Game Plan: Negotiating the Best Price for the FSBO Home

The home you want is marketed as for sale by owner. But the price is not right. What’s the best way to buy the home for a better price?

Many deed holders have an exaggerated idea of what their property is worth. And those who opt to sell their homes themselves can be especially likely to overestimate their property values. That’s because there’s no real estate agent to give them the truth about what today’s real estate market is like for a seller.

Or perhaps they broke away from their agents because they believe they could increase their proceeds on their own.

In any case, let’s consider a few ways to strategize a discussion with an FSBO homeowner, step by step. You might be taking these steps in a different order yourself — but they’re all steps that bear some thought.

1. Get Oriented. Compare and Contrast the Seller’s Home With Others Nearby.

Once you know the asking price, you’ll want to get a rough sense of whether it’s too high and by how much. What have similar homes sold for in recent weeks?

Make a list of comparable properties. With each, focus on the price per square foot. This won’t tell you the differences among the homes, of course. But knowing the value of properties of similar footage in your seller’s area is the right starting point.

Get your comps ready to show the seller you are carrying out the necessary diligence on your side, and making an offer based on market fairness. Find out why your seller picked their asking price, so negotiations can begin.

Again, this stage is just a start. Just comparing properties on real estate websites won’t tell you about upkeep, possible renovations, age of the heating and AC unit, and what will need to be fixed or replaced. 

2. Prepare Your Offer. Think About the Contingencies You’ll Need, and Be Sure They’re in the Contract.

Speak with the seller to know what’s important to them. For example, many FSBO sellers prioritize knowing they can make a quick, certain sale. Helping the seller reach particular goals can factor into your offer’s value.

Once you determine a price that matches the market and suits both seller and buyer, get ready to make an offer. Be prepared to include contingencies for the inspection, appraisal, and financing. In other words:

• You need to ensure there’s time for an inspection. If the home needs repairs, that is a reason for negotiation on the price of the home.

• For more on the appraisal, see section 4 below. In any case, you will need an accurate valuation of the home you’re buying.

• If you’re planning to get a home loan, also include a contingency for financing, unless you’re prepared to adjust your plan and go with cash.

Need a mortgage? Give the seller confidence by getting a commitment letter from your mortgage firm. It relieves the seller from having to wait and see whether your financing comes through. As the saying goes, time is money.

3. Know What Kind of Deed You’ll Be Getting. 

What type of deed is your seller planning to transfer?

• General warranty deed: Typical for home sales, the general warranty deed tells you that the seller is willing to stand behind promises of a free and clear title.  

• Limited (special warranty) deed: This deed type tells you that the seller created no title defects during that person’s ownership — but makes no promises about the deed’s prior history. Also see: grant deed.

• Quitclaim deed: This type carries no warranties, so it’s typically used among related parties and not among people who haven’t met each other before. It transfers only the property interest that the seller has (which could be everything, something, or nothing).

Will there be co-owners on your new deed? Plan out how you’ll vest your title. If you own as a tenant in common, know what percentage of ownership you plan to have on the title. Be sure to tell the mortgage company (if one is involved) how you plan to vest ownership.

Making a cash offer? Don’t miss our thoughts on cash offers and quitclaim deeds.

4. Consider Hiring an Agent (or Attorney).

A skilled real estate negotiator can guide you through the deal with confidence. In negotiating, your goal is to get to “yes” on a home price which reflects the least the seller will take, and the most you are willing to pay.

Once the seller accepts your offer, the agent can guide your transaction through closing day.

Alternatively, an attorney can create the purchase agreement and take you through closing. An attorney can be hired for a discount, as compared with paying for a real estate agent’s services.

A title company or bank you’re working with will have lawyers. They might be able to help, and to refer you to reliable financing, surveying, and appraisal services.

5. Agree on How You’ll Have Documents Drafted

You may create the deed yourself. You can still have a legal expert review it and your other documents.

A lawyer can:

• Draft a contract and review documents created with a template, so that they properly suit the parties’ needs and applicable laws and rules. 

• Guide you with disclosure, negotiations, and settlement.  
• Explain taxation — on everything from deed transfers to capital gains.

A title search can assure you that you hold the title free and clear of a past owner’s obligations.

6. Have You Considered an Early Appraisal?

If, after considering the market, you believe the home is overpriced, let the seller know you’d like to get an independent appraiser to help you arrive at a fair figure. This will cost you a few hundred dollars — potentially saving a good deal of time and exasperation!

If you’re applying for a mortgage, your lender will order its own appraisal after you and the seller have already come to an agreement.

Buyers, are you watching the price of homeowners’ insurance in the area? Remember to account for it in your budget!

7. Let’s Go! It’s Time to Make an Offer.

For a good-faith offer, you’ll discount the property by around the amount you would have paid if there were a real estate agent involved on the seller’s side. You can let the seller know you are open to discussion.

If your offer doesn’t get into the seller’s ballpark, it’s best to politely move on. They might think better of it later. That’s because a home that’s priced too high will tend to sit on the market a while. With time, the seller might come back and negotiate with you if you’re still interested.

Important note: This article is intended as a starting point for planning. It is not financial, legal, or tax advice. Each FSBO deal is unique. A legal or financial adviser can offer guidance that’s tailored to yours.