When you sell a home, one of your first decisions is whether to FSBO (for sale by owner) or hire an agent. Most experts recommend working with an agent, despite the cost, to ensure the process goes smoothly and correctly. But there are other options as well, which may offer less-than-full service and still save you money.
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For sale by owner homes are sold without the help of listing agents or Realtors. Instead, sellers list their own homes and pocket the agent commission fees they would normally pay during the standard home buying process.
The for sale by owner process can be intimidating, but with a little know-how and lots of elbow grease, you can sell your own home. Regardless of how much or little help you get from an agent or service, here are all of the steps you’ll need to follow.
You may have learned to live with your home’s quirks, but buyers will quickly notice deferred maintenance like peeling paint or sticky doors. And they will wonder what other problems are not in plain sight. So declutter your home and address any health and safety issues.
If your floors are delicate, be prepared to offer a place for shoes and socks or slippers to visitors. And make the place inviting by turning on lights, setting the temperature to a comfortable level, and keeping things neat and clutter-free
Walk through your home as though you’re seeing it for the first time. Enlist the help of a more objective family member or friend and ask them to be completely honest about any turn-offs. (Make sure you can handle the truth before asking for it.)
Staged homes fetch higher prices. It’s a fact. If you don’t want to hire a pro, at least rent some storage space and stash a minimum of half of your belongings out of sight. You may also need to get rid of pet hair and odors, and even board your furry family members elsewhere until you close on the sale.
Plan to spend some money on advertising. Researchers claim that 90% of buyers search for houses online. They need to be able to find yours.
If you offer a commission to buyer’s agents, make sure they know it. Your MLS listing should state this, as should your signage and advertising. Plan on putting a lockbox on the house, so agents can tour the home with their clients, and you won’t have to be there. Make them earn their 3% commission fee!
Should you hold an open house? Many believe that they are primarily used by agents to market themselves to your neighbors. If your house is on the MLS and you provide good pictures and virtual tours, you may not need to hold an open house. You can even hire a professional photographer to shoot a virtual tour; most pros can offer drone photography. Advertise the virtual tour link in your brochures and fliers.
If you do open your home, it will be easier if you have some help — someone to sign in visitors and check IDs, someone to keep an eye on various rooms as people walk through, and someone to answer questions from potential buyers and agents.
Make sure your buyer is prequalified by a mortgage lender to purchase your home. And require an earnest money deposit to be put into an escrow account. If the buyer doesn’t adhere to the purchase agreement, then they’ll forfeit the deposit.
Decide what’s most important to you. For example, an all-cash offer with a fast closing date may be better for you than a higher sales price contingent on buyers selling their current home. Understand your housing market value — you’ll negotiate differently in a seller’s market than in a buyer’s market.
The buyers or their agents normally draft the sales agreement. If there are multiple offers, you’ll be responsible for communicating with potential buyers and agents. You’ll evaluate the strength of each offer and perhaps counter them, eventually arriving at an agreement.
Learn in advance how to write a counteroffer. You don’t have to accept the buyer’s offer, but you should always counter and give them the chance to do better. Many just automatically see what they can get away with on the first go-round.
Remember that the asking price is just one factor. You may be able to make the deal more attractive to a buyer by paying closing costs or throwing in a snow blower. Incentives to buyers’ agents may also get the deal done while still saving you money.
There are two schools of thought about home inspections. On one hand, by getting one before putting your home on the market, you find out if anything needs to be fixed upfront. This can eliminate ugly surprises deep in the FSBO process. On the other hand, most (if not all) states require you to disclose any defects you know about. So anything that turns up would have to be fixed or disclosed, and you may not want to do that.
Federal and state law mandates certain disclosures and material facts. You must give the buyer a copy of all required disclosures. Have your buyer sign a receipt indicating that you provided these documents.
Ordinarily, buyers get some amount of time to review these disclosures. Once that deadline passes, they don’t have the right to kill the deal because of anything on the forms. If your contract is set up correctly, you should be able to keep their earnest money if they back out at that point.
Even in the hottest markets, DIY home selling involves more than just putting a sign in your yard. Before making money-losing errors, make sure you know the answers to these five questions.
Everyone wants to buy low and sell high, and home sellers often overestimate the desirability of their homes. So act like an appraiser and research local sales and trends online. It’s important to look at actual comparable sales prices, or “comps.”
You may want to pay for an appraisal from a licensed appraiser. In addition to the home appraisal, there are three more sources of home value. They are, from least to most accurate:
Brokers with BPOR certification from the National Association of Realtors have special training and only they are allowed to perform BPOs. Lenders often commission BPOs to determine the value of repossessed property before a foreclosure sale.
While you may decide not to use an agent, many buyers still choose to work with one. And that person expects to get a commission, usually from the seller. It’s traditionally how real estate sales work. Agent commission fees are often 2.5% to 3% of the sales price. While you can refuse to pay the commission, it will probably shrink your pool of potential purchasers.
Some FSBO sellers are surprised by how time-consuming the sales process can be. Part of doing it yourself includes:
Arranging and conducting tours can be a lot of work; you’ll need to be ready and willing to do all the scheduling and touring on your own time.
There is a reason most professional agents have their sellers leave when buyers come in. For one, buyers are more likely to express their opinion of the house’s features, faults, and asking price. This is valuable information. The other reason is that most people find criticism distressing, and that can make them too emotional to negotiate properly.
Finally, selling your own home can be a challenge if you have pets. Most agents recommend that pets not be present when buyers are viewing the property. Definitely extinguish all pet odors before putting your house on the market or allowing people inside.
With an agent, someone else supervises home showings and makes sure your personal effects don’t walk out the door. And they don’t let people who can’t get financing waste your time. During the FSBO process, you’ll have to screen potential buyers yourself.
Your first line of defense is requiring potential buyers to provide a mortgage preapproval letter. Or at least a pre-qualification letter. That shows that they are serious enough to have gone through the preapproval process with a mortgage lender
You should also check potential buyers’ identification when they enter your home and note their names and addresses. This should make them think twice about damaging or stealing anything.
The biggest reason to consider some form of FSBO is the money you may save. If your house sells for $300,000, a traditional real estate transaction would cost around $15,000-$20,000 in commissions. You can keep that money or drop your price to sell faster.
There is a reason that states don’t just hand out real estate licenses to anyone. Agents must complete a certain amount of training and pass at least one exam to get their licenses. In addition, they must pass continuing education classes every year.
You probably don’t have that training. So here’s a crash course in what not to do when you FSBO.
Whether you are selling on your own or with an agent, in order to attract buyers, clean your house, declutter, and maximize your curb appeal. However, beware of spending too much and over-improving your property for its neighborhood.
Put your money where it will do the most good — on inexpensive improvements like fresh paint, a weed-free yard, an inviting front door, and clean baseboards and walls.
Sellers who FSBO must do their own research on what similar houses in their area are fetching. Look at the most recent sales you can find, and also check out the listing prices of competing properties in your area.
Remember, your house will sit on the market longer — costing you time and money — if you overprice it. All you’ll be doing is helping other people sell their homes because they will look better in comparison. In fact, agents often show overpriced houses first, then show their own listings to their clients.
Savvy buyers will require an inspection. They are likely to find some (hopefully minor) repairs needed. Sellers who have a home inspection before putting their home on the market can prepare to pass a buyer’s inspection.
Selling your home without an agent won’t save you the entire 6% commission unless your buyers are also unrepresented.
If you want to attract the attention of buyers who are working with a real estate agent, you’ll have to offer a commission in the traditional range of 2.5% to 3%, and maybe more to compensate the agent for the extra work your FSBO deal implies.
On the other hand, don’t just let the buyer’s agent control the whole process or push you to accept less than you should. If you can’t negotiate comfortably, get your own representation.
Since nearly all buyers start their home search online, they are used to checking out photos before touring houses in person. Make sure you have multiple photos with your listing.
Be smart about what you showcase. If you say you have a great view, show the view. Incredibly, even professional photographers sometimes make this mistake. They put up 20 pictures of the bathrooms and none of the outside. Highlight your home’s great points.
Make sure the rooms are clean, clutter-free, and well-lit. No blurry, dark, or messy pictures. This is one area in which professional staging and photography may offer a lot of bang for your buck, especially if you’re selling an upscale property.
It’s easy to find FSBO services that can put your home on the local real estate listing service for a flat fee. It’s just a few hundred dollars (almost nothing compared to the value of your home). This lets you market your property to thousands of buyers, probably the most cost-effective help you can buy.
If you can’t be available to show potential buyers on their schedule, hire someone who can. Unless your house is so desirable or well-priced that you can make everyone come at 6 a.m. on Sunday, you’ll either have to put up a lock box and pay a 3% commission or take a lot of time off work to show your house.
Respond to emails and phone calls immediately, because any of them could be from a potential buyer. Remember that serious buyers want to narrow down their list quickly, view those homes, and complete the process ASAP. If you wait a few days to make contact, they may already be under contract elsewhere.
Don’t take your home off the market until you get proof that the buyer can follow through. This means a mortgage preapproval letter or bank statement showing the buyer has the cash to close. Don’t rely on mere prequalification. In most cases, prequalification (unlike preapproval) does not involve underwriting, proof of income, or even necessarily a credit report. You could lose a lot of time and money if your sale fails at the 11 th hour.
Today’s home buyers can check out homes without spending hours in the back seat of an agent’s car. They can and do tour for-sale homes anytime they want. But how do you get your house out there in front of buyers?
Traditional agents usually split a 6% commission between the listing agent, the selling agent, and their respective brokers. Each party may grab a 1.5% share of your home price.
FSBO sellers do not have to pay the standard commission but may have to pay a selling agent and broker 3% in order to make the deal work. And FSBO selling can be a lot of work and aggravation for some.
FSBO sellers may miss out on buyers who have buyer’s agents. Their agents may prefer to avoid FSBOs, even those who will pay a 3% commission. They expect that they will be stuck with most of the work. A hybrid model can prevent this.
Online self-help platforms offer different ranges of service, letting sellers decide how much service they want and what they want to pay. Paying for a listing in your local MLS is the minimum you should do, but many hybrid model platforms offer free trials and low-priced options.
The highest-end packages offer signage, online or phone support, state-specific real estate forms, and national and local MLS exposure. It may be well worth the investment if you save a ton and avoid the worst of selling stress by getting some professional help.
When it comes time to sell, think realistically about how much you’re willing to do. If you are confident, willing to put in the hard work, and perhaps have some real estate or marketing know how, FSBO may work well for you.
Seller financing means you’d act as the mortgage lender for your home buyer, allowing you to collect regular payments and earn interest on the sale. If you have a significant amount of home equity and don’t need to receive the entire proceeds of the sale at closing, you may want to consider seller financing.
When you create a mortgage (or deed of trust, depending on your location), you become a mortgage lender. You and your buyers have to execute mortgage documents dictating the loan’s terms. You record a lien against the home with your county. Mortgages and home sales are public and must be recorded to be enforceable.
In this case, most of the financing is taken care of by a professional mortgage lender. You just finance part of the buyer’s down payment. This is called an owner carry or a piggy-back mortgage.
One common structure is the 80/10/10, in which the buyer puts 10% down, then gets a 10% carryback from the owner and an 80% loan from a mortgage lender. An 85/15/5 requires just 5% from the buyer and 15% from you.
Understand that the mortgage lender is in first position. This means if the buyer defaults and the lender forecloses, it gets paid first from the foreclosure sale. You get paid only if there is enough left over to cover what’s owed to you.
A wraparound loan creates a new mortgage between you and the buyer. However, you continue paying your existing loan. Not all lenders allow this. In fact, many have an acceleration or due-on-sale clause that requires you to pay off your mortgage when you sell your home.
But assuming you can do a wraparound, they work like this:
If you owe $100,000 and sell for $150,000, you might accept $15,000 down, grant a $135,000 mortgage, and record the sale with your county. You receive monthly payments from your buyer, make monthly payments to your lender, and pocket the difference.
There are several advantages when you finance a sale yourself. Not only do you receive your profit from the sale; you can take what a lender would get in interest and loan fees.
There are also disadvantages and risks when you provide financing. It’s up to you to decide if the extra money is worth it.
Unless you’re an experienced private lender, get professional help.
With more than 10 years in the mortgage industry, and another 10 years writing about it, Gina Freeman brings a wealth of knowledge to The Mortgage Reports as its Associate Editor. Gina works with a team of world-class real estate and finance writers to bring timely and helpful news and advice to the audience. Her specialty is helping consumers understand complex and intimidating topics.