What you need to know about 'For Sale By Owner'

- We see the familiar signs all over Atlanta, "For Sale By Owner," followed by a phone number. Is this a possible bargain, or a warning to always work with a real estate agent?

Real estate expert John Adams is here with more:

The professional real estate community envisions itself as the preferred path to real estate ownership. And for most home buyers, the real estate agent presents the path of least resistance. But every day in America, thousands of homes sell directly from owner to buyer. So what’s a buyer to do?

1.  Know How Agents Get Paid

Most full-service brokers charge sellers a sales commission of six percent of the eventual selling price. With an average home in the metro selling for over a quarter million dollars, that’s over $15,000. But the key to understanding this is that the commission comes out of the selling price, and is almost never paid by the buyer. Instead, the commission is “hidden” as part of the price.

2.  Most Buyers & Sellers Do Not Understand The Process

Because the average American moves only once every seven years, we don’t bother to keep up with all the complexities of a real estate transaction on an ongoing basis. And if truth be known, most buyers never read the contracts or even closing documents they are signing. Once their agent tells them to sign here, they do. The real estate transaction is extremely complex and is a challenge for most attorneys to fully understand.

As a result, the sales commission is viewed as a necessary part of the transaction.

3.  Some Sellers are Quite Comfortable Selling Their Own Homes.

Some folks, like people who move frequently, lawyers, or former agents, are very comfortable with selling.  

If you come across a seller like this, you can treat it like any other seller, but make sure you have someone to represent you at every step of the way.  If you are interested in buying a FSBO, it's probably smart to hire a real estate attorney and pay for experienced representation.

4.  Most attractive homes are already listed for sale, so a buyer has no choice. The commission is built in.

Remember that agents are likely to show you only homes that are already listed for sale. Listed homes already have a built-in commission.  If you ask an agent to show you a FSBO home, he may ask YOU to pay his commission. You should be prepared for this possibility.

5.  If you educate yourself, you might be able to save some cash on your purchase.

Having a full understanding of the buying process can allow you to make offers on both listed and FSBO homes, and making a low offer on a FSBO might save you a lot of money.

But it won’t cut down on your cash required at closing.  Instead, it will translate into a slightly lower monthly payment, seemingly diluting the dollar power of the lowered price.

BOTTOM LINE: The better educated you are on the home buying process, the greater the likelihood that you won’t make a mistake in your own purchase.  And trust me, mistakes in real estate tend to be very expensive.

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