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How Does For Sale By Owner Work? A Complete Guide For Sellers And Buyers

Molly Grace7-Minute Read
November 23, 2021

For faithful DIYers, there’s nothing more satisfying than completing a job on your own and saving the money it would have cost to hire a professional.

It’s this feeling of satisfaction that drives many of these same people to sell their own homes without assistance, but how exactly does this work? Let’s take a look at how the for sale by owner (FSBO) process works for home sellers and prospective buyers.

What Does FSBO Stand For?

The acronym FSBO refers to “for sale by owner,” which happens when a homeowner sells their property without the help of a real estate agent. This process slightly differs from the traditional method of selling a home through a dedicated listing agent.

One of the main reasons sellers choose to go the FSBO route is to try to maximize their profits when they sell their homes. Real estate agents are paid commission fees on the homes they sell; so if you forgo the real estate agent, you get to keep that money for yourself.

However, there are a lot of benefits that come with hiring a professional real estate agent, and going without one can actually end up costing you more in the long run. We’ll discuss this more in-depth further down.

Another common reason sellers choose FSBO is that they often already know the person they’re selling the home to, so they don’t need a seller’s agent to help them market the property to attract home buyers.

Benefits Of Listing As For Sale By Owner

When a home sale is completed, it’s typically incumbent on the seller to pay the commission of both the buyer’s agent and their listing agent. The total commission is typically around 6% of the sale price, 3% of which goes to the buyer’s agent, with the listing agent getting the remaining 3%.

This commission comes out of the seller’s proceeds from the sale. So if you sell your home for $250,000, $15,000 of that goes to the agents involved in the process.

This commission is why many FSBO sellers decide to sell the home themselves rather than use a listing agent. Though you’ll likely still have to pay the buyer’s agent’s commission, you’ll cut in half the amount of money you have to part with.

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Risks To Consider About FSBO Listings

If you prefer a more hands-on, do-it-yourself approach, you may like an FSBO sale, where you can control every aspect of it, from pricing to staging to contract details.

However, the FSBO route also comes with a lot of risks. Consider this: though making more money is often the goal of FSBO sellers, they often net less than those who work with an agent. According to the National Association of REALTORS®, FSBO homes sold at a median of $217,900 in 2020, while agent-assisted homes sold at $295,000. Even after the median agent-assisted seller pays a 6% commission, they’ll still net $277,300.

Why do agent-assisted homes sell for more? That’s the benefit of having a professional do the work for you.

Real estate agents receive training on how to effectively market and sell homes. They know how to price homes to sell, how to stage a home for showings, how to vet potential buyers, how to negotiate contracts and how to navigate your state’s laws regarding real estate transactions.

Because it’s their job, real estate agents can give each home sale they’re responsible for much more attention than the average FSBO seller, who likely has a full-time job or other responsibilities taking up most of their time. Professional real estate agents prioritize answering calls or emails from potential buyers and coordinating showings or open houses.

These things can make a big difference when it comes to selling your home for its full market value.

How To ‘For Sale By Owner’ Your Home

If you think you have what it takes to successfully sell your home, here’s what that process will typically look like – keep in mind, however, that the requirements for selling a home vary a bit by location. You may have to take additional steps not mentioned here, depending on what state you live in.

Set The Asking Price

One of the first and most vital things you’ll need to do is decide your home’s selling price. A home’s asking price should be based on how much the average selling price is for similar homes in the area.

When a professional agent prices a home, they usually create a report called a comparative market analysis (CMA), which looks at the sale price of recently sold homes similar to yours. These similar homes are known as comparables, or comps, and they’re the key to correctly pricing your home to sell.

When pricing your home, do lots of research and find as many comps as you can to get a full picture of how much homes like yours are selling for. Only look at houses that have recently sold, as a home’s listing price can differ quite a bit from what it ends up actually selling for.

Once you’ve found some solid comps, you should have a better idea of your home’s market value. If you have any additional features that make your home stand out from other nearby properties (maybe you recently upgraded the kitchen or installed brand new windows), you can adjust your price to reflect that. Just be careful about overestimating how much value your upgrades add.

To get an idea of how much your home is worth, check out the Rocket HomesSM Property Report tool.

Market And Advertise The Listing

Thanks to the internet, attracting prospective buyers to your FSBO home is easier than ever, with endless online resources for sellers looking to quickly market and sell their homes.

When you sell FSBO, it’s crucial to get the word out about your home. Since most buyers are conducting at least part of their home searches online, it’s vital that you list your home on all the sites shoppers are searching on and make your listing as attractive as possible. This means having great photos of the house and, potentially, video tours of your property.

Host Tours And Appointments

When you choose not to work with a real estate agent, you’ll be the one responsible for making sure that buyers get to see your home in person.

First and foremost, you should keep your phone on you and make yourself available to answer calls from potential buyers. The more interested buyers you can give showings to, the more likely you will find a buyer who wants to make an offer.

You should also consider creating a flyer to give to anyone who tours your home. Include basic information about the house and some photos highlighting its best features. However, be sure to take proper safety precautions when showing your home.

Be careful about what information you share and put away personal belongings when people are visiting. Only allow buyers accompanied by a licensed real estate agent to tour your home.

When it comes to safety in the post-pandemic world, you might also consider wearing a mask and having masks available for prospective buyers when they come to view your home so everyone feels more comfortable.

Negotiate And Finalize The Offer

Once a buyer has submitted an offer, you can reject it, negotiate it or accept it as written.

You should only consider bids submitted with either a mortgage preapproval letter or proof of sufficient funds to purchase in cash. This addition shows that the buyers are serious and able to complete the sale.

If the offer is lower than expected, you can always negotiate for a higher price. Be cautious about getting emotional about your home’s sale price. It’s natural to feel a little defensive if a buyer tries to lowball you, but you should try to remain as objective and realistic as possible.

At this stage, it might be a good idea to hire a real estate attorney. Selling a home is a legally regulated process that involves a lot of paperwork and certain disclosures. Having a lawyer on your side who can ensure you’re following your state’s laws and that your interests are represented in the contract can potentially save you a lot of money and headaches down the road.

How To Buy A House For Sale By Owner

Buying an FSBO property isn’t much different from purchasing through a seller’s agent, but there are some things you should keep in mind. First, you and your agent will be directly communicating with the homeowner, which can speed up the negotiation process. You will also likely receive more information about the history of the house as the current owner has been residing in it personally. This can be especially helpful for first-time buyers who may have numerous questions about homeownership.

While these differences can be beneficial, there are also drawbacks. FSBO homes are sometimes listed at a higher price than what would be expected. It can also be difficult to convince the seller to make repairs to their home. Most FSBO sellers are trying to keep their costs down, so many may not want to spend additional money on fixes.

To give you a better idea of the FSBO buying process, here are the main steps you can expect to follow:

  1. Get preapproval from your mortgage lender. Sellers will want to know you have the means to purchase their home and the best way to prove it is with a verified preapproval letter.
  2. Find a knowledgeable buyer’s agent. Even though the seller is forgoing the help of a professional, doesn’t mean you should, too. You might want to look for a real estate agent who has experience with FSBO homes.
  3. Search for the perfect home. Most FSBO houses won’t be listed in the multiple listing service, so you may need to look for homes on a FSBO-dedicated platform, or you can try sites like Craigslist.
  4. Submit an offer. Once you find a home, work with your agent to craft an attractive bid. Consider what contingencies you want to include or if you want to make an earnest money deposit.
  5. Prepare for closing. After your offer is accepted, you will need to prepare to pay your down payment and closing costs. 

The Bottom Line

Selling your house on your own can be challenging. Though it gives you control of every aspect of the marketing and selling of your home, it also comes with a lot of responsibilities. If you’re not careful, you could end up selling your home for less than it’s worth.

FSBO home buying can seem just as daunting, but it doesn’t have to be. Make sure to first consider all the pros and cons, and ensure that you’re able to put in the effort needed to successfully find and purchase the perfect property for you.

To learn more about the role professionals play in the home selling and buying process, check out our article on real estate agents.

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Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.