How to Find & Buy For Sale By Owner Homes (FSBOs) in 6 Easy Steps

Cody Cromwell
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Choose a Neighborhood

So you have decided to start looking for foreclosures in a neighborhood that you have a long term interest in. That’s great! You have just embarked on the long process of finding the right home. Remember that a good place to find foreclosures is a place where a house has been under-priced. It’s likely that in a neighborhood with a strong market, one will be able to pick up some low priced homes at a reasonable price.

Even if you aren’t able to find a foreclosed home in a neighborhood that’s right in your budget, you still have a lot of other neighborhoods to browse. It is also worth noting that you always can try to use our finding foreclosed homes neighborhoods list to find the homes that fit your needs.

Neighborhood Factors That Affect For Sale By Owner Homes

Locate a Property

Start by getting yourself a copy of the local MLS. Walking through your neighborhood, keep your eyes open for properties that don’t have For Sale signs, have For Sale signs covered up with white paper, have For Sale signs that are faded, or are for sale by owner. These are all indicators that the property has been listed for sale by owner, which is usually the seller’s preferred method of selling.

Searching my neighborhood, I found four houses that fell into one of these categories. I made appointments to meet with the sellers of each of the properties to find out more and see the properties.

FSBO Sites

Drive Around the Neighborhood

Figure out where the homes for sale are in your community, existing and new. Also, look closely at the list of homeowners that are participating.

Get basic descriptions of the homes and tour the neighborhood to see them for yourself.

Make specific notes about the properties that stand out.

Is the home updated? Are the homes certified?

Does it fit in with the surrounding homes?

Work With a Real Estate Agent

There are several important precautions you should take when buying a house for sale by owner (FSBO). First and foremost, it’s strongly advised that you work with a real estate agent, so that you are able to get the services they can offer. An agent should be able to suggest the ideal steps for buying a house from a FSBO. Furthermore, there can be other complications involved in buying FSBOs, so they can help you decide which FSBOs are worth pursuing and which ones you should avoid. And finally, it’s important to ensure that the seller’s real estate agent will have the necessary information on the property’s status and history. In short, working with a real estate agent is a safe, convenient, and effective way to purchase a house.

Obtain FSBO Financing

In most cases, the seller is the only source of financing for the home. Therefore, it’s important that you consult with the seller regarding their financing process and requirements. If the seller needs financing, you will need to come up with a financing quote along with your purchase price and/or contingency amount, in order to determine whether the seller will accept your offer. If you fail to address the seller’s financial requirements, you may risk losing out on a purchase opportunity.

If you fail to obtain financing, you can still proceed with the offer, but be prepared to wire the full amount to close the transaction. If you provide the seller with a contingency amount, you can offer them the opportunity to accept your offer with finance available. Only exchange contingency for finance!

If the seller is not armed with qualified financing, then they can increase the offer amount. However, note that the seller might determine that they can’t/don’t want to provide financing based on the financing quote you have submitted. The seller might also decide they can’t accept all the terms in the offer, which could be a deal-breaker.

Permanent FSBO Financing Options

FSBOs have the "power" to sell their homes. But, many assume this is not the best option as FSBOs often tend to drive down the price of their homes to get the sale completed…many underestimate this lack of resources when under pressure to sell. Many FSBOs still compete for the sale on a daily basis. The average FSBO owner shows their home each day, and is under pressure until they have a contract.

FSBOs have the "power" to sell their homes. But, many assume this is not the best option as FSBOs often tend to drive down the price of their homes to get the sale completed…many underestimate this lack of resources when under pressure to sell. Many FSBOs still compete for the sale on a daily basis. The average FSBO owner shows their home each day, and is under pressure until they have a contract.

There are many good reasons why an FSBOs may want to sell their home themselves:

Financial Freedom: They have always lived in the homes they want to sell…typically in the communities they like best. Small-town owners might be concerned that buyers are not looking in their town, or that their home would not be attractive to commuters. For these owners, selling their home themselves is a way to cut ties and move to a place they love.

Short-term FSBO Financing Options

Many homeowners are incorporating short-term FSBO financing as a means to qualify for homeownership and get into a home as quickly as possible. Short-term FSBO financing is by no means a traditional mortgage, and it’s not something every lender is willing to offer. In fact, many lenders prefer to offer a conventional loan or FHA loan to buyers with good credit rather than a short-term FSBO loan. But with some short-term FSBO lending programs, you’re much more likely to get the loan but with a higher interest rate. A good short-term FSBO program is one that gives you the option to refinance with conventional or FHA financing. And you should be able to get a lower interest rate if you choose to refinance. So take the time to find the best possible short-term FSBO program.

FSBO With Seller Financing

Not all FSBOs can be bought with seller financing. There is a very high bar to entry in real estate and just because you are qualified to buy this property doesn’t mean you’re qualified to buy this property with seller financing. Basically, if you are the type of buyer that is wealthy, cash is no problem or even preferred and you’re willing and able to pay for the property in full (no seller financing) then you should be able to buy it.

On the other hand, if you are cash rich but not wealthy yet or need mortgage funds for some reason, then you might not be able to buy it.

Note that there are three types of private seller financing as outlined in Article with regards to real estate:

Vendor Financing – Many cash owners need to finance their purchases. They can do so indirectly through a mortgage on their own property. They can do this directly by selling their property to a buyer in need of financing.

Cash Buyer – When a buyer purchases a property for less than it’s appraised value, they can make the necessary repairs and improvements and then sell it to a lender to qualify for a mortgage.

Home Owner – A home owner facing foreclosure can turn their home into a rental property to avoid homelessness or sale by lender.

Make an Offer

Email the owner and specify what month you are available to make an offer. You will also need the length of time that the home has been on the market and the price that was originally listed for.

The most important thing to keep in mind here is that you don't want to waste the entire length of time that the home has been on the market. So, if the home has been listed for a few weeks, it may be better to make an offer that's based on the listed price of the home.

Inspection & Appraisal

Some of the most important aspects when considering FSBO homes are the inspection and appraisal. Since these two are two completely different processes, it would be best if you hire a real estate agent to help you with both.

Before meeting with the agent, be sure to arrive at the FSBO property early. Taking pictures and doing research before viewing the home will allow you to have a more in depth understanding of the home’s pros and cons. In fact, a visual report through pictures and words is usually preferable to taking off on a tour of the home with an agent trying to explain everything. It’s your home after all, and they are not going to be able to explain the personality just by walking through the home. Since the agent’s job is to sell the home, they are going to try and focus on the best features of the house while overlooking the bad. This results in a skewed view of the properties.

To understand the home’s flaws, you need to know the strengths of the home first. This means having a detailed report that includes a good layout, photos of the interior and exterior, and a structural report to ensure the structural integrity of the home is sound. A structural report is crucial in the home inspection, but it should also be double checked by a competent structural engineer for any structural or structural concerns.

Close on the Property

Who For Sale by Owner Homes Are Right For

Smart house buyers realize that FSBOs are the ideal option for them. Below is a list of the positive factors at play when choosing them over MLS listings:

  • 15% off the asking price
  • No commission
  • The ability to bargain
  • Higher closings

These are the benefits that a smart home buyer should know when choosing to work with an FSBO seller. The main factor is the negotiating power that they’ve already saved. With the savings that they’ve come with a FSBO, they’re more than able to close the deal.

Pros & Cons of Buying For Sale By Owner Properties

Every real estate agent knows that FSBOs are “high-risk” investments. FSBOs are generally associated with substandard properties, poor maintenance, and unreliable sellers. As a result, you’ll need to be extra diligent and thorough in your home search.

On the other hand, FSBOs can offer some attractive advantages over traditional real estate sellers. Both buyers and sellers have cited ”quality of life” as their primary motivation for buying FSBOs. The flexibility of FSBOs to customize the process to work with your schedules and needs is another attractive aspect of this strategy.

Here’s how you can go about buying For Sale By Owner homes.

Decide on Your Criteria

The first step towards FSBO home buying is to decide on your criteria. This includes the overall quality, price, and location of the home you’re looking for.

Know What to Look For in a Home

In order to determine whether a home is a good FSBO investment or not, you’ll need a good understanding of the average FSBO home.

Pros

Cons

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Bottom Line

Finding a for sale by owner home (FSBO) means you’ll get to talk to the owner before you buy. You won’t have to go through an agent or trying to figure out who’s who of listing agents. That way you’ll be able to make a better decision based on the information you’ll gain from talking with the seller. We helped some folks find FSBOs in their communities and gave them the tools they needed to take advantage of the many opportunities that exist if they can find them.

We help you go from stranger to super sleuth by providing you with 6 easy steps to find and buy FSBOs in your area. With these steps, you can master super spy skills, find the FSBO home of your dreams and purchase it at a great price. One of our agents, Patrick (@cargobiddi), describes and talks about the process in his video below.