What Does For Sale By Owner Mean?

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What Does For Sale By Owner Mean?
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What does for-sale-by-owner mean? On its face, the term is a bit misleading, since all homes are technically sold by the people who own them. In the real estate context, however, for sale by owner has a very specific meaning. A for-sale-by-owner, or FSBO, home is one sold directly by the homeowners themselves without a real estate agent acting on their behalf.

In 1981, about 15% of all home sales were for-sale-by-owner properties, but that number has steadily decreased. In 2018, the number of FSBO sales fell to just 7%. Going the for-sale-by-owner route has advantages and disadvantages for both the buyer and the seller, so it’s good to know what you’re getting into with FSBO homes.

What does for sale by owner mean?

Simply stated, for sale by owner means that the homeowner does everything that a listing real estate agent would typically do for them—things such as listing, marketing and showing the home, negotiating a sales contract, and shepherding the transaction to closing. When you buy an FSBO home, you or your agent deal with the homeowner instead of a listing agent.

Most of the time, homeowners who choose FSBO do it to save money on real estate commissions. In many for-sale-by-owner transactions, the buyer was a friend or relative of the seller, making the negotiating process easier.

But selling a home is more than just agreeing on a purchase price; it’s a complex legal transaction—and that means both parties are exposed to risk. You need to know exactly what’s involved before you decide to sell your house yourself or buy an FSBO home.

How does for sale by owner work?

In an agent-managed home sale, more work goes on behind the scenes than sellers and buyers realize. Aaron Bowman of Bowman Realty Group in West Hartford, Connecticut, described the seller’s job like this:

Correctly pricing the home: Most homeowners use real estate websites to arrive at an asking price, but these sites often lack data and context to arrive at a realistic market price. “Zillow estimates can be way off,” Bowman said, with homes under- or overpriced by as much as $15,000. Home data such as mortgage information, deed history and property details can help you find the right price for your home.

Staging the home: Staging is the process of making your home as appealing as possible to a wide variety of buyers. It’s more than just cleaning, painting and making minor repairs. Professional home stagers create a welcoming ambiance by carefully arranging furniture and decorations, adding cozy accent pieces, and showing off your home’s most attractive features.

Staged homes sell faster than unstaged ones, and Bowman said they usually attract higher offers. “Most homeowners don’t know how to stage a home and it’s really important, especially if the home is empty,” he said.

Preparing photo and video presentations: Most buyers form their first impression of your home by the photos and videos you include in your listing and marketing materials. Low-quality photos won’t get the job done, especially in competitive real estate markets. “Most FSBO sellers are trying to save money, so they use their smartphone to take pictures. Now these pictures have a place, but they shouldn’t be the first thing buyers see,” said Bowman.

He also stressed the role of video in today’s market. “Video is super important—people consume more video now than ever before. A one- to three-minute video of your home and surroundings is a must,” he said.

Marketing the home: A real estate agent has access to the multiple listing service, or MLS, which is a way real estate agents share information about available homes. Since most buyers work with agents, if your home isn’t listed on the MLS, it won’t be seen by a huge part of your market.

Agents are also skilled at digital marketing—they know how to promote your home on websites and social media. “The average homeowner doesn’t know how to market a home online, especially on social media. Learning the ins and outs of each platform can be a challenging task for them to take on when they are getting everything else ready to sell the home,” Bowman said.

Screening potential buyers: Not everyone who arranges a showing or attends an open house is a potential buyer, cautioned Ron Humes, a homebuilder and real estate broker in Lexington, Kentucky. “Since you will be showing the home to buyers yourself and your time is valuable, you want to ensure you don’t waste your time with tire-kickers,” he said.

Humes said some people tour homes even though they’re not serious about buying anytime in the near future. Others haven’t begun the mortgage qualification process, so they may not be able to back up an offer. “Be aware that prospective buyers may take offense if you question their financial abilities or they may not want to share their personal financial situation with you,” he said.

Negotiating a clean closing: Negotiating a home sale is a complicated back-and-forth transaction: The seller wants a fair price and the buyer wants to make sure the home they’re buying is safe and represented accurately. There will be inspections, disclosures, appraisals and counteroffers along the way.

“The ultimate goal when selling your home is to obtain a solid, clean offer at an acceptable price and cruise on through a trouble-free closing with no worries and a clean conscience. What happens when you hit a snag?” Humes said.

Humes also noted that a litany of other issues, including fraud, disclosures and documentation errors, are all things that may trip up a prospective FSBO seller.

FSBO pros and cons

There’s no skirting the fact that for-sale-by-owner transactions take a lot of time, but for a digitally savvy homeowner who can attract qualified buyers, there are definite rewards.

Pros of for sale by owner

Daniela Andreevska is the digital marketing director at Mashvisor, a real estate analytics company. She says the savings on real estate commissions is the most significant advantage for FSBO sellers. “Agent commissions are paid by the property seller and amount to 6% to 7% of the sales price,” she said. “That’s a considerable amount of money.”

But she says there are other advantages that weigh in favor of selling your own home:

You have control over the process. Agents are motivated to sell as quickly as possible, so they may pressure you to conduct more showings and open houses than you’re comfortable with at times that aren’t convenient for you. They may also counsel you to take the first offer that comes along. With FSBO, you control the tempo: “You don’t have to rely on an agent—you decide how quickly to move at each stage of the sale,” Andreevska said.

You know what’s special about your home. No one knows your home as well as you do, Andreevska said, so that means you know which features to emphasize in your marketing materials and to prospective buyers. When you meet with buyers, you can help them decide if the house is a good fit. “You’re emotionally engaged with the sale and will put the most effort into marketing your home and showing it in the best possible way,” she said.

Technology levels the playing field. In the past, most buyers had to work with an agent to see available homes, but today, many start the process with sites such as Zillow. That means you can reach a wider audience of buyers and take advantage of online tips and tools to show off your property. Online property search services may also help you get a sense of what comparable homes in your area are selling for. Selling yourself is still a major commitment, but you’re not without available resources to simplify many tasks.

Cons of FSBO

On the other hand, anyone considering an FSBO sale should be fully prepared for the potential pitfalls.

Finding a buyer can take a lot longer. Without access to the MLS, your home won’t be seen by the majority of homebuyers in your area. Agents also use lockboxes to make it easier to show your home, allowing them to show the home whether you’re there or not. With FSBO, you have to coordinate showings with the buyer yourself. If you have conflicting schedules, it could take days to arrange a visit and the buyer could lose interest.

You open yourself up to personal and financial risk. Humes pointed out an often-overlooked piece of the FSBO process: the risk of theft or injury by allowing strangers into your home. Although real estate agents typically don’t use a formal screening process for buyers, most require them to show proof that they’re financially prequalified for a mortgage, and the agent always accompanies the buyer on showings. It’s less likely that an agent-represented buyer is viewing your home with the intent to steal from, scam or harm you. But if you’re entertaining buyers without agents of their own (whom you may not have thought to pre-screen), you’re opening yourself up to risk without anyone on your team to back you up.

“While your wasted time is certainly a risk, it is minor when compared to the gamble you take with your safety. Do you have a way to protect yourself and your family from theft or personal harm?” cautioned Humes.

You may not get the most favorable contract. A seller’s agent works on your behalf, so he or she negotiates for the most advantageous terms. An agent knows what’s realistic in terms of down payments, repairs, inspections, allowances and closing schedules, and can push back against the buyer’s agent’s requests when necessary. Unless you’re very familiar with local regulations and common practices in your real estate market, you could agree to unnecessary inspections and repairs or make unreasonable allowances for appliances, fixtures or flooring.

It’s easy to run afoul of legal requirements and deadlines. Once you sign a sales contract, you’re locked into the conditions. That means addressing the contingencies in the contract on the agreed-upon schedule, obtaining inspections and managing the legal paperwork needed for closing. If you mess up, you could be in breach of contract and potentially on the hook for damages.

Of note, many real estate agents believe sellers get a higher sales price when they use an agent, but this may not necessarily be true. The National Bureau of Economic Research studied the sales prices of FSBO homes compared to those sold by real estate agents and discovered there was no discernible difference after taking into account variations in square footage, location and other property factors.

For-sale-by-owner transactions typically involve less-expensive properties such as condos and manufactured homes; these are six times more likely to be FSBOs than single-family homes. This fact may explain the general belief that FSBOs have lower sales prices than agent-sold homes. If you do your homework and price your home appropriately, you could do just as well selling your home yourself.

Sometimes the risk is worth the reward

Real estate commissions on a $250,000 home could easily hit $15,000—and that’s before any staging and repairs your real estate agent recommends. If you’re on the edge between turning a profit or taking a loss on your home, FSBO may make a lot of sense.

Humes noted it doesn’t have to be all or nothing in an FSBO transaction. If money is the issue, he recommends listing the home yourself but welcoming buyers’ agents. “Telling buyers’ agents that they are welcome to show and sell the home for a commission should save you the listing agent’s commission while placing the burden of the transaction on a professional that can bring contracts, resources and protection.”

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Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.

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