What to Watch for With a House "For Sale By Owner"—10 Red Flags
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There are a number of reasons why a homeowner might decide they don’t need a real estate agent to sell their house. And a home that is “for sale by owner” is not necessarily a cause for concern for a buyer. The experience can, however, be different than a traditional sale where both parties are represented by agents.
Buyers are wise to ask a lot of questions and keep an eye out for red flags to protect their interests when buying a For Sale By Owner (FSBO) home.
For Sale By Owner Red Flags
Buying a house that is “For Sale By Owner” is similar to buying a second-hand car from an individual instead of from a used-car dealership. Because the seller is not a professional, they may not be aware of all of the rules and regulations. They might make an honest mistake or forget an important step in the process. And unfortunately, there are also dishonest people who might intentionally mislead buyers.
Following are some red flags to watch out for when dealing with a “For Sale By Owner'' seller. They are not necessarily deal-breakers, but could signal the need for further questions and research:
- They try to talk you out of working with a buyer’s agent, or balk at paying their commission. Buyers can use an agent even if the seller does not. In fact, it is recommended. An agent can help the buyer navigate the process and make sure that all of the right questions are asked and answered. They know about pricing in the local market, have expertise in contracts, and have contacts for inspections and other necessary services.
- They have never sold a house FSBO. A seller who has sold a few houses themselves might be sufficiently familiar with the process. A first-time seller might forget a crucial step. Knowing the seller’s level of knowledge can help a buyer prepare.
- They avoid answering questions and making disclosures. Sellers who are unwilling or unable to answer questions about the house could be hiding something. They should also be able to provide documentation about major repairs, details about appliances, and the approximate cost of utilities and upkeep.
- They won’t provide a CLUE report. A CLUE (Comprehensive Loss Underwriting Exchange) Report is used by insurance companies and lists all homeowners insurance claims for the past 7 years. Past flooding, fires, hail damage, and even burglaries are important for a buyer to know. Only homeowners and insurance companies can request a CLUE report, so if the seller refuses, that can be a big red flag.
- They get defensive or offended. Sellers might not be ready for negative feedback about their house. If they are overly sensitive when a buyer points out flaws or outdated features, they could be difficult to work with and inflexible about price, requested repairs, etc.
- The asking price seems wrong. Buyers and sellers alike can not always rely on real estate websites for accurate and timely information when it comes to pricing. Real estate agents are experts at pricing homes according to going rates and comps in the area. A seller might have an unrealistic idea of what the house is worth, or be trying to capitalize on low inventory and high demand.
- They ask you to waive contingencies. Buyers sometimes offer to waive contingencies to beat out competitors for a house, but if the seller seems too eager to waive certain inspections, there could be a problem. Plus, depending on the state, some inspections might be required by law.
- They’re writing the purchase agreement without assistance. Templates are available online for DIY contracts, but a buyer should beware of signing something that has not been reviewed by a real estate agent or an attorney. If the seller has had a lawyer’s help, it will go a long way in reassuring a buyer that everything is in order.
- They want you to let them hold the earnest money. Earnest money should always be kept by a 3rd party such as the title company. If the seller has the cash and ends up backing out of the deal, there is no guarantee that the buyer will get their money back.
- The house has been on and off the market several times. Is the seller indecisive and keeps changing their mind about moving? Or have they been dropped by agents because they are difficult to work with? Maybe the house has problems that have made buyers back out.
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Why Sellers Choose “For Sale By Owner”
The fact there are so many things to watch out for with an FSBO house does not mean buying one is a bad idea. It simply calls for caution to make sure that the buyer knows what they are getting into. Knowing why the seller has decided on this option can provide insight into their intentions and even their trustworthiness.
In a traditional sale, both the buyer’s and seller’s agents charge approximately 3% of the home’s sale price. During closing, payment of both commissions is the responsibility of the seller. The most obvious incentive for deciding to choose a DIY sale is to save money on real estate agent commissions.
Some sellers feel they know enough to take care of a sale by themselves and simply do not need a real estate agent. This may be true for some people, but many underestimate just how much work and expertise the process takes. Realtors and real estate agents must study and pass exams in order to become licensed. They commit to following a code of ethics and continued professional education. A seller knows their house better than anyone else, but without specialized training, they might make mistakes in writing up contracts or making disclosures.
Advertising a house as “For Sale By Owner” can also be a way for a homeowner to test the market. Particularly during a hot housing market, homes are selling quickly and with little effort. A seller can see if the house generates an offer that makes moving worth it—and worry about finding a new home if and when they decide to accept.Finally, there is the unfortunate reality that some sellers might be dishonest. They could be trying to unload a house with serious problems. Or reputable real estate agents have refused to represent them for some reason. This is why it is important to learn as much as possible before committing to a house that is “For Sale By Owner.”
Be Cautious—But Optimistic—About a “For Sale By Owner” Home
Finding a house “For Sale By Owner” is not always negative. Buyers can often get a good deal on a home, plus there is the advantage of dealing directly with a seller without a middleman. The important thing for a buyer to remember is that they do not have to go it alone. Buying a house is a big deal and help is available.
The real estate agents of Berkshire Hathaway HomeServices Select Properties will support you through your search for the perfect home—whether it is represented by a seller’s agent, or For Sale By Owner.
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