For Sale by Owner? The Importance of Title Insurance in Direct Sales

30 November 2025

Selling a home without a real estate agent—also known as For Sale by Owner (FSBO)—might seem like a great way to save money. After all, who wouldn’t want to avoid paying hefty agent commissions? But while you may be cutting costs, skipping title insurance could cost you far more in the long run.

Buying or selling property isn't just about shaking hands and exchanging keys. There's a ton of paperwork, legal considerations, and potential risks. One of the most significant protections in the process—whether you're the buyer or the seller—is title insurance. But why is it so important in direct sales? Let’s break it down.

What Is Title Insurance?

Title insurance is a policy that protects homebuyers and lenders from financial loss due to defects, liens, or disputes over the ownership of a property. Unlike other insurance policies that protect against future events, title insurance safeguards against past issues that could threaten ownership rights.

These issues might include:

- Unpaid property taxes or liens
- Clerical errors in public records
- Forgery or fraud in past transactions
- Undisclosed heirs claiming ownership
- Boundary disputes with neighboring properties

Without title insurance, you or the buyer could end up responsible for these problems even after closing.

Why Is Title Insurance Important in FSBO Sales?

1. No Agent Means More Responsibility

When you sell through an agent, they typically guide you through any legal or financial risks tied to the transaction. But in an FSBO sale, you’re on your own. That means you have to ensure the title is free and clear before selling.

A title search conducted by a title company can help uncover potential problems. But if an issue arises after the sale, only title insurance provides financial protection. Without it, the buyer could sue you for damages, leading to legal headaches and financial losses.

2. Hidden Liens Could Derail the Sale

A lien is a legal claim against a property due to unpaid debts, such as taxes, contractor fees, or mortgage balances. If the title search misses an old or improperly recorded lien, it could become the new owner's problem—and possibly yours as well.

Imagine selling a house, pocketing the cash, and moving on with your life, only to get a call months later saying the new owner discovered a $15,000 mechanics lien from a past contractor dispute. Without title insurance, the buyer might sue you for not disclosing the issue, even if you never knew about it.

3. Fraud and Forgery Are More Common Than You Think

Think title fraud sounds like something out of a movie? Think again. Cases of forged signatures, fraudulent deeds, or even fake sellers posing as rightful owners happen more often than people expect.

If you're buying a home in an FSBO deal, doing your own due diligence might not be enough. Title companies have the expertise to verify that the seller is the actual owner and that no past fraud or forged documents exist. Without title insurance, an undiscovered fraud case could leave you fighting for your ownership in court.

4. Undiscovered Heirs Could Claim Ownership

Just because someone is selling a home doesn’t necessarily mean they’re the sole rightful owner. What if an unknown heir suddenly appears, claiming a right to the property based on an old will?

Title insurance protects buyers against claims from long-lost heirs who could legally challenge the sale. Without it, the new owner risks losing the home, and the seller could be dragged into a costly legal dispute.

5. Protecting Your Investment and Peace of Mind

For buyers, purchasing a home is one of the biggest financial decisions they’ll ever make. If you're the seller, wouldn’t you want to ensure the transaction is smooth and risk-free? Title insurance provides the safety net both parties need—protecting against unforeseen issues that could turn a dream home into a nightmare.

How Much Does Title Insurance Cost?

Title insurance is typically a one-time payment made at closing. The cost varies depending on the property's value, location, and the title company issuing the policy.

On average, homeowners can expect to pay anywhere from $500 to $3,500 for a policy. While this might seem like an added expense, it’s a small price to pay compared to the potential financial disaster of a title-related lawsuit.

Who Pays for Title Insurance in an FSBO Sale?

In a traditional home sale, either the buyer or seller (or both) may cover the cost of title insurance, depending on local customs and negotiations.

In an FSBO sale, buyers often request that the seller pays for title insurance to offer extra assurance that the transaction is secure. Even if the buyer pays for the policy, the seller should still conduct a title search through a reputable company to avoid unexpected surprises down the road.

The Role of a Title Company in FSBO Sales

Even without a real estate agent, working with a title company is crucial in FSBO transactions. A title company helps:

- Conduct a comprehensive title search to ensure the property has no legal complications.
- Issue title insurance to protect the buyer and/or lender from ownership disputes.
- Handle closing paperwork and legal documents to ensure the transaction is properly recorded.
- Facilitate the transfer of funds and property deeds to ensure everything is legally binding.

Skipping the title company in an FSBO sale is like driving a car without insurance. It’s a risky move that could end up costing you big time.

What Happens If You Skip Title Insurance?

Let’s say you sell your home FSBO without title insurance, and months later, the buyer discovers an unpaid tax lien from a previous owner. Who’s responsible?

If the buyer had title insurance, the policy would cover the costs. But without it, they might come after you legally, claiming misrepresentation or fraud. Even if you didn’t know about the issue, you might still be on the hook for damages, legal fees, and court costs.

For buyers, skipping title insurance means gambling with their financial future. If an ownership dispute arises, they could lose the home entirely.

Final Thoughts

A For Sale by Owner (FSBO) transaction can save sellers money on agent commissions, but it shouldn’t come at the cost of skipping title insurance. Whether you're the buyer or seller, title insurance is your financial safety net, protecting against past ownership disputes, hidden liens, and even outright fraud.

Think of it this way: skipping title insurance might save a few bucks now, but it could cost tens of thousands of dollars later if something goes wrong. When selling or buying a home without an agent, the smartest move you can make is ensuring the title is clean and insured.

So, if you're going the FSBO route, don’t cut corners—invest in title insurance for peace of mind and a worry-free transaction.