What is the meaning of for sale by owner?
For sale by owner a.k.a FSBO is a term used on a house that the owner is selling without using a real estate agent. When homeowners are selling their properties, they can either use a real estate agent or sell their houses without using agents. A house listed as for sale by the owner means that there is no agent being used on the sale.
A seller who uses this technique avoids a lot of fees and charges. For example, the owner of the house will not pay the seller’s agent commission fee. At the same time, they can also avoid paying the buyer’s agent commissions (if the buyer is not using an agent).
Drawbacks of for sale by owner properties
Sellers choose to list their properties as for sale by owner because they want to save money on commissions. Without using a real estate agent, they save money on seller’s agent commissions. However, someone who will buy the house will probably bring an agent. As a result, the seller will still pay the commission for the buyer’s agent.
The good news is that the commission percentages could be negotiated since there is only one agent for this transaction.
The house valuation tends to be a big issue when sellers avoid using agents. This is because it takes a lot of experience and comparisons when deciding the true market value of the house. Brokers use a lot of data and techniques such as comparables, the fair market value of the property, etc., to come to the actual value of the house.
Since many sellers don’t have enough knowledge in property value estimation and no access to market date; properties being sold by owners tend to be overvalued. This leads to less interested buyers and higher cumulative days on the market for these properties.
The other bad side is that most of these properties will not appear on many listing websites since they do not support real estate agent services. At the same time, they do not appear in multiple listing services (MLS) which is a database of properties for sale. As a result, sellers do not get enough exposure.
In addition, when you sell your own house without a real estate agent, you must take care of the paperwork and follow legal steps during the transaction. This can be a hectic job for inexperienced sellers.
Should you buy a for sale by owner house?
Buying a for sale by owner house can be approached like buying any other houses as long as you use a real estate agent. Your agent will still serve you the same way regardless of the fact that the house is being sold by its owner.
However, if you decide to buy a for sale by owner without a real estate agent, you will be heading into a very complicated and bumpy road. This means that you must do everything your agent was supposed to do.
In order words, you must go through the mortgage approval process yourself, take care of due diligence and assess the property, sign all paperwork, do the market analysis and determine the true value of the property, go through negotiations, make sure that you are not being scammed, and much more.
This is a very hard task and requires a lot of experience in real estate. If you are a beginner or don’t know every step of the process, never buy a for sale by owner property without a real estate agent.
