This article is part of a larger series on Real Estate Lead Generation and Marketing.
Learning how to find and buy for sale by owner properties (FSBOs) can be a positive experience, and we can show you how to do it in six easy steps. These steps include choosing a neighborhood, locating the property itself, securing financing, making an offer, and going through the entire closing process.
This article is intended for real estate investors. If you are an agent looking to FSBOs as a lead generation strategy, we would encourage you to check out REDX. It’s a lead generation company that finds as many FSBO listings as possible in your area. It searches FSBO listings across multiple sources the day they hit the market, and leads are delivered to your inbox. Its rates start at $39.99 per month.
Here are the six steps to find and buy a for sale by owner home.
1. Choose a Neighborhood
Start looking for the right neighborhood by researching multiple locations and considering the convenience, price ranges, amenities, school ratings, and overall curb appeal. You can use online real estate portals like Zillow to consider things you might’ve missed, such as how close the homes are to highways as well as their walkability. Then, narrow your choices down to one or two neighborhoods where you are comfortable buying.
You want to invest in a stable or up-and-coming neighborhood, so it will affect the appreciation of your property positively and be desirable for you and renters. If the neighborhood has multiple boarded-up houses on the same street and businesses that have closed down, it won’t be as desirable for yourself, renters, or resale value. Bad schools, strip clubs, and high renter concentrations all drag down your home’s value.
Below is an example detailing a few neighborhood factors that help bring up your for sale by owner home’s value and a few factors that bring down your FSBO’s value.
Neighborhood Factors That Affect For Sale By Owner Homes
Highly rated schools*
Well-kept neighboring homes with mowed lawns, tidy yards, and neat exteriors
Unkept neighboring homes with overgrown weeds, peeling paint, and junk-laden yards
Convenient amenities like nearby shopping, dining, and parks
A lack of nearby amenities, no local parks, and shopping and dining not close by
Local employment opportunities, nearby businesses, and low unemployment rate
No nearby businesses or businesses are closing and a high area unemployment rate
High concentration of homeowners in the neighborhood
High concentration of renters in the neighborhood
*A good way to determine if a school district is highly rated is to check out scores found at GreatSchools.
2. Locate a Property
After you choose a neighborhood, it’s time to locate a property you want to buy. It’s a good idea to drive around the neighborhood and get a feel for the neighborhood, its activities, what businesses are open, and how the houses compare to the images online.
This is also an ideal time to enlist the help of a real estate agent who can guide you through the entire transaction process, including contracts and negotiations. You don’t have to pay out of pocket for the real estate agent’s time. Instead, they earn a commission from the seller.
In addition to visiting the neighborhood in person, you should look for FSBO properties online and make a list of a few you like.
FSBOs often don’t have access to the multiple listing service (MLS), which is where real estate professionals find the majority of their properties, so you’ll need to search on other platforms. Read about the best FSBO sites, or use these top five free sources:
- Social media platforms
- Local newspaper websites
For real estate agents who are prospecting leads, we recommend using REDX to find, track, and contact FSBO leads more efficiently.
ForSaleByOwner.com is a third-party listing site designed for FSBO sales. Although you will still find some homes that are being sold through an agent, this is one of the most popular places to find the most FSBO homes in any neighborhood.
Since Craigslist gets millions of visitors every month and is a completely free place for FSBOs to list, it should be one of the first places you look. If the seller is not marketing savvy, which is frequently the case, they may only list their home on Craigslist.
Social Media Platforms
Like Craigslist, the Facebook Marketplace is a terrific place to find FSBOs. Its traffic has surpassed Craigslist during the past year, likely because of its additional features. For one, buyers and sellers can list a property or search for properties on the mobile app. You can also join local Facebook groups made specifically for sharing houses.
Another way to use social media to find listings that could benefit by working with an experienced agent is to look for people who are asking for help. Often people use these platforms to share descriptions and images of their neighbor’s listings, with captions like “do you want to be my neighbor?”
Nextdoor is another alternative where you can communicate with people in a specific area and find listings. You must create an account, and then you can search within the real estate sections. If you don’t see anything listed at first, you can write a post expressing that you are looking to buy a FSBO property in the area.
Zillow is connected to the MLS, so the majority of homes on this platform are not FSBOs. However, it is still an important place to look since FSBO sellers can list their homes on Zillow for free. You can also search for preforeclosure homes as well as expired or off-market listings.
Although these homes are not on the market, they signify which homes have received a Notice of Default. The process of buying foreclosures is slightly different, and it’s important to keep in mind that preforeclosure homes are likely to be in a condition that’s less than ideal. However, this is a great way to find a home for a good deal:
Local Newspaper Websites
Similar to Craigslist, searching your local paper will be where many FSBOs without MLS access post their home for sale. This has become a less popular source in recent years, but it can still be a place to find sellers who aren’t advertising their listings online. While you are actively searching for a FSBO home, you will have to establish a habit of checking the newspaper at least once per day since this has the same significant drawbacks as searching on Craigslist.
3. Obtain FSBO Financing
After you have chosen the neighborhood and found the right property, it’s time to secure financing for the home. Some FSBO buyers pay cash for the property, but the majority of buyers use either permanent financing or short-term financing. The type of financing you choose will be based on your investment goals.
Permanent FSBO Financing Options
Permanent FSBO financing is a long-term financing solution for someone who wants to be an owner-occupant or who wants to buy and hold an investment property with no immediate intentions to sell. Typically, they want competitive, long-term rates on a property that doesn’t need a complete rehab.
Permanent FSBO financing options include:
- Conforming loans: This is the most common loan type, and it offers competitive Federal Housing Administration (FHA) standard rates for owner-occupants.
- Portfolio loans: Loans for investors or owner occupants that don’t conform to FHA standards and are often kept on the lender’s balance sheet.
- FHA 203(k) loans: Allows an owner-occupant to buy and renovate a home that needs updates or repairs.
- Blanket mortgages: Good for investors looking to finance multiple FSBOs together under a single loan, known as cross-collateralization.
- Homestyle renovation mortgages: Government-backed loans for owner-occupants buying one- to four-unit properties or investors buying a single-unit second property.
Short-term FSBO Financing Options
Short-term FSBO financing is ideal for investors who typically want to purchase and rehab a property and then flip it within a year. Short-term financing allows a real estate investor to purchase a home quickly while competing against cash buyers’ timelines and is sometimes used by long-term investors to rehab or season a FSBO before refinancing.
Short-term FSBO financing options include:
- Bridge loans: Used on commercial properties or to buy a residential property quickly before losing out on a deal.
- Rehab loans: Help investors fund the acquisition and rehab of a distressed property before selling it or refinancing
- Hard money loans: Allow investors to buy properties in any condition with the intent to flip them or refinance into a long-term loan.
- Investment property lines of credit: Based on the equity in an investor’s investment property and can be used to rehab or purchase a property.
- Home equity lines of credit (HELOCs): Based on the equity in an owner-occupant’s primary residence and can be used to rehab or purchase a property.
FSBO With Seller Financing
Seller financing is an alternative way to finance for sale by owner properties. You may want to use seller financing if your credit isn’t high enough to be accepted by more traditional lenders. It’s a more negotiable financing option than other loans that are more regulated since the seller is essentially acting as the bank.
The qualifications for seller financing are agreed upon by the buyer and seller of the for sale by owner home. Usually, the seller is motivated to sell and will work with the buyer as long as they meet certain qualifications, such as having a 25% down payment and bank statements to show proof of income. The buyer and seller will agree to the terms, and the interest rate is usually around 7% or more. The seller may require a balloon payment to be paid at the end of the loan.
Some sellers will mention that they offer seller financing on their FSBO online listing. Others don’t mention it but may be open to it if the buyer suggests acceptable financing terms. For more information on seller financing, you can check out our article, Owner Financing: The Ultimate Guide to Seller Financing.
4. Make an Offer
After finding a property and secured financing, it’s time to make an offer on the property. Making an offer on a for sale by owner property can be daunting if you don’t know what you’re doing. It requires research on what comparable properties sell for and knowing the ins and outs of the sales contract and negotiating process.
You don’t want to overpay for a property, so it’s important to run comps before making an offer. This is where you or, preferably, your real estate agent, will research what similar homes in the area have sold for within the past few months. Your real estate agent will use the MLS to find homes that have the same number of bedrooms and a similar lot size. It’s best to use the most recent sales, but you can go back as far as six months if there aren’t any more recent sales.
After finding out what offer to make based on the comps, you need to know how to execute that offer. When purchasing a property, the buyer submits their offer to the seller on a legal contract.
If you’re working with a real estate agent, as we recommend, they will have the contracts to write the offer on. These contracts vary by state and can be quite in-depth, so some buyers hire an attorney to review them before submitting the offer.
If you’re purchasing the FSBO without a real estate agent, check out the real estate purchase agreement on Rocket Lawyer. This will give you a good template to use. Check it out ahead of time so that you can familiarize yourself with it.
5. Inspection & Appraisal
Once your offer is accepted, and the purchase agreement is signed, the offer will be subject to an inspection and appraisal. This means that you can only buy the property if it appraises for the number you’re offering―or higher―and if it passes a home inspection.
A licensed property inspector will conduct the inspection to let the buyer know what condition the home is currently in and when major systems will need to be replaced. An appraisal is also performed to determine the current market value of the property. An inspection and appraisal are recommended for every deal and usually required.
Most real estate purchase contracts have an inspection contingency period. It varies from five to 15 days, depending on the state. In California, the inspection contingency gives the buyer 17 days to conduct all inspections and then decide if they want to move forward or back out of the transaction. The timeline starts when the contract is signed and accepted by both parties. If the home is being sold in “as is” condition or if you waive the inspection contingency, then you’re obligated to purchase the property even if you elect to have a property inspection conducted.
An appraisal is often confused with a property inspection, but it’s completely separate. All lenders require an appraisal before they will lend money to purchase a property. The purchase price of the home needs to be equal to or less than the appraised value of the home to secure financing. For example, if the purchase price of a home is $525,000, then the appraisal needs to come in at $525,000 or higher for your lender to move forward with the deal.
If a lender is involved, it will order the appraisal. If you’re buying the property without financing, then you want to know the true value of the property. You’ll be responsible for ordering it on your own. The average cost of an appraisal is between $300 and $400 on a single-family home. Your real estate agent can recommend appraisers, or you can find them on the nationwide appraisal roster.
6. Close on the Property
Closing on the property is the last step in purchasing a FSBO property. It means that you have found and financed your property, gone through an inspection and appraisal, and are ready to go to settlement. To facilitate this transfer of property, you need to find a title company and property insurance.
If you’re working with a real estate agent, the real estate agent will recommend a title company or give you a list of companies from which to choose. The title company will run a title search on the property and then provide you with title insurance. This is important because it protects you and your lender if the seller doesn’t have a clear title.
Title insurance guarantees that the house is being sold to you free and clear of all liens. If a previous lien pops up in the future, the title company is liable for it. If it’s free and clear, settlement or closing usually is held at the title company’s office, and they will disburse all checks and closing documents.
After getting title insurance, as part of the close process, you need to buy property insurance. There are different types of insurance for investors and owner-occupants. Property insurance can cover losses to your property due to weather like snow, wind, and rain damage. It can also protect you from lawsuits if someone injures themselves on the property or if your property is vandalized.
Who For Sale By Owner Homes Are Right For
For sale by owner properties are right for investors and owner-occupants who want to save money on real estate agent commissions and want less competition when making an offer on a property. They also tend to be a better fit for buyers who like to be more hands-on with their property purchases.
Even when the buyer decides to hire a real estate agent―otherwise known as a buyer’s agent―sellers will still save money since they aren’t being represented by an agent. These savings will be reflected in a lower asking price. On average, FSBOs net a 6% lower price than similar houses listed for sale by an agent and listed on the MLS.
You may decide that for sale by owner homes aren’t right for you, but you still want to purchase a property at a good price. That’s fine since the FSBO process isn’t a good fit for everyone. You could consider buying a real estate-owned (REO) property that has already gone through the foreclosure process and is owned by a bank or preforeclosure property that hasn’t completed the foreclosure process yet.
If you want to bid on a home instead, consider buying an auction home or a United States Department of Housing and Urban Development (HUD) home.
Pros & Cons of Buying For Sale By Owner Properties
There are pros and cons to any real estate transaction, and this is especially the case with for sale by owner properties. They’re known for selling for lower prices than properties listed by agents, but they can be tricky to navigate if a real estate professional isn’t involved.
|The seller may be more flexible on the price since they aren’t paying a listing agent’s commission.||If you don’t have a real estate agent, the process can be daunting.|
|You will have less competition bidding on the house since it isn’t as advertised heavily as a home on the real estate market.||You have the potential to overpay for the house since a real estate expert didn’t price the property.|
|The homeowner can answer your questions about the neighborhood directly without a real estate agent running interference.||You may not know what questions to ask the seller and may end up with unpleasant surprises later on like an old furnace that needs to be replaced.|
When to Reach Out to FSBO Leads
Some real estate agents believe that reaching out to FSBO leads immediately is the best strategy, while others purposely wait until the listing has ripened. You’ll have to test what works best for you and your market, but here are some of the benefits of contacting a FSBO right away vs waiting for several weeks to pass from the original listing date.
Benefits of Contacting FSBO Leads Immediately
Benefits of Waiting to Contact FSBO Leads
Higher chance to reach the lead first
You aren’t lumped in with your competition if everyone else calls immediately
Leads remember the first agent they speak with most
You are reaching them when they are getting frustrated and discouraged
First conversation can be more positive
Whether you choose to contact a lead right away or wait for time to pass, the most effective method of communicating with FSBO leads is to call them by phone and use a script. FSBO scripts save time, keep you focused, and help build your confidence. Since you’ll be talking to people in the same situation repeatedly, using a script will help you address objections, concerns, and always have well-thought-out and formulated answers.
Don’t worry if you don’t get the listing from the first phone call—it’s more than likely that you won’t. The objective of your call is not to immediately get a new listing but to set up a time to meet personally.
Pro tip: The best time to call is usually after working hours on a Monday.
By following the six steps outlined in this comprehensive guide, you know how to find for sale by owner homes. After you’ve considered the pros and cons and are sure that a FSBO home is the right choice for you, you can start the process.
For agents, converting FSBO leads into clients can be an effective prospecting tip for growing your business. You can find FSBO leads through organic searches or by paying a lead source like REDX and call them using an FSBO script. Start calling and converting FSBO listings with REDX today.