Misconceptions of "For Sale by Owner"

With the rising popularity of selling homes by owner, have risen some misconceptions that should be straightened out to clarify the process. The first thing that we should look at is how financing works in the FSBO world. One thing that occurs more often than it should is when buyers think that "for sale by owner" means that the owner is also offering financing. Most of the time this is not the case. This error is usually seen when people with little or damaged credit feel that it is in their best interest to avoid mortgage brokers & realtors. This is a huge mistake as individuals such as mortgage brokers are experienced and trained to deal with these individuals and to help them repair their credit and obtain a favorable mortgage. 

It’s a good idea to seek out a mortgage company that is experienced, even specializes in the financing of FSBO sales. These companies differ from most mortgage companies in that their services are more comprehensive than most. They have expanded their offerings to include many things not usually covered by traditional mortgage companies such as closing contracts, title issues and inspections. The closing of a home contract is one of the more confusing aspects of the purchase process and should be handled by a trained professional. Also take into account that most mortgage companies rely on realtors to bring them the bulk of their business, therefore they are ill-equipped to provide educated FSBO financing. This is why it’s good to find a FSBO specialist mortgage company when dealing with someone who is selling their home themselves.

Another misconception deals with the fact that the buyer is saving money by dealing with an FSBO situation. The truth is that usually the seller is the one trying to save money on agent commissions. If they have subtracted the price of the agent from their asking price, it is possible to save some cash. But this is hardly ever the case. Most FSBO sellers are listing their homes at market value as if an agent was selling the home. Then they attempt to do everything themselves and pocket the cash that would normally go to the agent. If you think about it, if they weren’t planning on keeping the difference themselves, why not just hire an agent.

One of the biggest mistakes made by buyers and sellers in FSBO deals is that the paperwork is not handled properly. Have all of the liens been cleared from title, have all details been disclosed to the buyer, etc? Many FSBO sellers choose to do so because there is something wrong with the property that they don’t want to disclose and they know a Realtor would insist that all disclosures be made. To give you an extreme example, if the paperwork is not handled properly, the buyer of the property could be liable for any and all Capital Gains taxes the seller owes on the property. Imagine buying a home and discovering a year or so later that you get a bill from the IRS for $50,000 because the seller didn’t pay their Capital Gains Taxes and you never received the Proof of Non-Foreign Status.

People can sell their homes themselves, you really just have to make sure you have done your homework and understand all of the details of the transaction. If you do choose to sell or buy a FSBO, whatever you do, don't try to save money by avoiding using an Escrow Company or getting Title Insurance.