A house that is selling For Sale by Owner (FSBO) is one that does not have a real estate agent representing the owner. In many cases and with the proper due diligence, FSBO properties can be good investment opportunities.
Some common mistruths about purchasing a For Sale By Owner property:
For Sale by Owners aren’t serious sellers. A small minority might be testing the waters, but the majority of properties that are on the market as For Sales by Owners absolutely do want to sell their homes.
For Sale by Owners are not flexible on price. Sometimes buyers think FSBOs can’t afford to hire a real estate agent; they need every dime out of the deal and won’t bend on price. But according to studies by the National Association of Realtors, most For Sales By Owners get less for their homes than those who list with a real estate agent. For Sales By Owners are willing to negotiate.
For Sale by Owners are hiding material facts by not hiring a real estate agent. FSBOs are bound to the same laws that govern those who are represented by a real estate agent. These sellers need to give buyers federal- and state-mandated (if any) disclosures, including material facts.
steps on buying a home for sale by owner property
Create a Purchase Contract
When buying a FSBO home, you will need to write your own purchase contract, or call a real estate lawyer to handle that aspect of the transaction for you. Many lawyers will draw up a purchase offer for approximately $500, and it is money well spent. You can also locate these contracts online.
Offer less than list price (or make you “best offer” and be willing to walk away). The opening bid on the property sets the bar on the conversation – One strategy is to offer less than you’re willing to pay to give yourself room to negotiate up. Another option is to go in “firm” with your best offer – and be willing to walk away if the price isn’t met.
Write contingencies. Make sure you give yourself time to properly research the property, and make sure you have a way out of the transaction if you find physical defects the seller will not fix, the CC&Rs are unsatisfactory to you or your loan is not approved.
Some Standard Contingencies:
– Loan approval
– Home inspection
– Clear title from seller
– Approval of seller’s disclosures
– Pest inspection
Earnest money deposit. Do not give your earnest money deposit to the seller. Give it to a third party such as a title or escrow company.
Determine who pays for what. There are no set guidelines. There is local custom, but who pays which fees are negotiable. Figure out who will pay for transfer taxes, escrow, title fees – or you can ask a local real estate agent or title officer how best to do this.
Prorations. You can use prorations to your advantage if you know how to figure whether a proration will be in your favor. i.e. If property taxes are paid in advance, the unused portion will be a credit back to the seller. In that instance, you might ask for no prorations. However, if taxes are paid in arrears, you will want prorations because the seller will credit you.
Possession. Specify when you will retain possession of the property and be handed the keys. In some parts of the country, it is acceptable to expect possession on the day of closing. In other areas, possession is given the day after closing to give the seller time to move.
Home Inspection for FSBO Home
When considering purchasing a home, get a home inspection by a reputable home inspector. Be sure to request credentials and which association the home inspector belongs to.
If major problems are assessed on the FSBO property, you can ask the seller to remedy the problems in one of the following ways:
Fix the specific problem, bearing in mind the seller is under no requirement to hire the best contractor or do a quality job.
Credit you the money so that you can hire your own contractor, post-sale.
Lower the sales price to accommodate for the value of the home improvements required.
Get a Title Policy
Be sure to buy title insurance – “Smart buyers” always order title insurance when purchasing a FSBO. The cost to fix disputed easements, among other factors, can be enormous when compared to the pennies it costs to buy title insurance. If you have questions, you should also seek legal and tax advice.