FSBO vs. Off-Market_ Which Type of Private Sale Creates More Legal Risk for Maryland Sellers

FSBO vs. Off-Market: Which Type of Private Sale Creates More Legal Risk for Maryland Sellers?

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The Maryland real estate market has shifted rapidly, leading many property owners to look for alternatives to the traditional Multiple Listing Service (MLS) route. You might be considering selling your home yourself to save on commissions, or perhaps you want to keep the sale “quiet” to maintain privacy. Both approaches offer distinct advantages, but they also expose you to different categories of legal liability.

Real estate transactions in Maryland are governed by a dense web of state statutes, local ordinances, and federal regulations. While our firm assists clients with drafting contracts and navigating these private transfers, we often see sellers inadvertently stepping into legal landmines because they treated a private sale as a casual agreement rather than a formal conveyance of real property. Grasping the distinction between a “For Sale By Owner” (FSBO) and an “Off-Market” sale is the first step in protecting your financial future.

Defining the Terms: FSBO vs. Off-Market in Maryland

Before comparing the risks, it is vital to clarify exactly what these terms mean in a legal context, as they are often used interchangeably by mistake.

A For Sale By Owner (FSBO) transaction is one where the seller represents themselves entirely. There is no listing agent involved on the seller’s side. The seller is responsible for marketing, complying with Maryland disclosure laws, negotiating the contract, and managing the timeline to closing. The buyer may or may not have an agent, but the seller is flying solo.

An Off-Market Sale (sometimes called a “pocket listing” or “office exclusive”) typically involves a real estate licensee, but the property is not disseminated to the general public via the MLS. The agent might share the property within their own brokerage or with a select group of private buyers. In this scenario, you technically have professional representation, but the limited exposure creates specific compliance issues regarding fair housing and fiduciary duties.

The Maryland Property Disclosure and Disclaimer Statement

Regardless of how you sell your home—whether FSBO, off-market, or on the MLS—Maryland law mandates that you provide the buyer with the Maryland Residential Property Disclosure and Disclaimer Statement. This is often where private sellers make their first major legal error.

In a standard MLS sale, the agent ensures this form is completed and uploaded before the house is even viewed. In a private sale, sellers often forget it or provide it too late.

The Risk Analysis:

  • FSBO Risk: Without an agent to prompt you, it is easy to overlook this statutory requirement. If you fail to provide the disclosure/disclaimer statement before the contract is entered into, the buyer retains the right to rescind the contract up until closing or until they receive the form. You could be packed and ready to move, only to have the buyer walk away penalty-free because of a missing piece of paper.
  • Off-Market Risk: If you are working with an agent on a pocket listing, they should handle this. However, the risk arises in “handshake deals” where an off-market seller agrees to terms with a neighbor or friend before the paperwork is formalized. If you verbally agree to a price and then provide the disclosure statement listing a wet basement, the buyer might accuse you of bad faith or misrepresentation if the written contract conflicts with prior verbal assertions.

Fair Housing Violations in Marketing and Selection

Fair housing laws apply to almost everyone selling a home. While certain exemptions exist for private owners selling without a broker, these exemptions are extremely narrow and easy to invalidate. Maryland state law is stricter than federal law, adding protections for marital status, sexual orientation, gender identity, and source of income.

The Risk Analysis:

  • FSBO Risk: When you write your own ads for Craigslist, Zillow, or social media, you might use language that implies a preference. Phrases like “perfect for a quiet couple” or “great bachelor pad” can be interpreted as discriminatory against families with children (familial status) or women (sex). Furthermore, if you refuse a buyer who is using a Housing Choice Voucher (Section 8) because you “don’t want to deal with the government paperwork,” you have likely violated Maryland’s Source of Income protection.
  • Off-Market Risk: High (Hidden). Off-market sales are under increasing scrutiny for “steering.” If a home is never made available to the open market, it limits access to housing. If an agent only shares a pocket listing with a select demographic of buyers, or if you, as the seller, instruct the agent to “only show it to people who fit the neighborhood,” you are inviting a discrimination lawsuit. The Department of Justice and local real estate boards are actively watching for off-market practices that disadvantage protected classes.

The Danger of Inadequate Contracts

The standard contract used by the Maryland Association of Realtors (MAR) is a battle-tested document designed to balance the rights of buyers and sellers. It is updated frequently to reflect changes in state law.

The Risk Analysis:

  • FSBO Risk: FSBO sellers often download generic contracts from the internet. These “one-size-fits-all” forms rarely account for Maryland-specific requirements, such as the notices required for properties subject to a Homeowners Association (HOA) or Condominium regime, or the specific language required for Prince George’s or Montgomery County disclosures. Using a contract that lacks legally required notices can render the agreement voidable by the buyer.
  • Off-Market Risk: If a licensee is involved, they will typically use the standard MAR contract. However, if the off-market sale is a direct deal between a seller and a sophisticated investor (like a “We Buy Houses” cash offer), the investor often provides their own proprietary contract. These contracts are heavily weighted in favor of the buyer, often allowing them to cancel for any reason or requiring the seller to pay unusual closing costs.

Handling Earnest Money Deposits

In a traditional sale, the buyer’s Good Faith Deposit (EMD) is held in a broker’s non-interest-bearing escrow account or by a title company. The handling of these funds is strictly regulated.

The Risk Analysis:

  • FSBO Risk: A common mistake in private sales is the seller asking the buyer to write a check directly to them, which they then deposit into their personal checking account. This commingling of funds is legally precarious. If the deal falls apart, the buyer may demand the return of the deposit immediately. If you have already spent that money or refuse to return it based on a dispute, you could face litigation for conversion (theft) or treble damages. Maryland law is specific about how and when deposits must be returned or forfeited.
  • Off-Market Risk: An agent involved in an off-market transaction will insist the EMD be held by a third party—either the brokerage or the settlement attorney. This creates a neutral buffer and a defined process for release in the event of a default.

Agency Conflicts and Dual Representation

Who represents whom? In a private sale, the lines are often blurred, leading to claims of undisclosed dual agency or breach of fiduciary duty.

The Risk Analysis:

  • FSBO Risk: The risk here is usually that the seller accidentally creates an “implied agency” with the buyer. If the buyer is unrepresented and asks you for advice on the process, and you guide them, they might later claim they relied on your expertise. It is essential to explicitly state in writing that you are not representing the buyer.
  • Off-Market Risk: This is the classic “Dual Agency” trap. If your listing agent finds the buyer for your off-market home, that agent now has a potential conflict of interest. Maryland law requires specific “Consent for Dual Agency” forms to be signed. If an agent prioritizes the deal over your best interests (e.g., failing to push for a higher price because they represent the buyer too), legal action against the broker—and potentially complicating the sale for you—is a real possibility.

HOA and Condo Resale Packages

Maryland law (Maryland Homeowners Association Act and Maryland Condominium Act) gives buyers a “right of rescission” tied to the receipt of the resale package. This package includes the community’s budget, bylaws, and declaration.

The Risk Analysis:

  • FSBO Risk: Sellers often do not order these documents until the last minute because they cost money upfront. However, the clock for the buyer’s right to cancel (typically 5 days for HOAs and 7 days for Condos) does not start ticking until they receive all required documents. If you hand these over at the closing table, the buyer can cancel the contract after signing the closing papers if they choose to review them then.
  • Off-Market Risk: An agent knows this rule, but in off-market deals with compressed timelines, it is often rushed. If the “off-market” nature of the deal makes everyone casual about deadlines, this statutory “get out of jail free” card for buyers is frequently left open inadvertently.

Specific Performance and Default

What happens if one party wants to back out? In a private environment without the social pressure of the MLS and professional peers, defaults are more common.

The Risk Analysis:

  • FSBO Risk: Without a Realtor to act as a buffer and voice of reason, emotions often run high. If a seller gets cold feet, they might simply refuse to sell. Buyers can sue for “specific performance,” asking a court to force the seller to transfer the deed. Conversely, if a buyer walks, an FSBO seller rarely has the legal knowledge to properly retain the deposit or sue for damages without hiring counsel.
  • Off-Market Risk: The presence of a contract and a broker usually keeps the parties in line. However, if the off-market deal was structured loosely (e.g., “I’ll sell it to you if I can find a new house in 30 days”), vague contingencies can lead to unenforceable contracts.

Regulatory Scrutiny and “Wholesaling”

A growing segment of the off-market world involves “wholesalers”—investors who put a house under contract and then sell the contract (assign it) to a third party for a fee, rather than buying the house themselves.

The Risk Analysis:

  • FSBO Risk: FSBO sellers are prime targets for wholesalers. You might think you have sold your home, but you have actually just given an equitable interest to an investor who has no intention of closing. If they cannot find a buyer, they might use a loophole to cancel days before settlement. You are left with a house you thought was sold and no recourse.
  • Off-Market Risk: A savvy agent will spot a wholesaler and insert clauses prohibiting assignment of the contract. However, if you are selling off-market to a “Cash Buyer” LLC without an agent’s guidance, you should have an attorney review the purchase agreement to ensure you are not being tied up in a wholesaling scheme that benefits everyone but you.

The Verdict: Balancing Control and Liability

When weighing FSBO against Off-Market, the “Off-Market” route generally carries less legal risk for the seller if a competent licensee is involved. The presence of professional liability insurance (E&O insurance) for the broker and the use of standard forms provides a safety net. The FSBO route, while offering the highest potential savings on commission, places 100% of the compliance burden on your shoulders. In Maryland, where consumer protection laws are robust and disclosure requirements are strict, the money saved on commission is often spent on cleaning up legal messes later.

If you have questions about a private contract, disclosure obligations, or fair housing compliance in Maryland, contact us to schedule a consultation. We can help ensure your sale is legally sound, regardless of how you choose to find your buyer.