You just found an awesome home. In fact, it has all of the features you’ve been looking for including a huge backyard, your dream kitchen, and even a two car garage with enough storage space for all of your gardening tools. However, there is one problem… The house isn’t listed with a real estate agent.
Your potential dream home is FSBO. That’s right, it’s a “For Sale By Owner” property, meaning that the owner is selling the property without the help of a listing agent. You’re not sure how to navigate this territory, are a little nervous, and don’t want to be on the hook for the buyer’s agent’s commission.
You know you still want to work with a buyer’s agent and understand that your agent deserves to get paid their usual commission, but with a FSBO, who pays the buyer’s agent? Generally speaking, the seller will still pay the buyer’s agent commission when selling their home FSBO. In this article, we will go over your burning questions and what to do in the event that the seller is unwilling to pay your agent’s commission.
What does FSBO mean?
A FSBO is a home that is for sale by owner, meaning a real estate agent, also known as a listing agent, is not representing the seller in selling their home. Instead, the seller has chosen to sell the home themself. According to NAR’s 2021 profile of home buyers and sellers, 7% of home sales were FSBOs.
Just because a home is a FSBO, that doesn’t mean that you should run. There are pros and cons of buying a FSBO home, but it’s still worth checking out if it meets your homebuying criteria.
There are many reasons why owners choose to list their homes as FSBO including:
- The seller wants to save money on real estate commission
- The seller has experience with prior real estate deals
- They want to control who goes in and out of their house
- To test the market before listing it with a listing agent
- The seller knows the potential buyer
- They don’t want to negotiate on the sale price of the home
- They had a negative experience with a real estate agent
However, just because the seller isn’t working with a real estate agent doesn’t mean the buyer can’t. In fact, it’s always encouraged to work with a real estate agent during every real estate transaction. Your agent can give you feedback on home price, set up inspections, help with negotiations, and explain contracts, among other services.
Who pays the buyer’s agent commission during a FSBO transaction?
Generally speaking, the seller will pay the buyer’s agent’s commission and this is usually disclosed in the FSBO listing. The listing description may say something along the lines of ‘buyers agents welcome’ and then it may mention how much commission the seller is willing to pay. For example, a FSBO seller may be willing to pay between 2% and 3% of the purchase price as a commission to the buyer’s agent. In this case, they are still saving money by not paying another 2% to 3% to a listing agent.
Sellers typically know that if they don’t offer a commission, or aren’t willing to cooperate with buyer’s agents, these agents might not show buyers their home. Additionally, the seller may not be that familiar with completing a real estate transaction, so the buyer’s agent is a valuable asset here as well.
Although they don’t represent the seller’s best interests, buyer’s agents can still write up the purchase contract, start negotiations, and guide the buyer through the homebuying process.
What if the seller won’t pay the buyer’s agent commission during a FSBO transaction?
In the unlikely event that a seller flat out refuses to pay your buyer’s agent their commission, then you have a few other options. You can consider the following:
- Pay the buyer’s agent commission yourself: Expect to pay between 2% and 3 % of the sales price of the house. For example, you will pay $10,000 – $15,000 in commission for a $500,000 house. This can significantly impact your budget, however, and it will be an additional out-of-pocket expense.
- Split the commission: You can negotiate to pay half the commission and the seller pays the other half, aka meeting in the middle.
- Buy the house without a buyer’s agent: You could opt to buy the home without the help of an agent, but this isn’t always recommended and we will get into more details below.
- Choose another house: Walk away from the transaction and find another house. This can be an emotional decision and may be difficult if you need to move in a hurry or if inventory is limited in your area.
- Ask for a reduced commission: This may insult some buyer’s agents but some agents may work with you. If you are professional and explain the circumstances, it doesn’t hurt to ask, and you may get the full services of a real estate agent without paying the full price.
- Work with a real estate attorney instead: Find a local real estate attorney who can help with the closing process and the contracts, who charges reasonable hourly rates or a small retainer. A title company or mortgage company can often recommend a great local real estate attorney. Typically, real estate attorneys charge between $150 and $350 per hour, with some charging over $500 per hour. Some also will set flat rates for handling real estate transactions or offer set fees for specific real estate tasks such as preparing closing documents.
- Choose a discount or flat fee broker: A discount or flat fee broker aids in the transaction but doesn’t take part in negotiations. You may not get all of the services that a real estate agent provides and you most likely won’t get personalized service — instead a team may assist you. These services are designed for listing homes, but some will also work with buyers who want to buy a FSBO home. Should you consider buying a FSBO home without a buyer’s agent?
It is more common for FSBO sellers to agree to paying commission to a buyer’s agent than it is for them to refuse. According to Ed Villeda, who has completed 16% more sales than the average Stamford, Connecticut agent, more than half of FSBO sellers will pay the buyer’s agent commission. If for whatever reason, the seller won’t pay the commission, it’s still not recommended to purchase the home without the help of a buyer’s agent.
Buyer’s agents are essential to real estate transactions for so many reasons including:
- Negotiations can be tricky and things can get heated
- Purchase contracts can be complicated, they vary by state, and are constantly being updated and changed
- Agents help with the inspection process and can help coordinate the closing
- Agents can also recommend other vendors including title companies, insurance companies, mortgage brokers, moving companies, and more
- A good agent can help you find first-time homebuyer programs and down payment assistance programs in your area
Villeda says that “agents don’t just open houses. They provide a lot of information, historical information, details on the neighborhood, and their real estate expertise. They also pull comps (comparable sales) to show what other houses nearby have sold for.”
Another thing to keep in mind, is if you already signed a buyer-broker agreement, you need to know what would happen if you decide to end the contract and buy a house without them. You could be charged a cancellation fee or penalty for ending the agreement early or for purchasing a house without using their services. Read over your agreement (and it couldn’t hurt to consult an attorney) before making a decision.
Don’t be scared to buy the FSBO house. Most sellers are motivated to sell their home quickly and realize that cooperating with a buyer’s agent will help them do just that. Work with a top buyer’s agent so the process goes as seamlessly as possible and if the seller won’t budge, be creative, and see if buying the house is still feasible and you still feel represented in the deal. If not, it’s ok to walk away.
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