How Does for Sale by Owner Work?

What It Is

For Sale by Owner (FSBO) offers advantages to both the seller and the buyer. From the owner's perspective, you can avoid paying a seller's real estate agent fee, saving you anywhere from 5 percent to 10 percent in the real estate broker's commission. This can translate into thousands of dollars in savings. Selling your own home puts you in the position of being able to negotiate directly with the buyer. The same goes for the potential buyer. A buyer often can negotiate a better purchase price by bargaining directly with the seller.

The Costs Involved

Millions of homeowners each year successfully sell their own homes. As a homeowner you have a pretty good idea of what your home is worth based on your investment in the property, homeowner insurance and real estate taxes. If you sell your home without contracting for the services of a real estate agent, you will pay no commission to an agent unless an agent represents the buyer. In that case, you may need to pay the buyer's agent a commission or finder's fee for bringing you the buyer. A seller will have some legal costs involved, as FSBOs often work with attorneys who will offer advice and prepare the necessary legal documents required to complete the sale.

Negotiating a Sales Agreement

Pricing your home realistically can get potential buyers to your door quickly. If a buyer expresses interest your home, ask to see a copy of a pre-approval letter from a lender. When you do receive an offer, you must settle on the final purchase price and terms of sale. At this point, the buyer should solicit the services of an attorney or real estate agent to write up an offer and resulting sales agreement.

Earnest Money

Likewise, the seller's attorney should review all offers and contracts. When dealing with real estate, verbal contracts are not valid, and must be in writing to be legally binding. In addition, a seller should request a deposit from a buyer making an offer. The standard deposit usually is at least 1 percent of the purchase price, but no less than $1,000. If the deal goes through, this earnest money will be credited toward the purchase price of the home. However, if all contingencies stated in the offer are not met, the deposit money is returned to the buyer.

The Disclosure Statement

A seller also is required to provide any prospective buyer(s) with a written disclosure statement. The purpose of the disclosure statement is to reveal the condition of the property, indicating any past damage about which the current owner might be aware. By signing the disclosure statement, the buyer acknowledges receipt, although the disclosure is not intended to be a warranty of any kind, nor does it substitute for any inspections, which the buyer might request as a contingency to the sales contract.