FSBO Properties – How Escrow Services Help You Close

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FSBO Properties – How Escrow Services Help You Close

If you decided to put a For Sale By Owner sign in front of your property, you might have done so to save money on real estate commissions and to have more autonomy over the selling process. FSBO sales happened more frequently in the last two years as it was easy to find a buyer quickly, and sellers got to keep all the money from the sale. FSBO properties -How Escrow services help close.

However, it is not that this process comes without any obstacles. Some FSBO sellers report that accurate pricing can be challenging without the real estate agent and the market analysis. Another catch with FSBO is that you need an expert to handle the closing process, and most likely, you would need to open an escrow account.

Meanwhile, the buyers who decide to buy an FSBO property have a higher chance of closing the deal if they offer an incentive in an escrow account. We investigated how an escrow account helps you close the deal.

For Sale By Owner

For Sale by Owner is a listing method in a real estate market, where the owner of a property tries to sell it without the help of a real estate professional. The seller is the primary person responsible for the property’s movement on the market. They are the ones who determine the price, stage a home, market it to potential buyers, prepare the documentation, and sometimes they are even responsible for the closing.

However, many states deem it illegal when the buyer and the seller transfer the assets without a third party involvement. The principals in the transaction open an escrow account and seek help from either a title company, a real estate agency or an escrow company, such as Lightspeed Escrow.

Purchasing agreements are created either with the help of a real estate attorney or, more frequently, a buyers’ agent draws up the contract. There is an option of downloading a generic contract from the internet, but this is rarely done.

In a transaction between an FSBO seller and a buyer working with a realtor, there is still an expectation that the seller should pay the commission for the selling agent. This presents an obstacle because the real estate agents avoid showing the FSBO listings for fear of losing commission.

Challenges that FSBO Sellers Face

House keys being handed over

FSBO Properties – How Escrow Services Help You Close

FSBO listings spend more time on the market, they are sometimes underpriced, and there is more room for fraudulent behaviour. It is imperative that the seller taking the role of a listing agent knows the market and can deal with the paperwork. Otherwise, the money they are saving on commission will not be worth it.

Some platforms for FSBO listing require that their users state how much they are willing to pay to the selling agent at closing. A selling agent can earn more this way because they are not sharing their fees with the listing agent. If, however, the seller does not want to pay fees, that listing will most likely spend more time on the market.

If you plan to list your house yourself, note that it takes a lot of time and effort, especially if you’re not experienced with paperwork. Staging takes practice, and it would be great to have buyer psychology to organize your house to attract buyers. Doing an FSBO method will leave you without time off if you have a full-time job. This is probably the main reason people hire real estate agents – convenience.

What is an Escrow?

Papers being signed by a couple

FSBO Properties – How Escrow Services Help You Close

An escrow is a concept of a transaction in which there are three parties involved. There is a seller or a lender, a buyer or a borrower, and an impartial third party that protects both. An escrow account is opened between the buyer and the seller during the home selling process.

Escrow accounts do not hold the whole amount of the selling price but rather earnest money, which is the name for the buyer’s funds. This is a portion of the down payment that shows how serious the buyer is about the purchase.

Different entities could hold the escrow fund. Those entities could be realtors, title companies, or escrow service providers who specialize in mediation during the transaction process. When you hire an escrow agent, you are not only paying for holding the money but also for checking if each party does what is supposed to be done in an appropriate time frame. 

Now, escrow and title companies can both hold escrow funds, but they are not the same entity. Those are two different jobs, both done with the same goal – to protect the principals in the transaction.

What is a Title Company?

Each property has an owner or someone who has some kind of ownership over it. The title company works to ensure that the listing has no liens and that the seller has ownership rights. They do it by checking an ownership record of the property or a house title. 

If you are buying an FSBO listing, hiring a title company could be helpful to check if there are any unresolved ownership issues. If the seller has lived in that house since birth, it doesn’t mean that they have full ownership of it, and you don’t want any unpleasant surprises after you’ve already unpacked it.

Pros and Cons of FSBO Method

Lady showing her laptop to other two people

FSBO Properties – How Escrow Services Help You Close

For a buyer, the most significant advantage of buying a for sale by owner listing is that the price is probably decreased, as a seller doesn’t have to share the money with an agent. If, however, you are working with a greedy agent, they might not show you the listing even though it fits your budget just because they won’t make money off it.

The FSBO seller collects the selling price in its entirety (minus the taxes), but the process is worth it only if you know what you are doing. Otherwise, it could mean losing money and being on the market for way too long.

Ultimately: Does Escrow Help You Close the Deal?

Couple singing papers

FSBO Properties – How Escrow Services Help You Close

Escrow does help you close the deal much faster, as you are showing the seller that you are ready to roll. Having this fund makes the whole process flow more smoothly, solidifying the purchasing agreement.

An escrow account could make it easier to make a transaction without any other real estate agents when it comes to FSBO listings. Paying an escrow fee and hiring a title company costs much less than if both of you hired a real estate agent.

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