In a competitive real estate market, it’s easy to get frustrated by condensed timelines and extra pressure to name your offer quickly, especially if you’ve taken the time to tour open houses and put in a few offers, only to be outbid over and over again. The more you feel like you’re bumping against invisible barriers going the traditional home buying route, the more you might be tempted by the occasional For Sale By Owner (FSBO or “fizz-bo”) yard sign.
On the one hand, you can pull right up to the FSBO property and have a personal conversation with the owner and, maybe, with hopes of skirting around some of the more drawn-out transaction processes, strike a deal.
However, on the other hand, even if you feel confident in your negotiation abilities and your understanding of real estate values in the Oakland, CA area, buying a FSBO home may not end up saving you the time or money you’re hoping for and could actually cause more emotional distress than if you’d pursued property with the help of a real estate agent. In the long run, you may regret dealing with a FSBO seller and have little legal recourse.
To understand why we strongly advise you to avoid buying a FSBO property without representation, let’s explore some reasons why you might think buying a FSBO home without a listing agent is a good idea. Then, we’ll review the cautions associated with this process, the value a real estate agent provides, and why you should work with a real estate professional every time you’re in the market for any new piece of real estate.
Potential Pros of Buying a FSBO Home
It’s easy to assume there will be less paperwork, less time and hassle, and maybe less money involved in a for-sale-by-owner home purchase since, on the surface, fewer people are involved in the FSBO sale. In reality, that’s not likely the case.
So, let’s dive into each potential pro of buying a home without a seller’s agent and lay the benefits out in the most transparent way possible.
Potential Pro #1: Save Money
One might assume that by cutting out the middle (wo)men, in this case the real estate agents, the entire cost of the home sale is reduced by amount of commission that would otherwise be paid.
If you are a strong negotiator and have a good relationship with the owner, you might be able to work out a purchase agreement for below market price without the owner ever having the property listed on the MLS (multiple listing service). Sometimes the FSBO seller just wants to get their property sold without dealing with real estate agents as well, so the potential to save money by dealing directly with the owner is plausible.
These two assumptions add up to savings in the tens of thousands of dollars – So, it’s a total steal, right?!
Potential Pro #2: Save Time
The FSBO process involves direct communication with the homeowner. If you can communicate without a seller’s agent, you don’t have to wait for your real estate agent to talk to their real estate agent and then find out what happened. You are personally involved in and aware of all stages of the negotiation, allowing you to gather information quicker and make immediate decisions.
In a FSBO transaction, since the parties involved primarily include the buyer and the seller, they are jointly responsible for pulling reports and drawing up the contract. With less “red tape” involved, one might assume this could expedite the FSBO sales process.
However, as the buyer in a FSBO home purchase, you have to ensure you’re getting a good deal, get all paperwork done correctly and on time, find a mortgage lender, and qualify for a home loan, then go through the closing process. You basically have to do the work of a real estate agent with none of the training, resources, or commission.
You’re an ultra-organized, super-connector though, so you can handle this at warp speed, right?!
Potential Pro #3: Save Paper
Having a direct conversation with a FSBO seller can help you discover the house’s quirks. Maybe one door gets stuck in the winter, or the upstairs heat shorts out if you raise the temperature too quickly. Those sorts of details, along with an understanding of the neighbors and neighborhood aren’t something the average real estate agent knows or even asks about.
Perhaps you’ve climbed around in the attic and peeked at the water heater and furnace, and you’re feeling quite comfortable with what the FSBO homeowner has shared.
With this information in hand, you might be tempted to skip the home inspection, comprehensive loss underwriting exchange (CLUE) report, or other important research that can tell the unbiased history of the FSBO home.
You might view this as another way to save time, money, and energy. Again, what could go wrong?!
The benefits to shopping FSBO properties seem promising at first glance. Saving time, money, and legal paperwork by communicating directly with the owners seems like an excellent plan. Unfortunately, the home sale process is more complicated than shaking hands and paying cash for the home purchase contract and many FSBO homes and transaction process may be a risk that aren’t worth it to most home buyers.
Real estate transactions come with a host of legal requirements and paperwork that a real estate professional understands through training, licensure, and experience. Although you may save a little cash off real estate agent commission by going the for sale by owner route, you might lose more money in the long run if you decide to pursue a FSBO home purchase.
Cautions of Buying a FSBO Home
Since you’re curious about buying a for sale by owner home, let’s explore the cons together. We’re going to call them cautions, however, since while a FSBO property can be a win-win for both parties, it’s often not, and too often these deals fall completely apart, resulting in more wasted time and money than anyone could have anticipated.
Caution #1: Costs More Money
Usually, FSBO sellers are trying to avoid paying realtor fees, so they act as their own real estate agents. By winging it on their own, the sellers don’t typically perform a property comparative market analysis to help establish their selling price and don’t generally front the cash for proper inspections and reports.
Often these FSBO sellers attach sentimental value to the home and base the sales price on that perceived value. So while malice isn’t typically a factor, many FSBO sellers accidentally overvalue their home without a listing agent involved to guide the home sale.
Without proper guidance and market insight from a real estate agent, your negotiations will start high. Even if your final purchase agreement is much less than what the FBSO sellers asked for in the original sales price, the risk of overpaying for a FSBO property is still high.
A licensed realtor can help protect your best interests by presenting both parties with proper market research and serving as the go-between so the parties’ interactions don’t get heated.
Caution #2: Takes More Time and Energy
Ask yourself this – What is my time worth and can I afford to miss a detail? Here are a few things you’ll need to do to make sure you’re making a good purchase.
- Find data that compares the listing price of similar houses in the same market to determine market value.
- Obtain all the information on the FSBO property, including deeds, permits, surveys, zoning, and other important documents.
- Double-check that the FBSO sellers aren’t in arrears on their mortgage and do not have a tax lien on the home.
- Find out if the FSBO property is in a flood zone or any dangerous area.
- Ensure with the title company that the title isn’t in dispute in a divorce or other ownership battles.
- Perform a home inspection to check for mold and other issues.
Proper real estate transactions take a lot of work. Real estate agents have access to inspectors and other professionals that allow them to evaluate a property fully. If you were working with real estate agents, they might not even show you the FSBO home if it’s not worth your time.
Even if you have a buyer’s agent, but your counterpart doesn’t have a real estate agent, the timeframe of the home sale might be excessive. Most FSBO sellers have never done this process before and can get overwhelmed easily by all the moving parts.
The more you have to backtrack, ask for documents to be completed properly, and wait for the seller to gather resources or agree to repairs, the more your closing date is pushed back, and your mortgage process and home loan are put on the line. All your reasons for avoiding a real estate agent can quickly compound into bigger problems.
Caution #3: Requires More Hassle
Although a homeowner knows their property best, they might not fully disclose problems to potential buyers. The sellers might tell you about minor issues, but they may withhold information about mold, structural damage, or other major problems.
If you don’t find this out before the closing date, you may end up paying thousands of dollars in repairs after you buy the house. Similarly, if you opt to skip a home inspection or trust the FSBO sellers’ statement, you could be stuck with a problematic property that you won’t be able to enjoy or sell without unexpected investments.
Many times people who purchase a FSBO home will have a buyer’s agent to help them through the process. If you decide to cut out the buyer’s agent so you don’t have to pay the agent fees, the odds are high that you’ll do far more work than anticipated.
Real estate agents know where to find this information and how to pull it with minimal effort. What might take you weeks may take them a day or two. Any hassle you might think you’re saving by going after FSBO sales will be gobbled up as you make phone calls, pull records, and request title paperwork while you perform your own due diligence on the FSBO home.
Why You Should Take Caution Against For Sale By Owner Homes
Let’s review the pros and cons of buying a for sale by owner (FSBO) home, shall we?
Pros, i.e., assumptions:
- Save Money – reduced agent fees and below-market listing price
- Save Time – swift purchase agreement and expedited closing process
- Save Paper – avoid unnecessary paperwork and excessive documentation
Cons, i.e., typical results:
- Costs More Money – may require a real estate attorney or insurance claims
- Costs More Time and Energy – FSBO sales require in-depth due diligence
- Requires More Hassle – potential buyer takes on all responsibility of the home sale process
As you can tell, the cons of buying a FSBO home outweigh the pros, and as tempting as it might seem, it’s best to have an agent on both the buyer’s and seller’s side to protect both parties best interests. A single mishap or mistake at any point in the entire process could not only cost the buyers tens of thousands extra, but it could postpone the closing date or worse, saddle the buyers with an unsavory undisclosed issue on their brand-new (to them) property.
Some might say it’s more acceptable to do a FSBO deal with someone you know, like a friend or family member. “What could go wrong?” you might ask.
In addition to setting yourself up for additional work, you’re putting your relationship with that friend or family member at risk. Any time money is involved, people start to read into interactions more deeply and tensions can arise, ruining what was a great relationship.
Real estate agents understand what a purchase contract entails and can navigate the process with minimal friction. They know the market value of the home, can advise you on fees such as closing costs, and help you make a deal in alignment with market rates in your area.
How To Find An Excellent Real Estate Agent For Your Next Real Estate Transaction
Buying real estate can be an intense experience, especially if the housing market is experiencing high activity or low inventory, both of which we’ve seen across the US during the past two to three years. Licensed real estate agents can help you navigate all the paperwork, complete the home-buying process with the least risk, and even obtain the best deal possible on your dream home.
Working with a buyer’s agent can help ensure someone has your back, steering you away from problem-ridden or overpriced properties. If you’re considering selling your home, a seller’s agent can help you avoid the problems inherent in a FSBO transaction, like potential undisclosed conditions, pricing and title issues, and inaccurate or illegal purchase contract language.
The good news? You’re in the right place to find an experienced, trustworthy real estate agent who’s ready to have your back through your next real estate transactions. Fill out the short form here to contact us, and we’ll be in touch shortly.
