Some may not be aware of this but it’s not a requirement to have a real estate agent list a home for sale. Whether or not it’s a good idea to sell a home without using an agent, many property owners do just that. This is what’s known as a “for sale by owner” property or the acronym FSBO (pronounced FIZZ-bow). If you’re in the market for a home, should you consider buying a FSBO and if so, what should you be on the lookout for?
Real estate agents don’t work for free. They work on commission. This commission is established as a percentage of the sales price of the home and can range from one percent to six percent, based upon the level of participation by the agent and local custom.
Some agents can make special deals with the seller of a property and reduce their commission in order to get the listing. It’s up to the agent and the property owner.
For those that forego the services of an agent, the motivation is saving on commissions and increasing the net to the seller. For example, say an owner decides to sell a property for $400,000. If the listing agent’s commission is six percent, the seller will pay the agent six percent of $400,000, or $24,000. That’s a lot of money and the reason certain property owners decide to sell themselves. Is that a good idea?
Maybe, if homes in the area are selling quickly. But unless the owner is also a licensed agent and involved in the local real estate market, the seller could price the property too low, leaving a lot of money on the table. FSBOs don’t have the marketing that an agent can provide such as placing the home for sale in the multiple listing service (MLS), holding open houses and such. Regardless, the primary motivation for a FSBO is getting rid of an agent’s commission.
Okay, so the seller wants to save a little money. Should you be a little concerned buying a FSBO? There are a few things you need to consider but the first is your representation. If you’re a first time homebuyer you may not be aware of how a buyer’s agent is typically compensated.
First, you don’t pay a buyer’s agent out of your pocket. Instead, the seller of the property pays your agent a percentage of the sales price, typically three percent.
Buyers shouldn’t get into any real estate transaction without the services of a real estate agent. There are just too many things that can go wrong without a professional at your side. Buyer’s agents look for properties based upon your criteria such as price range, neighborhood, lifestyle, schools and a host of other personal preferences.
Really, only seasoned real estate investors should consider buying a FSBO home without using their own agent. In theory, an investor can pay 6% less for a home if there are no agents involved.
Most Buyers need Professional Guidance
Once you find a home, negotiating the sales contract is critical, and something a professional should do for you.
Okay, but if the owner isn’t willing to pay a commission to an agent to sell the home, how does the buyer’s agent get paid? Again, that’s up to the seller. Some FSBOs offer a commission when an agent brings in a qualified buyer. But some don’t.
If the property is listed on the MLS, the listing will often let you know if the seller is offering a buyer’s agent commission.
If the property is not on the MLS, the only way to find out if the owner will in fact pay an agent to bring in a buyer is if by asking them. If the agent doesn’t pay a commission to anyone, an agent may not be all that excited to show the home to you. In fact, it’s likely you may not even be aware of the FSBO unless you happened on it yourself.
There are certainly instances where a buyer sees a FSBO and negotiates directly with the seller with no agent involvement whatsoever. It happens every day. But other things happen every day as well such as blown contracts, lost earnest money deposits and paying too much for a home. You can buy directly without an agent, just be aware every step of the way.