How does buying a house for sale by owner work? Why do sellers tend to use real estate agents? Find out more about how to buy a house for sale by owner.

Knowing how to buy a house for sale by owner is huge for real estate investors. Because the seller won’t have to pay an agent’s commission, they may be willing to sell the house for a lower price. Plus, you don’t have to worry about negotiations as much, as there are fewer interested parties involved.

The thing is, most people tend to use real estate agents. In fact, only about 20% of homes sold are sold directly through the owner. So how does this process work, and why do so many people shy away from it?

Why Sellers Use Agents

There are two main reasons why sellers tend to use real estate agents:

  • An agent helps market the home, attracting potential buyers.
  • Agents should know the local market and can help the seller prepare the home and answer any questions they have.

These may seem like minor issues, but when you’re talking about the sale of the most expensive thing you own, people like to get advice from experts!

The downside is that pesky commission. The normal price for commission and fees is about 6 percent of the home’s sales price. So for a $200,000 home, the seller loses $12,000 to their agent! That hurts.

That’s why- especially in a seller’s economy- some will choose to forgo the agent and list themselves. That way they can pocket the entire sales price, minus the legal fees.

How to Make the Purchase

Whether or not you have your own agent doesn’t matter. To buy a house for sale by owner, the steps will be roughly the same:

  1. Identify the Area and Budget- This may sound obvious, the it’s difficult to go house hunting before you know how much you can afford and what area you’re going to consider. Don’t get too specific with the area though, as you may find that a neighboring town has better deals or is closer to your budget.
  2. Get Pre-Approved- Again, there’s no reason to go house hunting until you know exactly how much money the bank will give you. This normally doesn’t take too long, but there is some paperwork involved.
  3. Look for Homes for Sale by Owner (FSBO)Most real estate listing sites will tell you if the homes are for sale by owner or not. There are also certain sites that only show these types of homes. Likewise, if you have a real estate agent, you can ask them to only target these kinds of homes.
  4. Ask Lots of Questions- When you start looking at the homes, ask as many questions as you can think of. Get a feel for utilities, the homeowner’s association (HOA), past problems, etc. You want to know as much as you can about the home as possible before you make an offer.
  5. Make an Offer that Creates a Win-Win- When you buy a house for sale by owner, they probably want as much as possible. But since they don’t have to pay an agent’s fee, consider sending an offer for less than the asking price (unless competition is very high.) Remember this is a business deal, and you profit on a rental property when you buy- not when you sell. Just make sure you leave a clause in the offer that lets you back out if necessary, such as if an inspection goes south.
  6. Get a Home Inspection, Appraisal and Copy of the C.L.U.E. ReportWhen your offer is accepted, get a copy of the C.L.U.E. report and a home inspection. You’ll also need an appraisal done on the home, so your bank can verify how much it’s worth before they lend you the money.
  7. Get a Real Estate Attorney and Third Party for Escrow- Even though a seller doesn’t need an agent, an attorney is required to handle all of the paperwork. Regarding the earnest money required in most purchases, it’s best to use a third party to handle it.
  8. Complete the Deal, Prepare it for Tenants then Rent it Out!

That’s pretty much it. So it’s similar to buying a home with a seller that has an agent, but since you’ll be talking directly to the seller, just keep in mind that you’ll be talking to someone who is more emotional about the home.

At the end of the day, you can use this to your advantage if they’re in a dire situation and need to get out from under the debt. The important thing is to do your due diligence, verify everything they say, and don’t make the purchase if the numbers don’t add up to be a profitable business deal.

Good luck- now go buy a house for sale by owner!

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