FSBO guide for homeowners: The for sale by owner process

Gina Freeman
Gina Freeman
The Mortgage Reports Contributor
September 23, 2022 - 16 min read

How to sell your home “for sale by owner”

When you sell a home, one of your first decisions is whether to FSBO (for sale by owner) or hire an agent. Most experts recommend working with an agent, despite the cost, to ensure the process goes smoothly and correctly. But there are other options as well, which may offer less-than-full service and still save you money.

Learn about your options, from using a full-service Realtor to selling your own home, and all the hybrid programs available today.


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How does for sale by owner work?

For sale by owner homes are sold without the help of listing agents or Realtors. Instead, sellers list their own homes and pocket the agent commission fees they would normally pay during the standard home buying process.

Although many of the steps to selling a home are similar for both FSBO sellers and traditional sellers, the for sale by owner process is notably different. Here’s what you need to know.

Seller’s guide to the for sale by owner process

The for sale by owner process can be intimidating, but with a little know-how and lots of elbow grease, you can sell your own home. Regardless of how much or little help you get from an agent or service, here are all of the steps you’ll need to follow.

  1. Prepare your home for selling
  2. Market your home
  3. Manage commissions, open houses, and viewings
  4. Assess home buyers
  5. Evaluate offers and counter-offers
  6. Make decisions about home inspections
  7. Provide FSBO disclosures

Let’s dig into each step a little further.

1. Prepare your home for sale

You may have learned to live with your home’s quirks, but buyers will quickly notice deferred maintenance like peeling paint or sticky doors. And they will wonder what other problems are not in plain sight. So declutter your home and address any health and safety issues.

If your floors are delicate, be prepared to offer a place for shoes and socks or slippers to visitors. And make the place inviting by turning on lights, setting the temperature to a comfortable level, and keeping things neat and clutter-free

Walk through your home as though you’re seeing it for the first time. Enlist the help of a more objective family member or friend and ask them to be completely honest about any turn-offs. (Make sure you can handle the truth before asking for it.)

Staged homes fetch higher prices. It’s a fact. If you don’t want to hire a pro, at least rent some storage space and stash a minimum of half of your belongings out of sight. You may also need to get rid of pet hair and odors, and even board your furry family members elsewhere until you close on the sale.

2. Be your own marketing department

Plan to spend some money on advertising. Researchers claim that 90% of buyers search for houses online. They need to be able to find yours.

It pays to spend what it takes to get your house listed on the local MLS. While the MLS is not available to consumers listing homes, there are brokerages or platforms that offer the service for a flat fee.

You can also list your home for free on home listing websites like Zillow, Trulia, and Craigslist. In addition, don’t underestimate word-of-mouth marketing on social media. Post photos on Facebook or other social media sites and ask friends and family to share.

Make yourself available for showings and be as flexible as possible, You will probably have to put your life on hold while selling your own house.

3. Handle commissions, open houses, and viewings

If you offer a commission to buyer’s agents, make sure they know it. Your MLS listing should state this, as should your signage and advertising. Plan on putting a lockbox on the house, so agents can tour the home with their clients, and you won’t have to be there. Make them earn their 3% commission fee!

Should you hold an open house? Many believe that they are primarily used by agents to market themselves to your neighbors. If your house is on the MLS and you provide good pictures and virtual tours, you may not need to hold an open house. You can even hire a professional photographer to shoot a virtual tour; most pros can offer drone photography. Advertise the virtual tour link in your brochures and fliers.

If you do open your home, it will be easier if you have some help — someone to sign in visitors and check IDs, someone to keep an eye on various rooms as people walk through, and someone to answer questions from potential buyers and agents.

4. Assess home buyers

Make sure your buyer is prequalified by a mortgage lender to purchase your home. And require an earnest money deposit to be put into an escrow account. If the buyer doesn’t adhere to the purchase agreement, then they’ll forfeit the deposit.

Understand that contingent offers let the buyer out of the deal under some circumstances. For instance, most standard contracts allow the buyer to exit if a mortgage lender declines their loan application or if the home fails to appraise for the sales price.

If a buyer makes a contingent offer, make sure you can accept a better offer or force the buyer to remove the contingency. This is called the “right of first refusal.”

5. Evaluate and counter offers

Decide what’s most important to you. For example, an all-cash offer with a fast closing date may be better for you than a higher sales price contingent on buyers selling their current home. Understand your housing market value — you’ll negotiate differently in a seller’s market than in a buyer’s market.

The buyers or their agents normally draft the sales agreement. If there are multiple offers, you’ll be responsible for communicating with potential buyers and agents. You’ll evaluate the strength of each offer and perhaps counter them, eventually arriving at an agreement.

Learn in advance how to write a counteroffer. You don’t have to accept the buyer’s offer, but you should always counter and give them the chance to do better. Many just automatically see what they can get away with on the first go-round.

Remember that the asking price is just one factor. You may be able to make the deal more attractive to a buyer by paying closing costs or throwing in a snow blower. Incentives to buyers’ agents may also get the deal done while still saving you money.

6. Decide on a home inspection

There are two schools of thought about home inspections. On one hand, by getting one before putting your home on the market, you find out if anything needs to be fixed upfront. This can eliminate ugly surprises deep in the FSBO process. On the other hand, most (if not all) states require you to disclose any defects you know about. So anything that turns up would have to be fixed or disclosed, and you may not want to do that.

Providing a copy of your own inspection may help put buyers at ease, and they may even waive their right to order their own. That’s not smart on their part, but an unrepresented buyer might not know any better.

Your sales agreement should set a limit on the amount of repairs you’re required to complete. For instance, you might agree to pay for repairs up to $2,000 without renegotiating the contract. But if the inspector comes up with $20,000 of repairs, you may not want to be forced to do that to close your deal. You may prefer to just kill the deal or negotiate a lower sales price based on the inspector’s findings.

7. Provide FSBO home disclosures

Federal and state law mandates certain disclosures and material facts. You must give the buyer a copy of all required disclosures. Have your buyer sign a receipt indicating that you provided these documents.

  • Pest reports: In many parts of the country, buyers ask for pest (termite) reports from the seller. The cost is negotiable, but many areas have traditions that dictate what people expect to pay for, and what they expect you to pay for
  • HOA disclosures: If you live in a community, co-op, or condo with a homeowners association, your buyers and their mortgage lenders will want copies of the covenants, conditions, and restrictions (CC&Rs). That’s a set of rules homeowners must abide by. Know if your community is FHA, Fannie Mae, Freddie Mac, VA, or USDA-approved. You can then advertise this fact to potential buyers
  • Title report: The buyer will likely obtain title insurance, which again is a negotiable expense between the parties. Speak with a title company about a preliminary report before selling, so you’ll know if there are issues you need to address. For instance, things like tax liens that might be on your title by mistake
  • Home warranty: Smart sellers often offer to provide a home warranty that costs a few hundred dollars for a year of coverage. And the buyer won’t be blaming you for every little thing that goes wrong after the sale, or call wanting you to fix anything

Ordinarily, buyers get some amount of time to review these disclosures. Once that deadline passes, they don’t have the right to kill the deal because of anything on the forms. If your contract is set up correctly, you should be able to keep their earnest money if they back out at that point.

Should you sell your home yourself?

Even in the hottest markets, DIY home selling involves more than just putting a sign in your yard. Before making money-losing errors, make sure you know the answers to these five questions.

1. What’s my property worth right now?

Everyone wants to buy low and sell high, and home sellers often overestimate the desirability of their homes. So act like an appraiser and research local sales and trends online. It’s important to look at actual comparable sales prices, or “comps.”

You may want to pay for an appraisal from a licensed appraiser. In addition to the home appraisal, there are three more sources of home value. They are, from least to most accurate:

  • Automated Valuation Model (AVM): The AVM is what you get with most online valuation tools. It works when you haven’t made many upgrades or renovations to your home; if it’s in a tract of identical houses; and you’re willing to be off by 10% to 30%
  • Comparative Market Analysis (CMA): If you’re considering listing with a real estate agent, part of the marketing presentation usually involves a CMA. However, it’s part of a sales pitch. And agents’ main business is not evaluating — they might overstate your value to get your listing
  • Broker Price Opinion (BPO): A licensed broker examines three recent sales of comparable property to yours, and three currently-listed houses. They perform what amounts to a mini-appraisal and offer a value estimate. A typical BPO costs between $50 and $250. It’s considerably less than an appraisal

Brokers with BPOR certification from the National Association of Realtors have special training and only they are allowed to perform BPOs. Lenders often commission BPOs to determine the value of repossessed property before a foreclosure sale.

2. Am I willing to deal with buyers’ real estate agents?

While you may decide not to use an agent, many buyers still choose to work with one. And that person expects to get a commission, usually from the seller. It’s traditionally how real estate sales work. Agent commission fees are often 2.5% to 3% of the sales price. While you can refuse to pay the commission, it will probably shrink your pool of potential purchasers.

3. How much do I like sales and marketing?

Some FSBO sellers are surprised by how time-consuming the sales process can be. Part of doing it yourself includes:

  • Taking good pictures and writing nice descriptions of your property’s best features
  • Putting up your “for sale” signage with your contact information
  • Listing the property online
  • Creating fliers with lots of good pictures and copy

4. Am I willing to conduct tours and deal directly with potential buyers?

Arranging and conducting tours can be a lot of work; you’ll need to be ready and willing to do all the scheduling and touring on your own time.

There is a reason most professional agents have their sellers leave when buyers come in. For one, buyers are more likely to express their opinion of the house’s features, faults, and asking price. This is valuable information. The other reason is that most people find criticism distressing, and that can make them too emotional to negotiate properly.

Finally, selling your own home can be a challenge if you have pets. Most agents recommend that pets not be present when buyers are viewing the property. Definitely extinguish all pet odors before putting your house on the market or allowing people inside.

5. Am I willing to screen my own buyers?

With an agent, someone else supervises home showings and makes sure your personal effects don’t walk out the door. And they don’t let people who can’t get financing waste your time. During the FSBO process, you’ll have to screen potential buyers yourself.

Your first line of defense is requiring potential buyers to provide a mortgage preapproval letter. Or at least a pre-qualification letter. That shows that they are serious enough to have gone through the preapproval process with a mortgage lender

You should also check potential buyers’ identification when they enter your home and note their names and addresses. This should make them think twice about damaging or stealing anything.

Is it worth it to sell your own house?

The biggest reason to consider some form of FSBO is the money you may save. If your house sells for $300,000, a traditional real estate transaction would cost around $15,000-$20,000 in commissions. You can keep that money or drop your price to sell faster.

The other benefit is that you control the process. You get to decide how to advertise, whether you want to have an open house, when to show your home to prospective buyers, and how you want to negotiate with them. If you like being in the driver’s seat, you may prefer the for sale by owner process.

FSBO mistakes to avoid

There is a reason that states don’t just hand out real estate licenses to anyone. Agents must complete a certain amount of training and pass at least one exam to get their licenses. In addition, they must pass continuing education classes every year.

You probably don’t have that training. So here’s a crash course in what not to do when you FSBO.

Just throwing a sign out there

Whether you are selling on your own or with an agent, in order to attract buyers, clean your house, declutter, and maximize your curb appeal. However, beware of spending too much and over-improving your property for its neighborhood.

Put your money where it will do the most good — on inexpensive improvements like fresh paint, a weed-free yard, an inviting front door, and clean baseboards and walls.

Overpricing

Sellers who FSBO must do their own research on what similar houses in their area are fetching. Look at the most recent sales you can find, and also check out the listing prices of competing properties in your area.

Remember, your house will sit on the market longer — costing you time and money — if you overprice it. All you’ll be doing is helping other people sell their homes because they will look better in comparison. In fact, agents often show overpriced houses first, then show their own listings to their clients.

“Forgetting” to get a home inspection

Savvy buyers will require an inspection. They are likely to find some (hopefully minor) repairs needed. Sellers who have a home inspection before putting their home on the market can prepare to pass a buyer’s inspection.

Overpaying a buyer’s agent

Selling your home without an agent won’t save you the entire 6% commission unless your buyers are also unrepresented.

If you want to attract the attention of buyers who are working with a real estate agent, you’ll have to offer a commission in the traditional range of 2.5% to 3%, and maybe more to compensate the agent for the extra work your FSBO deal implies.

On the other hand, don’t just let the buyer’s agent control the whole process or push you to accept less than you should. If you can’t negotiate comfortably, get your own representation.

Putting few or low-quality pictures online

Since nearly all buyers start their home search online, they are used to checking out photos before touring houses in person. Make sure you have multiple photos with your listing.

Be smart about what you showcase. If you say you have a great view, show the view. Incredibly, even professional photographers sometimes make this mistake. They put up 20 pictures of the bathrooms and none of the outside. Highlight your home’s great points.

Make sure the rooms are clean, clutter-free, and well-lit. No blurry, dark, or messy pictures. This is one area in which professional staging and photography may offer a lot of bang for your buck, especially if you’re selling an upscale property.

Not using your local MLS (multiple listing service)

It’s easy to find FSBO services that can put your home on the local real estate listing service for a flat fee. It’s just a few hundred dollars (almost nothing compared to the value of your home). This lets you market your property to thousands of buyers, probably the most cost-effective help you can buy.

Being hard to reach or meet

If you can’t be available to show potential buyers on their schedule, hire someone who can. Unless your house is so desirable or well-priced that you can make everyone come at 6 a.m. on Sunday, you’ll either have to put up a lock box and pay a 3% commission or take a lot of time off work to show your house.

Blowing off potential buyers

Respond to emails and phone calls immediately, because any of them could be from a potential buyer. Remember that serious buyers want to narrow down their list quickly, view those homes, and complete the process ASAP. If you wait a few days to make contact, they may already be under contract elsewhere.

Dealing with unqualified purchasers

Don’t take your home off the market until you get proof that the buyer can follow through. This means a mortgage preapproval letter or bank statement showing the buyer has the cash to close. Don’t rely on mere prequalification. In most cases, prequalification (unlike preapproval) does not involve underwriting, proof of income, or even necessarily a credit report. You could lose a lot of time and money if your sale fails at the 11th hour.

DIY alternatives to FSBO

Today’s home buyers can check out homes without spending hours in the back seat of an agent’s car. They can and do tour for-sale homes anytime they want. But how do you get your house out there in front of buyers?

You could build your house its own website. Or you could pay a national real estate firm 6% commission fees to hire a professional photographer, print brochures, and advertise your house on their site.

Or, you can choose another level of service and price for a custom experience. This so-called “hybrid” model blends traditional and DIY home sales, letting you save money by doing things you don’t mind doing, and save time by paying someone to do things you don’t like.

Hybrid model

Traditional agents usually split a 6% commission between the listing agent, the selling agent, and their respective brokers. Each party may grab a 1.5% share of your home price.

FSBO sellers do not have to pay the standard commission but may have to pay a selling agent and broker 3% in order to make the deal work. And FSBO selling can be a lot of work and aggravation for some.

FSBO sellers may miss out on buyers who have buyer’s agents. Their agents may prefer to avoid FSBOs, even those who will pay a 3% commission. They expect that they will be stuck with most of the work. A hybrid model can prevent this.

Pay only for what you need

Online self-help platforms offer different ranges of service, letting sellers decide how much service they want and what they want to pay. Paying for a listing in your local MLS is the minimum you should do, but many hybrid model platforms offer free trials and low-priced options.

The highest-end packages offer signage, online or phone support, state-specific real estate forms, and national and local MLS exposure. It may be well worth the investment if you save a ton and avoid the worst of selling stress by getting some professional help.

When it comes time to sell, think realistically about how much you’re willing to do. If you are confident, willing to put in the hard work, and perhaps have some real estate or marketing know how, FSBO may work well for you.

Should you offer seller financing?

Seller financing means you’d act as the mortgage lender for your home buyer, allowing you to collect regular payments and earn interest on the sale. If you have a significant amount of home equity and don’t need to receive the entire proceeds of the sale at closing, you may want to consider seller financing.

There are three ways to structure your sale. Your choice depends on your objective and how much you owe (if anything) on your home.

1. Mortgage or deed of trust

When you create a mortgage (or deed of trust, depending on your location), you become a mortgage lender. You and your buyers have to execute mortgage documents dictating the loan’s terms. You record a lien against the home with your county. Mortgages and home sales are public and must be recorded to be enforceable.

2. Owner carryback

In this case, most of the financing is taken care of by a professional mortgage lender. You just finance part of the buyer’s down payment. This is called an owner carry or a piggy-back mortgage.

One common structure is the 80/10/10, in which the buyer puts 10% down, then gets a 10% carryback from the owner and an 80% loan from a mortgage lender. An 85/15/5 requires just 5% from the buyer and 15% from you.

Understand that the mortgage lender is in first position. This means if the buyer defaults and the lender forecloses, it gets paid first from the foreclosure sale. You get paid only if there is enough left over to cover what’s owed to you.

3. Wraparound

A wraparound loan creates a new mortgage between you and the buyer. However, you continue paying your existing loan. Not all lenders allow this. In fact, many have an acceleration or due-on-sale clause that requires you to pay off your mortgage when you sell your home.

But assuming you can do a wraparound, they work like this:

If you owe $100,000 and sell for $150,000, you might accept $15,000 down, grant a $135,000 mortgage, and record the sale with your county. You receive monthly payments from your buyer, make monthly payments to your lender, and pocket the difference.

Pros of seller financing

There are several advantages when you finance a sale yourself. Not only do you receive your profit from the sale; you can take what a lender would get in interest and loan fees.

  • Higher price: Buyers who can’t purchase a home with traditional financing have less bargaining power than prime buyers. You’re more likely to get a better price
  • Tax breaks: If you’re not able to legally exclude all capital gains on your property sale, you can minimize or defer tax liability by carrying a mortgage. The IRS calls it an installment sale, and only a small part of each payment is considered a taxable gain. Depending on your bracket, the savings can be substantial
  • Income: Financing a sale creates income streams. First, just like a traditional lender, you can charge closing costs for originating the mortgage. One percent of the loan amount is typical. The second income stream is the return of principal, including the gain on your property sale. The third stream is your interest income. Before setting an interest rate, know what mortgage lenders are charging someone with your buyer’s credit, down payment and income
  • Lower costs: In many areas, it’s customary for property sellers to pay at least half of closing costs. Plus real estate commissions. As a financing seller, you might be able to skip expensive title insurance in addition to the services of a real estate agent

Cons of seller financing

There are also disadvantages and risks when you provide financing. It’s up to you to decide if the extra money is worth it.

  • Legal fees: Unless you’re very experienced at selling and financing property, hire a real estate lawyer to set up the loan. An attorney should also draw the sales contract if there’s no agent involved. Lawyers don’t work for free, but not using a pro can be very expensive in the long run
  • Default: If the buyer fails to repay as agreed (either you or a mortgage lender in first position), you will be dealing with the foreclosure process. The legal fees, aggravation, and potential property damage are major issues
  • Acceleration: Almost all mortgages have “due on sale” or “acceleration” clauses, which means your lender can choose to call in the loan once the property changes hands. It doesn’t happen often, but it’s possible

Your lender might okay the wraparound after the fact, but increase your interest rate. If you create a wraparound mortgage, consider all contingencies and have an out, just in case.

How to avoid problems with seller financing

Unless you’re an experienced private lender, get professional help.

  • Hire a real estate attorney. Have a real estate attorney help you set the terms of your sale and loan. Do not rely on online forms
  • Hire a note servicer to collect monthly payments. It should also collect and pay property taxes and homeowners insurance premiums. It’s not expensive, and much of the time, the buyer pays it anyway
  • Act like a lender, because you are one. Have your buyer complete a Fannie Mae Form 1003 (mortgage application). Pull the buyer’s credit, verify income, and set your down payment requirement based on the strength of the borrower
  • Know when to say no. If your buyer needs you to carry the loan because their credit report looks like a rap sheet, don’t make yourself the next victim. Experienced hard money lenders set upfront fees and down payments very high. So high that they won’t lose money if the buyer defaults early on