What is 'for sale by owner'? Investment terms explained

What is 'for sale by owner'? Investment terms explained
Jennifer DukeDecember 7, 2020

When you’re purchasing a property you will likely come across the term ‘for sale by owner’. This means that the vendor, the home owner, is selling the property themselves without the assistance of a real estate agent.

Often also referred to as ‘FSBO’ or sale by ‘private seller’, they may be advertised online in the standard listings portals, on specialised private seller websites or even through their own signboards put up on the property. It is entirely legal to sell a property without a real estate agent, but it should be done in the correct way.

Why would someone sell themselves?

There are a number of reasons that a vendor may opt to sell without a real estate agent. Here are a few of them:

  1. They may not see the value in the services of a real estate agent.

  2. They may have had bad experiences with agents in the past.

  3. The seller has the skills and experience to be able to sell effectively themselves.

  4. They do not need to pay an agent a commission on the sale.

What does it mean for you if you are purchasing from a private seller?

Some real estate agents are understandably vocally opposed to these types of transactions. When the most common way to sell is through a licensed agent, it’s unsurprising that some buyers balk at the idea of not having an expert guiding the sale through.

Similarly, many agencies boast strong industry and local market knowledge, as well as a database of prospective buyers and an understanding of the sales process. At the end of the day, it is the vendor’s right to decide what suits them most.

Just because the vendor has decided not to use the services of the experts available, it doesn’t mean that buyers have to elect to ‘go it alone’. You can still choose to use a buyer’s agent and your stable of professionals (accountant, solicitor, building and pest inspector) can still be useful.

While the vendor is not using an agent, they are still required to use separate accounts and to comply with the law, so be aware when paying your deposit. Have the contract of sale looked over by your own solicitor or conveyancer. Know the laws in your state or territory, and seek legal advice if you need it.

The vendor also doesn’t have to pay the real estate agent’s commission, so it’s often suggested that many buyers will mentally deduct this from what they are willing to pay. While it’s hard to find any solid facts on the matter, it’s worthwhile remembering that the vendor themselves will likely not expect less. T

he average agent’s commission, according to Agent In A Box, is 2.3% across Australia. On a $600,000 sale, that’s $13,800. Agent In A Box also notes that most agencies recommend a certain advertising spend, of which the average is 0.5% of purchase price (another $3,000 on our $600,000 example).

As it’s unusual for sale to proceed without an agent, some buyers will understandably be nervous.

As a buyer, you will likely then have to go through all negotiations directly with the vendor. This may be attractive or even preferable to negotiating with an experienced agent. However, others may feel intimidated by the process. In this case, a buyer’s agent could be hired to assist with the purchase.

Similarly, vendors may not have been advised about the value of their property. While some will be savvy and acutely aware of the price they should expect, not everyone is ‘on the money’ with their expectations. If you realise that their expectations will not be shifted, then you may want to walk away.

Consumer Affairs Victoria notes that for those selling a property themselves, they need to complete a vendor’s statement (Section 32) and a contract of sale, which can be done with a DIY conveyancing kit or with a conveyancer themselves.

Consumer Affairs also recommends vendors have the property valued by a qualified valuer and that private sellers are not able to make false or misleading statements about their property in the sale process (such as in marketing material). 

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Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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