A Guide to Buying a House For Sale by Owner

March 3rd, 2024 at 11:00 am

A guide to buying a house for sale by owner (FSBO)

When you’re planning to find your next home—or your first—you have a stack of to-do lists on your plate, from moving arrangements, figuring out what to look for when buying a house, and recalculating your wish list and budgeting to houses on the market.

The good news is that a real estate professional familiar with these transactions can guide you through the sometimes-challenging process of FSBO homes, and you can widen your search to include them and potentially find what you’re looking for at a pleasing price. Find an agent with skills to fit your needs from Berkshire Hathaway HomeServices California Properties.

Below we’ll review benefits and cons of buying market properties that are for sale by owner, and what to look out for.

Why do owners sell FSBO?

What motivates a seller to skip working with a real estate agent and handle the selling process independently?

There are some types of specialty home sales—“as is” property and property under probate, for example—that come with additional risk to the prospective buyer based on either the unique process or the potential motivation of the seller. Is the “why” of an FSBO house important to protecting your interests?

Sellers who put their homes up for sale by owner tend to fall into a few common categories:

The buyer that got away

More than half of FSBO sellers list their homes without an agent because they already have a buyer or purchase agreement lined up, often a family member or friend. If open houses, showings, and marketing and listing a house aren’t needed, why would you secure a seller’s agent?

Unfortunately for the homeowner, many of these deals fall through—sellers with a buyer in mind are even more likely than other FSBO sellers to drop their prices while their home remains for sale but is difficult for other potential buyers to find.

Bargain hunters

If you’ve ever seen an episode of the “Extreme Cheapskates” or “Extreme Couponing” reality TV shows, you know there’s no end to what people will do to avoid spending money. Even with no experience in real estate, a homeowner might decide that Google is the sum of professional help needed in order to avoid paying an agent commission.

Agent sellers

Real estate agents are themselves people who buy and live in their own homes and, at some point, sell them. If you feel you have all the skills and experience to handle your own home sale, it can be galling to consider paying a commission to bring another agent into the mix.

Real estate agents aren’t one-size-fits-all—they specialize in types and price ranges of homes, specific cities and neighborhoods, and often focus on the seller or buyer representation. Agents who partner with California Properties, for instance, are familiar with southern California neighborhoods and trends.

Plus, a homeowner who takes on the role of both seller and agent may not understand the challenge of achieving professional distance from a personal situation.

Pros of buying an FSBO house

If you’re in the right place at the right time, landing a purchase contract for sale by owner can mean a fast purchase at a low price. You can:

#1 Save money on home prices

One aspect of a seller’s agent role is to help with pricing the house—and in the current fast-moving market, smart pricing means understanding:

Will a for sale by owner home equal big savings for you? An academic study of FSBO home sales from 2016 – 2017 found they sold for 5.5% less on average than traditional sales. Note that this study covered 13 key counties across 11 states, including both Los Angeles County and San Diego County.

However, the National Association of REALTORS® reported that FSBO homes sold in 2021 for an average of about 18% less than agent-represented homes in terms of median value.

While the exact amount of savings will depend on the seller’s unique situation and home, you can expect to recognize some amount of savings in price on an FSBO home.

If you’re wondering if certain amenities can affect a house’s market value, for example, if you ask yourself, “how much value does a pool add to a house,” or what type of neighborhood the house is in, make sure to read up on the topics before diving into the buyer’s market to make sure you know the exact value of your potential new home.

#2 Make an offer with less competition

The southern California housing market has always been competitive, and the crazy hot market of the last few years created bidding wars and escalating home prices. The steps on how to win a bidding war can be intense, but for buying FSBO properties, competition may be less.

While the volume of FSBO homes on the market is low, so is the pool of buyers. The unfamiliarity and perceived risk of an FSBO sale weed out some buyers, and the lack of MLS listing for many FSBO homes means that both buyers and agents may not be aware of them coming up for sale.

#3 Working and communicating directly with the current homeowner

When you choose to buy a house for sale by owner (FSBO), you gain a unique advantage – direct communication with the current homeowner. This direct interaction allows you to ask questions about the property, gain insights into its history, and understand the seller’s motivations firsthand. Working closely with the owner provides an opportunity to negotiate terms, explore potential concessions, and establish a more personal connection throughout the transaction.

#4 Increase your negotiation power

An FSBO seller may be more willing to think outside the box, particularly since they may not know how “the box” of real estate negotiation conventionally works. If your seller is particularly bottom-line motivated, consider requesting concessions that aren’t strictly financial such as:

Think in terms of what would save you money that you’d otherwise spend—or yield benefits you’d otherwise have to wait and save for—that either won’t cost the seller cash, or will minimize their spending (such as asking them to buy the materials and complete a DIY project rather than requesting a price break concession).

You can—and should—still consider conventional financial concessions. Talk to your REALTOR® about whether it makes sense to request:

Note, you’ll have to be aware of any limits on seller concessions based on your mortgage provider and terms. FHA, VA, and USDA loans, for example, each have specific guidelines limiting seller concessions.

Cons of buying an FSBO house

There’s a reason FSBO homes comprise such a limited pool of listings—they take a lot of work, and they come with risks based on removing a knowledgeable, certified advocate from the process.

#1 Sellers may refuse to work with your agent

In traditional home sales, the homeowner/seller pays both the selling and buying agents’ commissions. With most FSBO sales, the seller intends to save by replacing the selling agent’s with additional profit, but they’re aware they’ll still need to pay commission for the buyer’s agent.

Hardcore DIY’ers looking to save at all costs, on the other hand, may refuse to pay any commission and seek to either work directly with unrepresented buyers or offload the buyer’s agent commission to the buyer to pay.

#2 Less time to offer, more time to wait

FSBO homes may be a combination of jumping at the chance to view and make an offer and then waiting out delays and stalls until closing. They tend to be on the market for less time than agent-represented homes on average, although that includes transactions where a planned buyer completes the purchase.

While the potential buyer pool is smaller, you may have to move quickly to express interest and get an offer together for a home that needs from-scratch price analysis. Once your offer is delivered, however, you may find that a layperson seller:

#3 Missing information in listings and disclosures

Once you start reviewing home listings, you get into a rhythm of seeing basic stats in a set format, including:

You also learn to interpret the language of descriptions that suggests where the house falls on the fixer-upper scale. But does your FSBO seller understand the legal definition of a bedroom versus a den, or what the state requires a seller to disclose about zoning changes or noise pollution?

Both you and your real estate agent will need to pay careful attention at all stages of the process to ensure you have the necessary facts in hand. Although a seller’s error may open them up to legal liability, it’s much better to avoid buying a property that was misrepresented than sue over it later on.

#4 Risk of seller not being completely honest about the property

To further expand that point, there’s a risk that the seller may not be entirely forthcoming about the property’s condition or history. Unlike transactions facilitated by real estate agents who adhere to ethical standards and disclosure regulations, FSBO sellers might not provide all the necessary information willingly.

This emphasizes the importance of conducting thorough due diligence, including a comprehensive home inspection and research into similar homes in the neighborhood. Buyers should be vigilant and consider seeking advice from a real estate attorney to ensure their rights are protected throughout the process.

#5 Risk of a deal falling apart

Homes that start out for sale by owner frequently end up being listed with a seller’s agent when a planned buyer falls through or the seller becomes overwhelmed by the process.

Without the advocacy and security of an agent by their side, sellers may not have enough understanding of state regulations, residential real estate common practices, and the legal contracts and disclosures involved to make their way through to closing.

Do you need a REALTOR® with FSBO experience?

In an FSBO sale, buyer’s agents are more important than ever. While a seller’s agent represents the seller’s interests, they are also part of a closed circuit that ensures both the seller and buyer follow legal protocol and have advocates familiar with market changes and standards.

A buyer’s agent in an FSBO sale has to operate with the expectation that the seller has no familiarity with these customs and processes around pricing, negotiation, and closing. Here are some benefits of working with a real estate agent – they can help you:

How can you find FSBO houses in Southern California?

With the limited pool of FSBO homes in southern California, it may be a stretch to find what you’re looking for on your timeline. You can increase your odds of finding your dream home FSBO with these tips:

While they’re rare finds, locating an FSBO home in your target county or city can give you the edge you need to make the most of your housing budget.

Trust California Properties with your FSBO home purchase

Buying a house for sale by owner can be even more of a challenge than a standard home buying process—particularly when you’re looking in the desirable Southern California market. You need a real estate agent with FSBO experience to protect your interests, and California Properties can help you find the right partner and the right home.