The real estate term for sale by owner, commonly abbreviated as FSBO, simply means that the homeowner is attempting to sell their home without the assistance of a licensed real estate agent or broker.
The overwhelming majority of homes are listed by a licensed real estate agent. In 2018, the most recent year for which finalized data is available, 89% of sellers worked with a real estate agent to sell their home, according to the National Association of Realtors. And as we'll get into in the next few sections, there are some good reasons for and against hiring an agent, as well as for listing your home yourself.
It's also worth mentioning that for sale by owner and owner financing are two very different concepts. For sale by owner, or FSBO, means that a homeowner is selling their home without the assistance of a real estate agent. On the other hand, owner financing, or seller financing, means that the seller is willing to act as the mortgage lender on their home. While it isn't terribly common, a homeowner doesn't need to list their home FSBO in order to offer seller financing.
Pros and cons of selling your home without an agent
No financial decision is right for everyone, and selling your home yourself is no exception. With that in mind, here's a list of the pros and cons that home sellers should consider before taking the do-it-yourself approach.
Advantages of selling your home yourself
There are some good reasons, especially from a financial perspective, why you might want to sell your home without the help of a listing agent. Here's a look at the two most common motivations for going the FSBO route:
Lower closing costs
The most obvious advantage of listing your home without an agent is to save money. The standard real estate commission when selling your home is about 6%. Half of this typically goes to the listing agent and the other half goes to the buyer's real estate agent. By listing your home on your own, you can effectively cut the commission structure in half and make more money. On a $300,000 home sale, the typical listing agent commission is about $9,000, so there can be significant savings.
Doing it your way
By listing your home without an agent, you can control the process. You won't feel pressured into making any specific repairs or touch-ups, and you can negotiate as you see fit. While real estate agents have the best interests of their clients in mind, they also don't want to market a home forever, and the reality is that nobody will care about the sale of your home as much as you do. If you're not in a rush to sell, selling your home yourself could be the way to go.
Drawbacks of selling your home on your own
There's a reason that nearly 90% of home sellers choose to use a listing agent. While listing your home FSBO can certainly save money, there are some major drawbacks that could make paying an agent's commission well worth the cost. Just to name a few:
Lack of professional advice
This is one of the biggest, and most often overlooked, drawbacks of selling your home yourself. An experienced real estate agent can bring valuable advice to the table, especially when it comes to pricing your house right. The median final sales price of an agent-listed home is 99% of its listing price, so it's fair to say that real estate agents are good at knowing how to price a home correctly.
A real estate agent can also be a great resource for letting you know what repairs and improvements will help you sell your home quicker, and which ones aren't worth spending money on. Finally, a real estate agent can be a fantastic way to find a reputable home inspector, contractors, and legal professionals to help the sale process run smoothly.
It can be difficult to market a home if you aren't a licensed real estate professional. A multiple listing service, or MLS, is a centralized database of listed homes in an area, and in most cases you need to be a licensed agent or broker to post a home directly on an MLS. There may be some agents who will (for a fee) post FSBO homes on the MLS on behalf of sellers, and FSBO homes can be posted on sites like Zillow (NASDAQ: Z) (NASDAQ: ZG). However, the lack of an MLS listing can severely limit your exposure.
More work to do
When you decide to list your home yourself, you're committing to doing all of the work an agent would normally handle. In addition to marketing the home and analyzing comps to determine the right listing price, an agent also handles showings, photographing your home for a listing, holding open houses, and more. You'll have to answer questions from buyers and their agents, determine whether buyers are qualified, and handle the negotiation process yourself.
To say that real estate paperwork can be complex is a massive understatement. When I closed on my last investment property, there were more than 100 pages of documents I needed to read and sign. Learn what paperwork is required in your state (it varies), and make sure you understand your state's required disclosure laws, a commonly overlooked part of the process in FSBO transactions.
I mentioned that nobody will care about your home sale as much as you do, and that can work to your disadvantage as well. Buyers will complain about features of your home you love; buyers will insult the design features of the bedrooms where your children sleep. The point is that a real estate agent can think objectively and leave emotion out of the process when dealing with prospective buyers -- the same might not be true for you, especially if you've lived in your home for a long time.
Pros and cons of buying a home that's for sale by owner
Most homes for sale are listed by licensed real estate agents or brokers. When you're buying a house, you may find some listings that are for sale by owner, or FSBO. To be sure, buying a home from an owner with or without a listing agent is likely to make less of a difference than selling a home with or without an agent, but there are still some things to know going in. With that in mind, here's a quick guide to the pros and cons of buying an FSBO home.
The big advantage of buying a home that's for sale by owner
As mentioned, the primary motivation for most sellers who list their home on their own is to save money. Well, this is a primary motivation for buyers as well. It's reasonable to expect that some of the commission savings could be passed on to you, especially if you don't bring a buyer's agent to the table and save them the buyer's agent commission as well.
Drawbacks to buying an FSBO home
Buying a home that's listed by an owner isn't right for everyone and can be especially challenging if you don't have a real estate agent to guide you. Here are a few of the drawbacks you might encounter with this approach:
This is an especially large concern if you don't have an agent either. Real estate transactions can be very complex, and it's helpful to have at least one person involved with knowledge of paperwork, legal requirements, and what needs to happen when. If there is no agent involved in the transaction at all, the paperwork process can be daunting.
No agent expertise
Just as a seller can benefit from the advice and knowledge of a real estate professional, so can a buyer. An agent can be a valuable resource to help you determine how much you should be willing to pay for a home and can be an objective voice in the negotiating process.
The Millionacres bottom line
Selling your home without an agent or buying a home listed for sale by owner can save you significant money, but it isn't without its drawbacks. Before deciding to pursue a home purchase or sale without the help of an experienced real estate professional, it's important to weigh the pros and cons to determine whether the savings will be worth it.
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