The Home 
9
comments

Pitfalls of Buying “For Sale By Owner”

Email  Print Print  

In a hot market, you’ll see a lot of homes being sold by the owners themselves instead of with the help of a selling agent. I thought about looking at For Sale By Owner’s (FSBO’s) because I figured I could get a part of the break the seller’s were getting for not listing it with an agent. But the more I thought about it, the less I liked the idea because there are very clear and obvious downfalls with this strategy. They essentially revolve around the fact that no matter what, neither I nor the seller will have the experience and knowledge of a real estate professional. The transfer of a property from one party to another is not an easy process and if you don’t know what you’re doing you can mess it up big time.



As a buyer, there is zero incentive for you to seek out a FSBO without a buyer’s agent. In theory, you don’t pay the commission, the seller does; but as is any “tax,” the commission is built into the listing price. (If there was 0% commission, the price of the property would be lower, reflecting this difference) The problem with this theory is that FSBO’s are typically listed at around the same price as other agent listed homes, so going with a FSBO doesn’t save you money, it only saves the seller money.

The buyer’s agent is a powerful person to have on your side and will be reluctant to show you a FSBO because the commissions will be very low or non-existent, so for the purposes of this discussion I’ll assume purchasing a FSBO will be done without an agent. So why’s the agent important for you? The agent will also have contacts with lenders, title agencies, and other people who may help you in the closing process. While this isn’t necessary, if you have a special situation they may be able to help you figure out a solution. I wouldn’t consider an agent’s contacts as something to pay a premium for (so to speak) – you can find a lender, title agency, and others on your own – but it’s something to consider.

The single most important thing about the buyer agent, especially if you haven’t ever purchased a home, is they will typically draft a boilerplate offer letter and then put in your specifics. They will be able to translate most of the fine print legalese so you can understand what you’re signing. If you’re a lawyer, you probably won’t need this (though if I were a lawyer, I’d rather spent my time litigating and not reading this drudgery) but the rest of us regular folks will. You can get yourself into a tough spot if you make a mistake on the contract and you’re bound to it.

Finally, if you’re scouring the For Sale By Owner websites then you’ll probably notice the databases aren’t particularly well populated. I looked in some Maryland zip codes at some of them and the selection really isn’t that great. Not having the MLS (Multiple Listing Service) databases and their seemingly limitless databases of homes is an incredible plus.

Honestly, I see no reason for a buyer to ever purchase a home without a buyer’s agent. That being said, I don’t know how keen buying agent’s are to show you a FSBO – I’d guess they don’t like it at all. That leaves me to wonder why buyers would ever consider For Sale By Owner. You are looking in a smaller pool, dealing with legal contracts, and after all is said and done you’ll have committed to a six figure debt – why wouldn’t you want a professional on your side?

[As an aside, here's a great article on FSBO's for Buyers from the WSJ.com]

{ 9 comments, please add your thoughts now! }

Related Posts


RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

9 Responses to “Pitfalls of Buying “For Sale By Owner””

  1. Hazzard says:

    I purchased my home from someone without an agent on either side. I did have the luxury of a good friend who was a broker. He gave me all the electronic forms to fill out and gave me a few tips. When it was all said and done, I wrote up an offer that was fair, but I also:

    -Negotiated a lower price than current market value by agreeing to split the commission the buyer would have paid. My rationale with the buyer was that I was taking a risk, and so was he. The buyer agreed to split the potential commission.

    After buying the house, I realized what a great deal I had gotten. I bought the house for 20K below market, in fact the appraisal came in significantly higher when I got my loan. All this being said, I would say that it was still stressful. Once we agreed on the sales contract, it got a lot easier. We both took the documents to escrow and it was fairly smooth sailing from there.

    Hazzard

  2. jim says:

    You do save a considerable amount of money going with a FSBO but if you didn’t have a good friend who was a (good) broker, it’s incredibly daunting (especially to a first time home buyer). The money saved is in the reduction of the commissions and how much the seller is willing to pass along to you. In your case, I don’t know how much $20K is, as a percentage of the value; but I do know anytime you can save $20K you’re coming out a winner. :)

    I’m glad the first comment is a positive FSBO because it’s definitely an option, just a stressful one without the proper guidance.

  3. Illusion-of-the-Mind says:

    Jim,

    I’ve never bought a FSBO, but if you find a great home, priced right, why not !! Protect yourself by getting a certified home inspector to inspect and bring a (3) general contractors to look at any repairs that need to be completed after receiving your home inspection.

    Use the inspectors report to shave off thousands of dollars of legitamite, proven deficiencies. Have a Real Estate atty review the contract, and proceed.

    I like the idea of getting the Owner to split the difference with you as-if-a-comission was being paid.
    It’s a win-win ( and no middle man)!

  4. Mike says:

    Whether an FSBO or agent assisted sale, always have a real estate lawyer review your contracts. Real estate agents are not lawyers and few truly understand their boilerplate contracts. I have never paid over $300 in legal fees for reviewing contracts and it is money well spent. If you run into a legal problem after the sale, an agent has no liability for problems with the contract.

    If your a considering an FSBO, call several real estate lawyers and find out how much it will cost for them to coordinate the entire transaction. You will likely be surprised how much cheaper and more efficient the who process is.

  5. Rose says:

    No one saves the commission when selling and buying a FSBO. Think of all the inspections, property disclosures (by law), the time spent on all the sundries of negotiating and closing on a property. The seller thinks he is saving the commission, and the buyer thinks he is. So who is right? Neither.

    You are paying top dollar for a house but know nothing about it. Skipping any part of a procedure for purchasing could harm you in the long run.

    Why take a chance? You do not save any money, you just got the deal an agent would have and wouldn’t have had to do any of the work to boot.

    I think it is nuts to not use an licensed Realtor! As a buyer, you do not have to pay them anything unless you agree to it. As a buyer, you are open to some very dangerous litigations withoput a map, whereas the seller holds all the cards.

  6. rob says:

    when you wrote, “Honestly, I see no reason for a buyer to ever purchase a home without a buyer’s agent” it is clear you are stupid.

    I just had 2 offers on my FSBO. One couple had a realtor that required 3% — the other couple did NOT have a realtor. Guess which one got the house? The 2nd.

    Realtors just add expense. With the internet, tax records online, a good real estate attorney a buyer can save themselves money. Lots of money.

    Let me write again… REALTORS JUST ADD EXPENSE FOR THE BUYER!!!

  7. jf says:

    I bought by house as a FSBO without a broker. The sellers were great, and at the time (2005), I paid a very reasonable price for a house that was in my price range and didn’t require 100K of work to bring it up to date.

    I will say that buy the time I made the offer on this house I’d been looking for almost a year, using a buyer broker and had a pretty good sense of the market. I was also getting the sense that my broker didn’t have the “ins” that a broker who represent both buyers and sellers would have.

    AND the sellers were buying the place next door, which made it unlikely that they would be jerks. They weren’t.

    At the beginning of my search I made an offer on another FSBO. The seller had another offer fall through and was less than forthcoming about the reason. When I had the house inspected, the radon count that was off the charts. Needless to say, I did not go through with the purchase.

    Bottom line: buying directly from the owner can be a very good experience, with some knowledge of the market and the right sellers.

  8. Frank says:

    Typical real estate agent response from “Rose”. I can appreciate they are trying to protect their racket, but it is a racket.

    “You are paying top dollar for a house but know nothing about it. Skipping any part of a procedure for purchasing could harm you in the long run.”

    What don’t I know about it? Does an agent perform the home inspection for me? No, I have to hire a home inspector to tell me what I need to know. That 3% the seller won’t be paying you could come off the price of the house to pay for the inspection plus repairs.

    Realtors aren’t lawyers, so I don’t know why I would want to rely on one for contracts.

    Realtors aren’t bankers. In fact, I’ve seen too many examples where realtors push buyers into loans with one of their buddies that aren’t even that good. Everyone getting a piece of the action except the buyer.

    I can do pricing research on my own. It is 2011, there is a ton of transaction price and listing price information on the internet. I don’t need the realtor mafia to disclose me their secret information anymore.

    Next time I sell, I will go FSBO. I’ll offer 1.5% to an agent who physically shows up. The price of the house will probably be $350k. Can you honestly say $5k for showing a house is unreasonable? An attorney will handle the transaction for me at a fraction of the 3% I’d pay to a selling agent.

    The home I’ll buy will probably be about $450k. I am not paying someone $13,500 to show me places I can find online and go check out myself. I can redo the landscaping for that money.

  9. Dennis says:

    FSBO sellers are incredibly naive, and any buyer who buys a house without a real estate agent is just plain stupid. Eighty eight (88) percent of FSBO sellers end up listing their homes with a licensed agent after they discover the pitfalls selling alone. Buyers who think they can get a better deal from a seller because of the absence of a commission are fooling themselves. That line of thinking is absurd. It takes all kinds of people to make up the world. In the realm of home buying and home selling, there will always be people who swear by going with FSBOs. All the power to them…they’ll need it. As a licensed real estate professional, I laugh at them and move on to clients who are sophisticated enough to know better.


Please Leave a Reply
Bargaineering Comment Policy


Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2014 by www.Bargaineering.com. All rights reserved.