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 6 easy steps. These steps include things like choosing a neighborhood, locating the property itself, securing financing, making an offer, and going through the entire closing process.
Here are the 6 steps to find and buy a for sale by owner (FSBO) home:
1. Choose a Neighborhood
Always look at more than one neighborhood and narrow it down to the one you like. When considering an area, do research on multiple neighborhoods and consider how convenient each location is, if the homes are in your price range and the amenities they offer. You’ll also want to look at school ratings and overall curb appeal.
After you look at several neighborhoods, both online on websites like Zillow as well as in person, compare the amenities. Consider things you might’ve missed, like how close they are to highways as well as their walkability. Then, narrow it down to one or two neighborhoods you are comfortable buying in.
Choosing a neighborhood is an important step because it’s where you are investing. 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 future buyers. Bad schools, strip clubs, and high renter concentrations all drag down your home’s value.
You want to invest in a neighborhood that is stable or up and coming so it will positively affect the appreciation of your property and be desirable for you and renters. The term location, location, location is true because the more desirable your location, the quicker your home will rent or sell and the more it will rent or sell for. However, since only 8% of homes listed in 2016 were FSBOs you may have to expand your search, using your desired neighborhood as the center.
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
|Positive Factors||Negative Factors|
|Highly rated schools||Low Rated Schools|
|Well kept neighboring homes with mowed lawns, tidy yards and neat exteriors||Unkept neighboring homes with overgrown weeds, peeling paint and junky yards|
|Convenient amenities such as nearby shopping, dining and parks||A lack of nearby amenities, no local parks, far away shopping and dining|
|Local employment opportunities, nearby businesses and low unemployment rate||No nearby businesses or businesses are closing, high unemployment rate|
|High concentration of homeowners in the neighborhood||High concentration of renters in the neighborhood|
2. Locate a Property
After you choose a neighborhood it’s time to locate the property you want to buy. Start looking online and make a list of a few you like. After you find few, drive to the physical properties and check them out. Narrow it down to one property. You can enlist a realtor during this time to help.
The most common way for buyers to find any property – including for sale by owners – is online. This should be the starting point of your property search. You can narrow down your selections online to a few good candidates without wasting the time and expense of physically looking at properties.
Although places like Craigslist and Zillow feature some for sale by owner properties, they also feature properties that are listed with realtors, and it’s more time consuming to go through them. The most popular nationwide sites to look for sale by owner properties are REDX, FSBO.com, and ForSaleByOwner.com.
FSBO.com is an easy to use site that features for sale by owner properties. It’s free for buyers to use and doesn’t require a registration process. It features a buyer’s tips section with the answers to frequently asked questions and there are FSBO contracts you can download for a fee. The site also has a directory to find nearby professionals, including movers.
You can search by type of property (such as commercial or residential) and then by sub-type (such as a condo, single family home, townhome, etc.). You can also narrow your search by geographic area, price range and number of bedrooms and bathrooms. You can’t save the listings you like but you can send them to yourself via email or social media.
REDX is a site for buyers and real estate agents looking for sale by owner properties. Since they provide listings from multiple sources, they are a paid site. They feature FSBOs from other websites, newspapers, classifieds, and more and organize it into one convenient database. They’ll also send you updated leads daily.
You can set parameters such as price range, geographic area, number of bedrooms and bathrooms to better filter your results. The RedX sends you listings based on your preferences and they will add any information that may be missing from the listings they search, such as phone numbers or incomplete addresses.
Real estate investors looking to buy multiple properties can use a dialer that calls multiple phone numbers and leaves pre-recorded messages. This is also beneficial for single-FSBO buyers who want to find a FSBO quick, such as when competing with all cash buyers.
If you want to find a for sale by owner property today, sign up for REDX. They offer comprehensive lists of FSBOs in your area found by scouring sites, classifieds, and signs to bring them to you all in one place. Rates start at $29.99 per month and they’ll deliver the leads right to your inbox.
ForSaleByOwner.com offers an easy to use site that requires a short registration process; it’s free for buyers to use. It has helpful tools like a buyer’s guide and a buyer’s timeline that shows every step of the purchase process and the expected length of time each step should take. You can save the homes you like in a favorites list so you can access them later.
The site lets you filter your searches by geographic area, price range, number of bedrooms and number of bathrooms. You can sign up to be notified of new listings based on your search criteria. These listing are emailed to you weekly.
Drive Around the Neighborhood
After you research a specific neighborhood and find some interesting properties online, it’s a good idea to start driving around the neighborhood. This gives you a feel for what’s happening, what businesses are open, how the neighborhood looks and how the houses are in person as opposed to online. This will help you narrow down your list to one property.
Exploring a neighborhood both during the day and during the night is recommended so you can see the traffic, if people hang out outside and if it’s a safe place to live, with working street lamps, etc. You may even discover a new neighborhood you weren’t familiar with before. If you find any new listings, take down the information on for sale by owner signs and then contact them for more information.
Work With a Realtor
Although there are online sites to find FSBOs and you can purchase one directly from the seller, it’s a good idea to have a realtor representing you. They will be able to guide you through the entire transaction process including contracts and negotiations. You don’t have to pay out of pocket for the realtor’s time. Instead, they earn a commission from the seller.
A realtor will be able to tell you what comparative properties are selling for, so you won’t overpay for the property. They will also help you navigate the appraisal and inspection process. The realtor will find out about the history of the property and will help you write up an offer. They can also recommend lenders and title companies.
“Working with a realtor can get you a better deal on the for sale by owner property since most sellers aren’t experienced negotiators but realtors are. Buyer beware when buying a FSBO without a realtor. Often times, sellers of FSBO’s don’t have the first clue as to what they need when it comes to state documents and disclosures and often times do not disclose defects or safety concerns up front. This could potentially land you in court and turn into a bigger mess than you ever wanted in the first place.”
— Mike Higgins, Realtor, Keller Williams Greenbay
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 – The most common loan type and offers competitive, 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 203K 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 1-4 unit properties or investors buying a 1 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 also allows a real estate investor to quickly purchase a home 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 quickly buy a residential property 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 (HELOC) – Based on the equity in an owner occupant’s primary residence and can be used to rehab or purchase a property.
If you’re thinking of using a hard money loan to finance your new FSBO home, contact LendingHome. They will prequalify you online in minutes and their interest rates start at only 7.5%. Get funded in as little as 15 days.
FSBO with Seller Financing
Seller financing is an alternative way to finance for sale by owner properties. Buyers may want to use seller financing if their 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%+. 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 ultimate guide to owner financing.
4. Make an Offer
After you have found 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 realtor) will research what similar homes in the area have sold for within the past few months. Your realtor will use the Multiple Listing Service (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 6 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 realtor, 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 realtor, check out the real estate purchase agreement on RocketLawyer. This will give you a good template to use. Check it out ahead of time so you can familiarize yourself with it.
Regardless, in either case, once the offer is accepted and the purchase agreement signed, the offer will be subject to an inspection and an appraisal. This means that you can only actually buy the property if it appraises for the number you’re offering (or higher) and if it passes a home inspection.
5. Inspection & Appraisal
An inspection is conducted by a licensed property inspector. It’s performed 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 value of the property. An inspection and an appraisal are recommended for every deal and usually required.
Most real estate purchase contracts have an inspection contingency period. It varies from 5 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, they 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 – $400 on a single family home. Your realtor 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 for sale by owner 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 realtor, the realtor will recommend a title company that their office uses or give you a list of companies to choose from. 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 is usually 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 such as 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 realtor commissions. FSBOs are also right for buyers who like to be more hands-on with their property purchase. Finally, FSBOs are right for buyers who want less competition when making an offer on a property.
Even if the buyer decides to hire a realtor (otherwise known as a buyer’s agent) they will still end up saving money since the seller doesn’t have an agent representing himself. 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 an REO property that has already gone through the foreclosure process and is owned by a bank or a pre foreclosure 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 HUD home.
“Dealing with a FSBO can be a friendlier negotiation and it’s more personal. It allows the buyer to communicate directly with the seller. This can be a problem if you would prefer an intermediary to deal with any conflicts but it’s great for hands on buyers.”
— Ali Wenzke, Real Estate Investor & Founder, The Art of Happy Moving
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. Some pros and cons of buying for sale by owner properties include:
- The seller may be more flexible on the price since they aren’t paying a listing agent’s commission.
- You will have less competition bidding on the house since it isn’t as heavily advertised as a home on the real estate market.
- The homeowner can directly answer your questions about the neighborhood without the realtor running interference.
- If you don’t have a realtor the process can be daunting.
- You have the potential to overpay for the house since a real estate expert didn’t price the property.
- 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.
By following the 6 steps outlined in our comprehensive guide, you should now know how to find for sale by owner homes. You will also know if FSBOs are right for you and what their pros and cons are. At the end, you should not only know if a FSBO is right for you but actually how to close one.