Understanding FSBO: What Does it Mean for Real Estate Buyers and Sellers?

For Sale by Owner (FSBO) refers to a scenario where a real estate owner decides to sell their property without the assistance of a real estate agent or listing on the Multiple Listing Service (MLS).

FSBO and Real Estate Market Cycles

FSBO postings are often observed during specific phases of the real estate market cycle. At the top of the market, when buyer demand is high, FSBO properties may not see the need to pay a real estate commission because the market dynamics favor the seller. Conversely, at the bottom of the market, where equity levels are low and property values have dropped, FSBO owners may sell due to lack of equity or simply not be able to afford paying a real estate agent commission.

Buying an FSBO Property

Purchasing an FSBO property can present a favorable opportunity for buyers, especially when a portion of the savings on the real estate commission is passed on to them. For instance, if a seller lists their home on MLS and opts for a 6% real estate commission, the total commission split between the seller's and buyer's agents can be as high as $9,000 on a house worth $150,000. Therefore, saving that $9,000 by FSBO could result in a lower sale price for the buyer.

However, buying an FSBO property also carries certain risks. Unlike a professionally listed property, an FSBO property is not bound by the same norms of behavior and ethics, which can lead to issues such as misrepresentations or non-disclosure of important information.

What the Phrase “For Sale by Owner” Really Means

“For Sale by Owner” is not just a phrase; it conveys several underlying messages. The owner is signaling that they have knowledge of real estate and the process of selling. They might also believe that real estate broker commissions are not justified for the work they perform. Additionally, for many FSBO sellers, the mortgage balance on their home often exceeds the value they could realistically get for the property, driving them to FSBO.

The intentions behind an FSBO sale can vary. Some owners opt for FSBO to avoid out-of-pocket expenses associated with paying an agent. Others may have personal reasons to keep certain details confidential, which could be more readily disclosed with an agent's presence.

Personal Experiences with FSBO

Based on personal experience, my husband and I have sold two properties as FSBO. The first property was managed fully by us, while the second involved a seller's agent. In addition, we've sold three properties with the assistance of a real estate agent. Two of these agents were highly effective, while one proved challenging. Even the seller's agent we hired had its moments of difficulty.

While a good agent adds significant value, the necessity of hiring one might vary depending on market conditions. In a hot market, where demand exceeds supply, an agent's assistance may be less critical due to the seller's advantageous position.

Overall, FSBO can offer benefits and challenges. Understanding the specifics of each transaction and the motivations behind the seller is crucial for making an informed decision.