What Is For Sale by Owner (FSBO)?
"For sale by owner" (FSBO) indicates that a property is available for purchase directly from the owner rather than through a real estate agent or broker. Some sellers choose this option to avoid paying agent commissions. Those commissions usually total 5% to 6% of the sale price, split between the seller's agent (also known as a listing agent or broker) and the buyer's agent, if any. FSBO sales, while less expensive for the owner, have their own set of costs, as we explain here.
Key Takeaways
- In traditional real estate transactions, home sellers have to pay commissions of up to 6%, split between their agent and the buyer's.
- Sellers go the FSBO route to avoid paying an agent of their own, although they'll often have to pay the buyer's agent (if any) a commission of 2% to 3%.
- In a FSBO transaction, the seller takes on the duties that a listing agent would normally perform.
- Other FSBO costs will usually include lawyer fees.
For Sale By Owner (FSBO)
How For Sale by Owner (FSBO) Works
Traditionally, real estate agents have received commissions of up to 6% for their services. Those commissions are negotiable, however, and can vary depending on the real estate market and other factors. In 2023, the average commission rate for real estate agents in the U.S. was 5.46%, down from 5.7% in 2020.
In return for their commissions, real estate agents provide a variety of services. Those include:
- Helping set the asking price by researching property values for similar homes in the area (called comps), based on factors such as the number of bedrooms and the home's square footage.
- Staging the home for sale and offering advice on any necessary repairs.
- Managing the marketing, including advertising, online listings, brochures, and flyers, as well as listing the home on the Multiple Listing Service (MLS).
- Scheduling and hosting showings and appointments.
- Negotiating the price and terms of the sale when an offer has been made.
- Preparing the legal documents, such as the sales contract, residential property disclosure form, mineral and oil rights form, occupancy agreement, and lead-based paint disclosure. Sellers may also need to track down the property survey, permits, certificates of occupancy (COs), loan documents, utility bills, property tax bills, homeowner association covenants and agreements, and the property title.
- Preparing the deed (e.g., quitclaim, warranty, or some other type of deed), and getting it signed, witnessed, and notarized.
- Closing the sale. Depending on the state, the closing will take place at a title company or a real estate attorney's office.
In a FSBO (often pronounced "fizzbo"), the homeowner is responsible for setting the price, advertising and showing the home, negotiating the sale terms, and preparing the various legal forms, usually with the help of an attorney.
What a FSBO Costs
A FSBO can be less expensive than a conventional real estate transaction, but it isn't free. Major costs can include attorney fees and buyer's agent commissions.
Attorney Fees
In a FSBO transaction, purchase contracts can be drawn up in any of several ways. Some individuals use one of the blank contracts that can be found online. Companies like ForSaleByOwner.com also offer packages of relevant documents for this purpose.
The seller can also find a local real estate attorney to write up and review the contracts. According to the real estate site Zillow.com, lawyers often charge a flat fee of $800 to $1,200 per transaction, or an hourly rate of $150 to $350, depending on the market and how much work is involved. In many states, sellers are required by law to use an attorney, even if they are selling the home on their own.
If the buyer is using an agent, that agent may also provide a contract.
Buyer's Agent Commissions
If the buyer brings their own real estate agent into the sale, as is common, the seller must pay that agent. The commission in that case is typically 2% to 3% of the sales price.
According to ForSaleByOwner.com, "it’s not unheard of for FSBO sellers to decline to pay the commission for buyer's agents. When this occurs, buyers generally ask for a credit to be applied to the purchasing price" to compensate their agent. In other words, the seller will end up having to pay it anyhow.
Note that if the seller does not have a real estate agent, their home will not normally be listed in any of the multiple listing services (MLS) that buyer agents commonly use to find homes for their clients. However, there are brokerages that will, for a flat fee, arrange for a listing.
7%
The percentage of home sales that were FSBOs as of 2023, according to the National Association of Realtors.
FSBO Alternatives
Sellers who hope to avoid the roughly 6% they'd pay to use a full-service real estate agent, but who aren't comfortable doing it all on their own, have some other options.
Some real estate agents offer a more limited set of services for a flat fee. That might include, for example, an MLS listing.
Discount real estate brokers also offer a range of services, often advertising commissions as low as 1%.
Downsides of FSBOs
Saving thousands of dollars in commissions can be tempting. Still, it's important to remember that when a seller doesn't employ a real estate agent, they assume all the responsibilities involved in completing the transaction.
If the seller is unfamiliar with the home buying and selling process, a mistake can be costly. If they set the listing price too high, fewer buyers will consider the home and it may take much longer to sell. On the flipside, setting the price too low could prove more costly than hiring an agent in the first place.
Selling a home via FSBO can pose legal risks if the documents are not drawn up properly or if the home has issues that aren't adequately disclosed.
In addition, some real estate agents representing buyers avoid showing FSBO listings or even outright refuse to do so. They may have been burned in the past by FSBO sellers who refused to pay their commission or otherwise proved difficult to deal with.
Finally, would-be sellers need to consider the time commitment involved.
How Do Real Estate Agents Get Paid?
A real estate agent who represents a seller is paid a percentage commission based on the final sale price. If another agent represents the buyer, they are also paid a percentage commission based on that price. Both commissions are paid by the seller from the proceeds of the sale.
The commissions are paid at the closing and typically add up to an average of 5% to 6% of the sale price.
What Is a Real Estate Agent vs. a Real Estate Broker?
Real estate agents and brokers can perform many of the same tasks for home sellers and buyers. The prime difference between them is that while agents have met the necessary tests to become a licensed agent in their state, brokers have taken additional training and passed the exam for a broker's license. Many brokers employ multiple agents in their offices.
How Much Does an MLS Listing Cost?
If you want to forgo the full services of a listing agent and pay only to list your home on a multiple listing service (MLS), that could cost about $100 to $500. Some real estate agencies offer a MLS listing alone for a flat fee, with additional services available a la carte. There are also online services that will simply provide an MLS listing.
The Bottom Line
A FSBO holds out the possibility of saving thousands of dollars in commissions. However, there are still costs involved. Before deciding, sellers need to weigh their potential savings against the services that a qualified real estate agent would provide them. They might also consider some alternatives, such as delegating at least some of the work to a flat-fee or discount broker.
