For Sale By Owner – Home Buyer Guide
Here it is – your ultimate Portland home buyer’s guide to buying a home listed For Sale By Owner, FSBO, whether or not you already know the owner, and whether or not you plan on using a buyer’s agent yourself.
What is For Sale By Owner?
Any home that is listed for sale by the owner themselves, without real estate agent representation, is known as a “For Sale By Owner” listing, or FSBO. Some home buyers also refer to this as a “private seller” transaction.
In this situation, the seller is taking on all of the duties of selling a home. Why would they put themselves through this? About 70% of the time, according to the National Association of Realtor’s research, it’s because the seller already has a buyer in mind and they don’t feel like they need an “outside party” to ensure that all goes smoothly. About 24% of the time, the seller doesn’t have a ready buyer but is going the “DIY” route in order to avoid paying commission fees.
Finding FSBOs in Portland
There’s a perception out there that FSBOs are a better deal, but most home sellers actually overprice their homes (more on that in a minute). They also don’t typically discount the real estate agent commission fee from the price of the home — they’re hoping to keep it themselves. Still, it might make sense to look off the MLS on the FSBO listing sites to see if your perfect Portland home is there.
Why aren’t most FSBOs on the MLS? Local MLS associations, including our RMLS in Portland, are membership based. Most homeowners are not going to attempt to get a membership with a local MLS simply to put their own house up for sale. Many FSBOs are found the old-fashioned way by driving through the neighborhood, or by looking on one of several FSBO-only sites. REDX, FSBO.com, and ForSaleByOwner.com are three of the most popular.
The “Friends and Family” Deal
Often times FSBO transaction happen because the seller and the buyer already know each other. In this case, sometimes a dual agent is the way to go. Our agency charges a lower commission, 2% total commission for most homes, to have a single agent act as a referee in the transaction, ensuring that both sides play by the rules and that all the paperwork is filed in a timely manner. We give access to our long list of recommended service providers: lenders, inspectors, contractors, title companies, and more. Often each side pays 1% for this full service representation. In this situation, the seller may not be trying to get top dollar for the home but is selling to a friend or family member at a price they think is fair. Either way, we provide the seller with a Comparative Market Analysis so that they know our opinion on the full market value of the home and can make an informed decision.
Using a Buyers’ Agent in a FSBO Transaction
On the other hand, if you’re the buyer and you don’t know the seller, it’s very important to have your own agent. However, keep in mind that your buyer’s agent has the right to refuse to represent you in a FSBO transaction because it can be more work. The seller has no representation, so the buyer’s agent will often end up doing taking care of things the seller’s agent would normally do. Our top 1% buyers agents will go the extra mile, but be sure to check with your buyer’s agent of choice (or choose us).
In addition, ensuring that your buyer’s agent earns commission can be tricky with FSBOs. As we already mentioned, the seller is probably hoping to avoid paying any type of commission. In this scenario, you have three options:
- Request that the sellers offer your buyer’s agent around 2.5% commission for representing you, or something close to the average rate in your local area. If it makes the seller feel more comfortable, they could go through a reasonable commission firm such as ours and have representation on both sides. Often times, FSBO sellers just aren’t aware of the options and are happy to go with a sellers’ agent once they realize that they are getting a very good deal. In fact, according to a recent Zillow report, about half of home sellers who start out as FSBOs end up listing with an agent later on.
- If the seller still refuses to pay any commission, the best choice might be to move on. There’s no reason to carry all the risks of going unrepresented. There are always more homes out there.
- If you absolutely need to have the home and can afford to pay a little more, covering the buyer’s agent’s commission yourself is also an option.
Are FSBOs priced right?
Finally, the big question. As we already mentioned, in the case where the seller knows the buyer, the answer is often no — the seller is giving the buyer a good deal, and that’s not a problem as long as both parties are informed.
In the remaining FSBO transactions, where the seller doesn’t know the buyer, homes are notoriously overpriced. Most sellers use online tools, or ask their friends and neighbors what the home is worth — neither of these methods produce consistent and market-current results. A lot of times these sellers have already interviewed multiple real estate agents to sell their home, but when none of those agents could possibly agree with their high price tag, the sellers try for sale by owner.
Let’s take a look at online home valuation tools, like Zillow’s Zestimate. They use algorithms to merge details about the home and comparable homes that have sold to come up with an estimated value. However, according to a recent U.S. News investigation, this number should be taken with a large grain of salt. There’s a significant margin of error involved, and the market value is given as a range — which sellers will usually keep to the high end of. In fact, sellers who are less serious about moving will put their home up for sale for even more than the top end of the price range, just to see what they can get.
Asking friends and neighbors about what sales price seems appropriate can seem like a more realistic approach for sellers to take, but it also puts them in a tricky situation. Just because someone has lived in the neighborhood a long time, or studied economics in college, doesn’t mean they’re a real estate expert.
By comparison, the price recommendation given by an experienced real estate agent who knows the local real estate market is not just based on a few numbers. Real estate agents have full access to the local MLS data, with all of its incredible depth and analytics, in addition to the real estate agent’s own wealth of personal experience in the job.
If you’re a home buyer considering a FSBO, this is one more reason to use a good buyer’s agent. They’ll be able to tell you whether the price is realistic, and save you thousands on an overpriced home. Want to talk to an excellent buyer’s agent? Give us a ring today.October 19, 2018