10 Tips When Purchasing a Home For Sale By Owner

Homes for sale by owner (“FSBO”) only account for around 10% of all homes sold annually and are close to an all-time low.

One reason for this is that many real estate agents nowadays offer a “no sale no fee” service. Another reason is that many homeowners and sellers aren’t familiar with the details of the FSBO sales process and tend to rely on agents to help them through this.

Yet if you do find a FSBO home which meets your requirements, whether you have a buyer’s agent acting for you or not, below are some great tips about things to look out for. But do bear in mind that some buyer’s agents don’t really like working with FSBO homes (What are the Pros and Cons of buying an FSBO home?) as they end up doing the work of both the buyer and the seller. And this is without being compensated for the extra time and effort involved in selling a home!

But assuming you find a good agent who will work with an FSBO seller or you decide to do the transaction yourself, read on:

  • FSBO Tip 1: A home inspection: it’s always money well spent to hire a reputable home inspector.  Ask for credentials and ask the inspector whether they belong to an association, then follow up on both to confirm.

A thorough inspection report should reveal any potential issues in the home and you can discuss with the seller if major problems are found with the inspection.

The seller may either:  

  • fix the problem(s);
  • provide the money to hire your own contractor after closing;
  • reduce the sales price by an amount commensurate with the expected cost of the repairs.
  • FSBO Tip 2: A home appraisal report is also essential especially in a FSBO sale where the seller may not have consulted a real estate agent about the market value of the home. An agent will know current market trends and prices well whereas, sometimes, an FSBO seller will base his price on hearsay or his own feelings about value;
  • FSBO Tip 3: Do your own market research by searching online for recent sales in the area you want to buy in. Look for homes that are similar to the one you want to buy to get an idea of what homes are selling for. When the time comes to make an offer you will be well prepared.

If the FSBO home is close to the selling price of comparable homes make your offer as low as you think the seller might agree too, but not so low as to have the owner reject it out of hand;

  • FSBO Tip 4: The purchase contract will need to be drawn up once you and the seller have come to terms with the price and any contingencies (ie a satisfactory home appraisal) a purchase contract needs to be drawn up. If you're uncomfortable writing one yourself and you don't want to enlist the assistance of an agent, engage a real estate lawyer to make sure the transaction is accomplished legally, and all of your rights are protected.
  • FSBO Tip 5: Contingencies offer a way to withdraw from the transaction if issues arise. Such issues may be if finance cannot be obtained or there is a major defect which seller can’t or won’t attend to, or the home appraisal report suggest a significantly lower value than has been agreed;
  • FSBO Tip 6: Transaction related costs can be negotiated as there are no hard and fast rules about who pays for what in terms of transfer taxes, escrow, and title fees. With regard to property taxes the unused annual portion is typically credited back to the seller if they're paid in advance of the sale. In such case, you might want to ask for no pro-rations. But if taxes are paid in arrears, the seller will credit you, so you'll want pro-rations.
  • FSBO Tip 7: Earnest money should only be placed in an escrow account with the seller’s attorney, or the title company that closes the transaction, not with the seller of the FSBO home. At the closing, such earnest deposit will be credited towards the purchase of the home. Should the purchase fall through for reasons not controlled by you you should expect to receive your deposit back.
  • FSBO Tip 8: The date of taking possession of the property needs to be clearly agreed with the seller. This can happen on the day of closing, but it’s not uncommon to take possession the day after closing to give the seller time to move. It's also not unheard of for the seller to have relocation issues, particularly if the transaction happened quickly. Therefor it may be an option to let the seller rent from you for a period of time after closing;
  • FSBO Tip 9: Buy a title insurance policy as this is well worth the cost in case are any issues with the ownership of the property, including unresolved interests that prior owners may still have, unresolved liens, or major easements running through home; and, finally:
  •  FSBO Tip 10: Get in writing what exactly is included in the sale of the home (i.e. all loose furniture artwork, curtains etc.) as you don’t want any last-minute disputes on the day of closing!