one?

A Comprehensive Loss Underwriting Exchange (C.L.U.E.) report reveals any insurance claims sellers have made on a property within five years. Only the seller can request a report but if there's nothing to hide if shouldn't be an issue. The report will include the dates of claims, the amount paid and cause of the loss, and if the issue was related to a catastrophe like a tornado. You'll be looking for things like water damage that could cause future problems (mold or structural damage). You could offer to pay for the report (approximately $20).

Do I need a home inspector?

Yes, yes and yes! Let’s assume that the FSBO seller is honest. Even he or she may not know everything that is wrong with the home. To avoid surprises later, hire an inspector to check every wire, pipe and puddle. Make sure the inspection also checks for asbestos, electromagnetic fields and radon.