A Guide To Buying a House for Sale by Owner

Most of the time, when you find a property listed online, you’ll also see the listing agent’s contact information. But every now and then, you may stumble across a home listed as for sale by owner (FSBO).

This means the homeowner wants to sell their home without the help of a real estate agent. Usually, this is done to avoid paying the listing agent’s commission for the home sale.

Just because a home is listed as FSBO doesn’t mean you shouldn’t consider it. But there are some things you need to be aware of before going into the home buying process.

Should You Buy a House for Sale by Owner? 

When deciding whether or not homes listed as FSBO are something you’d consider purchasing, here are some potential advantages and disadvantages to keep in mind.

Pros for buyers

• More options: Including FSBO homes in your search will broaden your search net, increasing your potential to find the right home. You may also face less competition, as not all buyers will consider these properties, and they can be harder to find.
• Direct communication: The seller will give you first-hand information about things like why they’re selling, what matters to them in the offer and any questions you have about the property. This can potentially streamline the negotiation process.
• Cost savings: According to data from the National Association of REALTORS® (NAR),  FSBO homes sold at a median price of $120,000 under the median sale price of homes sold with an agent.^[1] You also have the potential to save on real estate agent commissions.

Cons for buyers

• Seller inexperience: Because they don’t have a real estate agent advising them, the seller might not be aware of or understand the nuances of a real estate transaction, including necessary paperwork and disclosures. This could lead to unforeseen problems and delays.
• More complicated closing process: Because of the inexperience of the seller, important steps in the closing process – like the home inspection and home appraisal – can get more complicated. Without a listing agent to set up an escrow account for the earnest money deposit, that element can also fall to the buyer and their agent.
• Dealing with an individual homeowner: Because they’re the homeowner, they’re emotionally invested in the transaction in a different way than an agent would be. This can lead to personal and heated negotiations, and they might have unrealistic expectations about what their home is worth.
• Harder to find: Without an agent, the seller can’t list their home on the multiple listing service (MLS) without paying a fee. This means it could be harder to find FSBO homes.
• Seller’s reluctance to pay buyer’s agent commission: One reason to list a home as FSBO is to save on real estate agent commissions. Because of that, the current owner might be reluctant to pay the buyer’s agent’s fees, which are traditionally covered by the seller.

Where To Find Homes for Sale by Owner

If you’re still interested in purchasing an FSBO home, even after considering the downsides, you’ll need to know where to find them.

Can you still use a real estate agent?

Yes, you can still use a real estate agent when purchasing a home FSBO. A real estate agent can be useful in helping you handle the closing process, especially since the seller won’t have an agent of their own to facilitate things.

However, who pays the agent’s commission is more likely to become a negotiating point than in transactions where both the buyer and seller have agents representing them.

How To Buy a House for Sale by Owner

Below, we’ve broken down the process for buying a FSBO property into five steps.

1. Prepare your finances

The most common reason mortgage lenders deny loan applications is because the applicant’s credit score is too low. The next most common reasons are a negative element on the applicant’s credit history, followed by the applicant not having a big enough down payment saved.^[2]

Do your due diligence and make sure you’re in a position to qualify for the type of mortgage you’d like. 

2. Get Preapproved

Getting preapproved will make your offer stronger in the eyes of the seller. It will also expedite the underwriting process, potentially allowing you to close faster on the home.

3. Find a real estate agent

Just because the seller prefers not to use a real estate agent doesn’t make it a wise decision. We recommend using a real estate agent because they’re an experienced partner who’s concerned with looking out for your best interests. They can help you with everything from finding the property and handling the negotiations to facilitating a smooth closing process.

4. Find a property

Once you have your preapproval and your real estate agent, you’re ready to find a property. Whether by foot, internet or referral, there are a lot of different ways to discover your potential future home. But you can only find the right property if you put in the work to do so.

5. Make an offer

If you have a buyer’s agent, they’ll help you put together a competitive purchase offer and present it to the seller. If you elect to go without an agent, you’ll be responsible for negotiating directly with the seller yourself.

Regardless of who’s involved, whether or not your offer gets accepted will come down to factors like total price, the type of financing and time to close. 

Financing Options for Buying a House From the Owner

In theory, you have plenty of options for how to finance an FSBO home. But practically, you’re at the mercy of the seller. If they don’t like a certain type of financing, for example, a U.S. Department of Agriculture (USDA) loan, nobody can force them to accept it.

Below are the most common mortgage types. It’s possible to use any of them to purchase an FSBO home, but talk to the seller to see if they’ll refuse to consider a certain type.

• Conventional mortgage
• Federal Housing Administration (FHA) loan
• U.S. Department of Veterans Affairs (VA) loan
• USDA loan

Seller financing

If the seller has fully paid off their mortgage, or if they receive permission from their lender, it’s possible to buy the home directly from them. This is known as seller financing, or owner financing.

Everything from the interest rates to the structure of the loan is up for negotiation in these instances.

Final Thoughts on Buying a House for Sale by Owner

For many prospective buyers, the possibility of significant savings with an FSBO home is worth the extra hassle that comes with the logistics of the deal. After all, you’ll be making the monthly mortgage payment for years. You’ll only need to deal with the seller for however long it takes to complete the home sale.