How to buy a house that’s for sale by owner

While many home sellers prefer listing their properties with the help of listing agents, others like to work directly with prospective buyers. Homebuyers who go the for-sale-by-owner (FSBO, pronounced fizz-bo) route can avoid agent fees by taking this more straightforward option, but it’s important to know that savings aren’t guaranteed when you buy directly from the owner.

Can you use an agent for a FSBO sale?

In a typical home sale, real estate agents represent both sellers and buyers — but a FSBO seller doesn’t have an agent. Whether you choose to hire your own real estate agent is up to you.

In a traditional home sale where both parties have real estate agents, the combined commissions will be about 6% of the sales price. So, if you buy a home for $300,000, the real estate agents will split about $18,000 of that before the seller is paid.

FSBO sales give both parties flexibility to negotiate while still getting what they want.

If you also choose to not use an agent in a FSBO sale, you can avoid paying any real estate commissions at all. There’s generally no legal requirement to go through an agent, so you and the seller can negotiate the sales price and other relevant matters directly.

If you want to split the difference, you can use an agent for a FSBO transaction — you’ll just have less wiggle room in negotiations because the purchase price would have to include your agent’s fees (about $9,000 in the example above). However, some FSBO sellers choose to pay a 2% or 3% commission to the buyer’s agent to increase their chances of finding a buyer.

It’s also important to note that if you’ve already begun working with an agent and signed an agreement with them, you’ll need to see that contract through.

Keep in mind that working with an agent can make the process significantly simpler, especially for first-time homebuyers. A buyer’s agent can help find the best homes for you, negotiate your price and demystify the closing process.

5 Steps to closing on a FSBO home

The steps involved in buying a FSBO property aren’t too different from the typical homebuying process. Here’s a breakdown:

1. Get preapproved

The homebuying process often begins with mortgage preapproval, which typically lasts up to 90 days. You’ll want this approval before you start visiting FSBO homes to show sellers you’re a vetted buyer — some sellers will only show their homes to potential buyers who’ve been preapproved. The seller may also request that you include the preapproval letter along with your offer.

2. Decide whether you want to work with an agent

If the seller you’re working with is an amateur in real estate procedures — especially if you're also new to the process — going without an agent can be risky.

If you do choose to work with an agent, it’s a good idea to find one with experience in FSBO transactions. You want a reliable and professional agent who can help you find a FSBO home that best fits your needs.

Make sure to discuss commission before hiring an agent so you understand the fees attached. Then confirm that the buyer’s agreement specifies these commission fees and the circumstances in which you will or will not pay them.

3. Find a home

You may need to dig through some off-market homes to find the best FSBO options for you. Though there are plenty of options on various listing platforms, some owners just post a sign in their yard (this could be due to a lack of marketing know-how or simply their preference).

If you’ve chosen to work with an agent, they can help schedule showings — otherwise, you’re on your own.

4. Make an offer

Once you’ve found the right home for you, it’s time to prepare an offer. The offer is a type of contract that details the amount you’ll pay for the home, the down payment and the terms of the sale. If you don’t have an agent, you can appoint a lawyer or a title company to manage the escrow.

5. Close on the home

The last stage of the homebuying process is closing. At this point, you’ll complete the requested documentation from your insurance company and mortgage lender. You can sign all the paperwork and pay for the closing costs after you finish the title work and get final approval.

Pros and cons

While some prefer the seemingly straightforward nature of for-sale-by-owner transactions, there can be some downsides in terms of logistics and costs.

Bottom line

Buying a FSBO home comes with specific challenges. Dealing directly with an amateur seller can leave both parties floundering, especially first-time homebuyers. If you find the right FSBO property for you, though, you could save a good amount of money by avoiding agent fees. This route can also help you close faster.

It’s important to weigh the pros and cons of buying a FSBO property before jumping into the process. If you’re an experienced buyer and know the ins and outs of real estate transactions, this option might make more sense for you.