Pros & Cons of Buying a House for Sale By Owner
Should One By Directly from a Home Owner Versus a Real Estate Agent?
Jun 17, 2009
As the U.S. housing market continues to experience its worst downturn in over two decades, there has been an increase in the number of home owners attempting to sell their properties on their own without the aid of a real estate agent. Buying a house for sale by owner, known as FSBO in real estate parlance, has both its advantages and disadvantages. By understanding the pros and cons of dealing directly with a property owner, one can increase the likelihood that the transaction will be successful while avoiding several common pitfalls.
Understanding Why a Home Owner Would Not Use a Real Estate Agent
Before looking into any property that is listed for sale by owner, one should first understand the intentions of the seller. By selling their homes without the aid of a realtor, these people are making the statement that they are looking to cut costs. Selling a property through a real estate agency generally means a 6% sales commission in addition to other expenses that the agency would charge to provide services such as advertising and assessing the home. For a typical single family home worth $275,000, an owner can expect to pay about $27,500 in closing costs when working with a realtor.
Advantages of Buying a House for Sale by Owner
There are several advantages to dealing directly with the home owner when buying a property:
- The buyer has more bargaining power. Many home owners may lack negotiating experience and expertise, and in their eagerness to unload themselves of their properties, they can settle on a bid that is significantly lower then a realtor would have allowed. For sale by owner properties typically receive initial offers of about 10% lower than the asking value.
- The buyer has more bargaining flexibility. Without the involvement of a real estate agent a buyer has the freedom to get more creative with an offer. This includes any non-fiscal offers such as bartering (with services or supplies) and house swapping (a transaction where two parties exchange properties).
- The seller can supply more information about the house and the neighborhood. Since the home owner has actually lived on the property, he or she has more intimate knowledge of the house and the surrounding community. The seller can offer detailed information regarding the benefits of the house for sale as well as any repairs or improvements that would need to be made. The home owner can also describe what the neighbors are like as well as the general character of the surrounding community.
- The seller is bound by law to disclose important information regarding the property. A buyer may be wary that a home owner would try to avoid mentioning any significant defects to the property. But the buyer should be aware that home owners are required by law to disclose any information that would affect either the buyer's decision to purchase the property or the property's value, such as needed repairs, a death in the house, all forms of pollution, and zoning
The Disadvantages of Buying a House for Sale by Owner
For all the benefits of working directly with a home owner, buyers should be aware of the following drawbacks:
- Buyers lose out on the expertise and experience that realtors bring to the transaction. Realtors must go through extensive training to become state certified. This generally involves several hours of courses on a variety of subjects including real estate law, sales, building construction, mortgage finance, and marketing. A real estate agent will therefore be able to take care of many of details involved in selling a home, including making sure that all the necessary paperwork is being completed properly.
- The buyer must factor in the cost of hiring professionals. Without the help of a realtor, the buyer must hire other professionals to get the home appraised and take care of all the legal details and paperwork.
- Home owners may withhold important information. Even though home owners are required to disclose any information that would affect the buyer's decision to purchase the property, they may withhold this information whether intentionally (so as to push the sale) or unintentionally (because they are not familiar with the disclosure law )
- Some sellers may be difficult to negotiate with. Home owners may be reluctant to lower the asking price of a home due to repairs or other problems. The owner of a home is also more personally connected to the property than real estate agent would be and thus may be more sensitive to any form of critique that the buyer could make.
In short, there are many advantages to buying a house directly from a home owner without the involvement of a realtor. But for the transaction to be successful, the buyer should be aware of the drawbacks and make it a point to prepare for them.
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