A home for sale by owner opens the door for you to buy the property without a middleman—though you may choose to use your own real estate agent to facilitate the transaction.
Here’s a look at how the homebuying process with a for-sale-by-owner deal can differ from a typical real estate transaction.
For Sale by Owner: Good for Buyers?
When homeowners choose the FSBO (“fizz-bo”) route, they take on all of the responsibilities real estate agents would typically shoulder, from listing the house and showing it to negotiating and closing the deal.
The main motivation for doing so is often cash. Sellers who go it alone can save money on the commission that real estate agents would normally earn. If neither side uses an agent, the deal sidesteps the typical 5% to 6% for agent commissions.
On the buyer’s side there can be a number of benefits of buying a house for sale by owner. First of all, the lack of a listing agent means you have more direct contact with the seller, which might give you more negotiating power.
The seller will also likely have detailed knowledge of the house and neighborhood, which can be a bonus as you decide whether or not you want the property.
However, you may run into some pitfalls with FSBO properties. A seller may love her home and overprice it, potentially complicating matters when you get an appraisal.
Recommended: How to Buy a House Without a Realtor
Using a Buyer’s Agent
Just because a home’s seller doesn’t want to use a listing agent doesn’t mean you can’t engage the services of a buyer’s agent.
You may already be working with an agent who can contact a FSBO seller for you. Or you may need to look for an agent who is willing to take on the job.
In some cases, buyer’s agents may be hesitant to work on a FSBO property. They may be wary of taking on extra liability, or extra work for which they will not necessarily be compensated.
That said, a buyer’s agent can negotiate the sale on your behalf and walk you through the complicated paperwork. If the seller is putting the contract together, your agent can also check the work to make sure you don’t run into any problems.
Sellers typically pay the agent commission. Just be sure the seller agrees to pay the buyer’s agent commission in the purchase agreement.
Here’s what to expect in the buying process when using a buyer’s agent.
Shopping for a Mortgage
Before making an offer on a home, it’s a good idea to shop for a mortgage to get an idea of the terms different lenders offer and how much you are likely to pay each month.
A mortgage calculator can help you understand how down payments of various sizes will affect the numbers. And you may consider getting preapproved for a mortgage to see exactly how much you can afford to spend.
In an FSBO situation, homeowners may have no experience with the home financing process, and getting prequalified or preapproved for a home loan may remove some roadblocks on your path to making a purchase.
Viewing the Home
Your agent can contact the seller and set up an appointment to view the home.
Be on the lookout for sagging floors or cracks in walls that might indicate structural issues. Test windows. Look for water damage on ceilings or walls that may indicate a leaky roof.
Since the seller will most likely be showing the house, take this opportunity to get as much detail about the home’s history as possible. What repairs have been made recently, and which ones haven’t been made in a while? It’s smart to ask about any warranties, and to be sure they will remain after a sale.
Recommended: What to Look for When Buying a House
Getting an Inspection
When buying a home for sale by owner, it’s not in your best interests to skip an inspection. Home inspectors go over the house with a fine-toothed comb, looking at structure, plumbing, electricity, and appliances to see whether they need repair now or in the near future.
If the inspector finds any problems, you can ask the seller to fix them, credit you the cost of repairs, or reduce the sales price. If you’ve already signed a purchase agreement, severe problems found during an inspection can be a reason to pull out of the contract.
Recommended: The Ultimate Home Inspection Checklist
Negotiating a Sale Yourself
If you decide not to use a buyer’s agent, you and the seller will have to negotiate the sale and write up the purchase contract yourself.
You may also choose to hire a transactional agent or attorney who can help you write the contract and ensure it is done legally and in a way that protects your rights.
If you do decide to go it alone, there are a few things to keep in mind.
Making an Offer
Before making an offer on a house, check comparable properties in the neighborhood and see if the listing price is reasonable. Doing so can help you pin down what a reasonable offer is.
Consider offering less than the listing price. The seller may ask you to come up in price, but if you start too high, it’s difficult to negotiate down again. You can use the neighborhood comps you’ve researched as a negotiating tool.
Contingencies are certain conditions that must be met in order to close the deal. Some common contingencies are a satisfactory home inspection and appraisal.
If a home is appraised at less than the agreed-upon price, a lender may be unwilling to loan the buyer the money. In that case, the appraisal contingency can be an opportunity to negotiate the sales price.
A clear title is another common contingency. The title is a document that shows who has owned and now owns the home. The title company will make sure there are no liens or disputes associated with the property. If there are unresolvable issues, the clear-title contingency gives the buyer a way out of the contract.
It can’t hurt to ask for seller concessions, closing costs that the seller agrees to pay. A seller may agree to help pay for property taxes, attorney fees, appraisal inspections, and the like.
Even in a seller’s market, if the property has been sitting, possibly because the price was too high, a seller may offer a financial incentive to move the home.
Putting Earnest Money in Escrow
Your earnest money deposit is the money you submit with your offer to demonstrate your serious intent to buy.
The listing agent would usually put this money into escrow. But if you’re going it alone, it’s a good idea to engage a title company or escrow company to hold the money for you until the sale goes through.
If you give the money directly to the seller, they may refuse to give it back to you if a contingency causes the deal to fall through, which could mean suing to retrieve your cash.
Determining When You’ll Get Possession
It’s a good idea to be sure your purchase agreement specifies when you will take possession of the new house and receive the keys. Possession may take place immediately after closing, or the contract may give the seller time to move.
Buying a house for sale by owner can come with challenges and opportunities. It may make sense to engage a professional to help you negotiate, safeguard your interests, and deal with the documents.
If you’re in the market for a mortgage, check out SoFi’s line of fixed-rate home loans that may allow you to put less than 10% down.
SoFi also offers investment property loans.
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