For Sale by Owner Scams – What You Need To Know To Stay Safe

June 17, 2024

Buying a home is a major step toward building a brighter financial future. But, if you’re considering a for sale by owner (FSBO) property, it’s critical to be aware of potential scams. 

In 2023, FSBO listings made up about 7% of real estate transactions._[1] While FSBO can save money, it comes with risks that could turn your dream home into a nightmare. This guide will help you understand FSBO, recognize common scams, and protect yourself during the home-buying process.

What Does For Sale By Owner Mean?

Traditional real estate transactions are listed by real estate professionals called real estate agents or realtors. "For Sale By Owner" means that the homeowner is selling their property without a real estate agent. People choose FSBO to avoid paying commissions, which can save them thousands of dollars. 

For example, on a $200,000 home, avoiding a 6% commission fee could save the seller $12,000. However, this route also comes with risks. This is especially true for buyers who may lose out on the protection and expertise that an agent provides.

Recommended: First-Time Homebuyer Checklist: Your Step-by-Step Guide to Homebuying 

What are the Risks of Buying an FSBO Property?

As with all financial ventures, FSBO home buying has its risks. It's best to be aware of what they are so that you can keep a sharp lookout and protect yourself. There are some of the caveats of FSBO to consider, even if you are fortunate to never run into a scam.

First, real estate agents handle paperwork, negotiate terms, and ensure transactions comply with Indiana laws. Without their guidance, you can miss important details.

Next, without a comparative market analysis from an agent, you may overpay for the property. Online valuation tools aren’t necessarily as accurate as a professional analysis. 

Finally, FSBO transactions can lead to legal troubles if the paperwork is not handled correctly. Not having an agent who is familiar with the required paperwork may put your investment at risk.

You might also like: What Types of Internet Frauds Are Most Common?

What are Some For Sale By Owner Scams?

1. Deposit Scams

Have you ever seen a beautiful home listed for way below market value? When you do, it could be one of the most common FSBO scams. Scammers often post attractive (but fake) property listings to lure buyers into placing a deposit or “earnest money.” After the deposit is made, the scammer just vanishes. 

Some buyers have even moved into a home only to find out that the seller had no right to let them onto the property. 

2. Title Fraud

A scammer might sell a property they don't own by forging documents. After the sale, the actual owner can reclaim the property. This leaves the buyer without their money or a home.

Imagine if you bought a house and moved from South Bend to Lafayette. Then, you later discovered that the real owner had no idea their home was sold. By all rights, the property should still be in the original owner's possession. 

3. Fee Overpricing 

Some scammers demand exorbitant fees for paperwork or services that are either unnecessary or overpriced. The seller and the service provider(s) might both profit from these types of scams.

In most cases, the seller insists on using their "preferred" service provider. The provider then charges double the usual rate for a substandard service. Overcharging can happen with anyone, from home inspectors and contractors to notaries.

Recommended: What Happens if Someone Steals the Deed to Your House? (Home Title Theft) 

How to Tell if a Seller is Fake

Spotting a fake seller or scammer can save you a lot of trouble. 

Here are some signs to watch for:

• If the deal seems unbelievably good, it might be a scam. Always compare prices with similar properties in the area.
• Scammers often push for quick transactions. If the seller is rushing you to close the deal, be cautious.
• Legitimate sellers will have all necessary documents ready. Missing or questionable paperwork is a red flag.
• If you can't verify the seller's identity or the property's title, it's likely a scam. Always ask for ID and proof of ownership.

When buying from an FSBO seller, look for signs that you can trust them. Check if they have active social media profiles like LinkedIn and Facebook. Look for reviews or mentions on real estate forums or community groups on these platforms. 

Make sure the seller is open to sharing ID and property documents. These signs can help you feel more confident that the seller is real and honest.

How to Protect Yourself from FSBO Scams

Luckily, there is a lot you can do to protect yourself from FSBO scams. Do your due diligence, work with a professional, make sure transactions are secure, meet in person, and get an inspection. 

Do Your Homework

Research the property and the seller thoroughly. Verify ownership and check for any liens or legal issues. Use online resources to inform yourself. Look up property records through the title company to confirm the seller's ownership.

Hire a Professional

Even if the seller isn’t using an agent, you can still hire a professional. Of course, you can get an independent real estate agent or realtor to help you. Alternatively, a real estate attorney can help review contracts. This can help ensure all legal requirements are met.

Recommended: Meet the Right Mortgage Loan Officer

Insist on Secure Transactions

An escrow service holds your money until all conditions of the sale are met. This protects both the buyer and seller. Use escrow services for financial transactions to ensure your money is handled securely.

Meet in Person

Always meet the seller in person and visit the property before making any commitments.

Schedule a walkthrough and note any discrepancies between the listing and the actual property.

Buying a home is one of life's most significant milestones. And navigating the world of properties can be daunting. At Centier Bank, we're dedicated to helping you achieve your dream with confidence. 

We commit to fair rates and reliable service so that you can trust in your mortgage every step of the way. By staying informed and cautious, you can avoid scams and make a smart purchase. 

Looking for mortgage options with fair rates? Explore Centier Bank's mortgages today.

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Sources: 

[1] https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics