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Understanding the Risks of For-Sale-By-Owner Transactions.

Jun | 8
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Risks of for sale by owner transactions
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In the world of real estate, some home listings are classified as for-sale-by-owner (FSBO), in which the homeowner handles all of the duties of an agent and/or lawyer. Unfortunately, there are several risks involved for both sellers and buyers who engage in FSBO transactions. If you’re considering either side of this equation, take note of the following pitfalls associated with these deals.

Considerations for homeowners looking to sell

One commonly overlooked factor made by people selling their own homes is the time investment they’ll need to make. This includes determining a selling price that’s based on comparable houses in the area. Overlooking this piece could result in sellers undervaluing the price tag they stick on their homes.

Even when FSBO transactions are completed, the sale price falls well short of sales made by real estate agents. In 2015, the median sales price in FSBO deals was 16 percent less than median sales prices of homes sold by agents.

Sellers also need to invest substantial time into understanding the details of all the required forms they must complete in order to make the deal official. The 2015 National Association of Realtors’ Profile of Home Buyers and Sellers found that getting a grip on the required paperwork is one of the most challenging parts of FSBO transactions.

Failing to understand the details in property disclosures, occupancy agreements and sales contracts can hurt sellers if they’re not careful. That’s because sellers in FSBO transactions are liable for any omissions or errors in the paperwork – if buyers discover that anything’s amiss (e.g. – the seller claims the house is lead-free when it actually isn’t), it is the responsibility of the seller to pay to have it fixed.

Buyers beware

It’s important for buyers in FSBO deals to be on the lookout for scams. This can include fake appraisals that serve to inflate the value of a home or having potential buyers serve up personal information that can be used for the purposes of identity theft.

There are also instances where buyers have made down payments directly to sellers in FSBO transactions, only to have the homeowner take the money and end up not selling the house. Even in the absence of any scams, buyers may have to wait longer to finalize a deal when going the FSBO route. Keep in mind that there’s a generally low supply of houses for sale nationwide. Waiting for a FSBO deal to become final could take longer than expected, leaving you out of the running for other homes that you’re also interested in buying.

Real estate agents bring major benefits to the table

First and foremost, a licensed real estate professional can help pinpoint the true market value of a home, which benefits buyers and sellers. Unlike homeowners in FSBO transactions, real estate agents have access to a network of industry professionals like insurance agents, lawyers and architects.

Above all else, real estate agents can dedicate all of their time to helping their clients buy or sell a home while expertly handling any issues that pop up along the way.
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