For sale by owner: A guide to purchasing directly from homeowners

Quick insights

• Buying a home directly from the owner can have certain benefits—perhaps a lower sale price and more personal experience.
• A real estate agent is not required for the transaction, but in their absence both parties should be more alert to follow the required steps.
• For both buyers and sellers, hiring an attorney can help ensure the transaction is completed correctly.

Typically, those selling property work with a listing agent who can market professionally and negotiate a sale for the owner. But when a homeowner lists as “for sale by owner” (FSBO), the transaction may unfold a little differently. In this article, we’ll describe the common steps for purchasing a home that’s FSBO and how it could be a unique experience.

What to know about buying “for sale by owner” homes

There are a few key differences to expect when buying a house from an owner vs. negotiating with a professional listing agent.

• Direct communication with the seller: When buying a house from the owner, there’s no intermediary for discussions about the property (unless a real estate agent represents you). Even still, any questions you want answered or documents that need transferring will have to come directly from the owner.
• Limited marketing or exposure: Agent-listed properties tend to have a marketing strategy that includes quality photos, prominent placements, yard signs and more. Owners who list and sell their own homes may not reach the same level of detail or visibility.
• Pricing strategy and negotiation: Owners may rely on their own research when setting a price. The price may also be influenced by the owner’s emotional attachment to the property. Both factors, among others, can lead to underpricing or overpricing when compared with the current market. Customers should do their research before agreeing to a sales price.
• Inspections, legal and compliance: Unlike a real estate agent, an owner selling their own home may be inexperienced at completing the steps. Buyers interested in a FSBO property may want to take additional care to navigate the homebuying process.

Getting ready for an owner-to-owner house sale

Without any real estate agents, both parties are responsible for meeting all legal requirements. In FSBO transactions, you may want the help of a legal professional for oversight and document preparation. Even when the seller has their own legal representation to assist in the process, buyers can also benefit from having their own attorney looking out for their interests.

There’s no rule that says a real estate agent must be involved in a property sale, either as a listing or buyer’s agent. Moving forward with a purchase without an agent may save on commission fees, but the process isn’t necessarily more straightforward. In an owner-to-owner house sale, the risk of skipping steps or overlooking property defects may be higher.

How to buy a house for sale by owner: 7 steps

If you’re wondering how to buy a house from a private seller, the process may have its unique elements; however, here’s a general outline:

1. Research and preparation

When buying property, the first thing worthwhile is to gather information. This includes assessing your own budget and researching homes in the area you’d like to live in. You may also want to get preapproved for a home loan from a lender. This can give you an idea of your budget and help you act quickly when it’s time to send an offer and settle.

2. Finding FSBO homes

FSBO homes may not appear in the same media as homes listed by real estate agents. Without a personal connection to a private seller, you may need to spend time scanning social media platforms and websites for FSBO homes. You may also find what homes by visiting areas you’d like to live in and scanning for yard signs.

3. Initial contact and viewing

When you’ve found a home of interest, reaching out with a personal message can be a good first step. If you schedule a visit to the home, it may be helpful to have a list of questions ready to ask about the property. For example, you might ask about critical features, such as the roof, foundation or HVAC system.

4. Offer and negotiation

When preparing an offer in an owner-to-owner house sale, try to be professional and sensitive to the owner, while still advocating for your best interests. Here are some tips:

• Submit your offer in writing: Your written offer should include the offer price, contingencies (such as financing or inspections), expected closing date and any other terms specific to your interests. You may also make an earnest money deposit (potentially 1-3% of the purchase price, held in escrow until closing).
• Be prepared to negotiate: You may receive a counteroffer from the seller. Take the time you need to consider it, keeping their perspective and your goals in mind. In your response, it’s important to stay respectful and leverage facts. For example, if you feel the counteroffer is too high, you may request specific repairs as a contingency to meet that figure.

5. Due diligence and inspections

Once you and the seller agree on a purchase price, you can apply for a mortgage with a lender. In the meantime, you’d be in the “option period” or “inspection period.” This could last 7-10 days, and it may be helpful to have an inspector lined up. It’s also a good time to conduct a title search (to ensure that there are no liens or disputes) and further review the property’s history.

Step 6. Navigating the closing process

When using a mortgage loan to buy a house from the owner, the lender will typically require a property appraisal and review your loan application. The seller (and potentially their attorney) may be responsible for providing a breakdown of costs and disclosure forms. Closing costs for a FSBO transactions are typically similar to sales involving a listing agent, minus commission.

Before you reach the settlement table, there’s usually a final walkthrough, too. This is an opportunity to check that the home is in the condition you expect, including the completion of any agreed-upon repairs. At closing, the lender disburses funds to pay the seller, and you sign the mortgage documents.

Step 7. Post-purchase considerations

After settlement, unless you paid cash, you’ll begin making mortgage payments to your lender at agreed-upon terms. Before moving in, you could transfer utilities and change the locks. You may also want to install or upgrade the home’s home security system, check smoke detectors and ensure carbon monoxide detectors are working properly. Finally, consider meeting your neighbors and, of course, make the home your own.

In conclusion

Buying a house from an owner can have its upsides in terms of personal experience or cost. However, it’s important to recognize what could be missing when a listing agent isn’t involved. If you’re preparing for an owner-to-owner house sale, it may still be essential to enlist legal help. A real estate attorney can explain or navigate some technical aspects of the homebuying process.