So you’ve decided to buy a home – and one you like is being sold by the owner. There are perks to buying a For Sale By Owner (FSBO) home, but there can also be pitfalls. Manage the risks by educating yourself and identifying the right professionals to get involved. AHRN.com is here to help you maximize the benefits and prepare for the rest!
WORKING WITHOUT AN AGENT
PROS: By not working with representation on either side, there are no agent fees. Though typically the seller would pay for yours as well as theirs, it creates more wiggle room for a lower home price and/or negotiation (By meeting directly with the seller, you can build a good will and inspire trust which will come in handy during them).
CONS: You won’t have an agent’s negotiating expertise and legal knowledge which makes you vulnerable. Be resourceful! There is lots of information on Google, but it can be overwhelming. Getting basics down with a few articles like this, finding a good lawyer to look over the papers, relying on a sharp inspector, and asking questions of your lender can fill in the gaps.
RESEARCH THE PROPERTY
PROS: By dealing directly with the owner, you can learn specifics about neighbors and the town as well as the property that you might not otherwise. Do make a clear mental list before you go as to what is most important about the house and immediate surrounds. If not, that can get lost in the more superficial points. Ask the seller for their disclosure statement and read Zillow’s article on 5 Things You Should Know About Disclosures.
CONS: You may not be able to take a close, critical look at the nooks and crannies when the biased owner is showing the place. Big things like electrical wiring, asbestos and lead, carbon monoxide and radon, as well whether stated improvements were done to code and legally, should be covered in the inspection you’ll do — so hire a highly recommended professional. Get a C.L.U.E. Report (from free to $20), which will tell you any insurance claims filed on the property (you need the seller’s permission – if they won’t give it, that may tell you something!). Where applicable, you may want a Natural Hazard (NHD) or Environmental Screening Report.
TIP: Have an impartial second person with you who is subtly focused on the key things during the tour with the seller.
If you decide to go forward here are some basics to consider. Navigating the area of your offer and the many things to negotiate may be the trickiest part. Get everything you discuss in writing – if the seller chafes, remind them this protects BOTH of you.
START AS A QUALIFIED BUYER
You don’t want to lose a place because you weren’t prepared financially. Before you start looking, make sure your credit is in the best shape possible and save up as much of a down payment as you can (or understand what you might be able to liquidate when timing is best for you). Get a pre-approval letter from a lender to best position yourself – the seller will know you can afford their place without going into your personal finances. And it puts you ahead of everyone else who’s looking without confirmed financing. Begin by checking into your VA Loan options.
DETERMINE YOUR OFFER
Discern the seller’s situation – are they trying to buy their next house which they have already found/ are building? If so, they are more anxious to sell. Are they are just putting it on the market to see what they can get in a sellers market? If so, they may have set it high and not be as interested in coming down.
To come up with an offer, do your homework on similar properties in the area. Is their asking price within that range? Over or under priced? If it’s fairly high for comparables, you can come to them with your price and see what happens. To start, read our blog post on comparing market values.
PROS: Without an agent, it’s likely you can sit down with the seller and show them your research to aid meeting at a price that works for both.
CONS: They may be inexperienced sellers themselves – and that often means they will hold out hoping for higher offers and initially turn yours down. If you are not in a hurry you can wait it out, as when they get few other bids, they may have to reduce the price on their own and you can go back to them.
TIP: There are a few things that you can do to sway them: offering CASH, a bigger down-payment, taking on more closing costs and telling your story.
As a military member, the fact that you have secure employment is a huge plus. Offering cash is a way to get the house if others are needing to borrow – it can be more attractive to the seller, even if the borrowers are coming in at a higher price. But since the economy is recovering from the 2008 crash, it’s becoming easier to get a mortgage again – so it’s less likely you’ll bid against folks with cash. But if you’re neck in neck with another bidder, a greater down payment (10, 15, 20% or more) with your qualified letter from a lender can help. Have a highest price that you can go in mind. If your offer is initially rejected, keep working with the seller till you can come to a place in the middle.
PROS: Don’t forget closing costs can be negotiated as well – you can work with the seller on sharing them. Every deal is different, based on the land, the state & county, laws etc… We’ve provided a link for you on the total list below.
CONS: You don’t want to give your deposit or earnest money to the seller to hold! Put it into an escrow account with your lender to protect it in the event something goes awry before the closing. You can ask the seller to cover those minimal costs.
TIP: Telling your story can really set you apart when it’s a toss up between your bid and someone else’s. Let them know the emotions behind your purchase – raising your family there, the best schools for your kids, needing to be near aging parents – or tell them in glorious detail how you have fallen in love with their place and all they’ve done with it!
ONCE IN CONTRACT:
Once you are in contract – a lot has to happen in rapid order (about 10 days). You may take one last look around for better rates/terms. But make it quick. Get your lender to give you a firm commitment on your prequal letter, which is locked for 30-60 days, and get your application done. They will send an appraiser out to the house.
PROS: Your inspector will go in and will report in short order. He will likely give you some small things – and maybe a few biggies, like the roof. Here you have reason to go back and renegotiate the price, or divvy the list up; the seller could fix some things or give you money off to do it after the sale.
CONS: If you haven’t negotiated a price that is in keeping with the comps, it could hurt things at this stage. But you will have the appraisal report to take to the seller to renegotiate the price. Also, Issues can be discovered during inspection or the appraisal – or if things like liens prevent the title from being clean. Be sure that your contract states that you can back out if
One of the biggest negotiable items is the host of costs involved in closing – everything from the owner’s title insurance policy to transfer taxes to Notary and document preparation fees). Familiarize yourself with a basic list on ForSaleByOwner.com (this site is a great resource for all aspects on both sides of the deal), and you can discuss with the seller who will pay what between you both.
TIP: ALL the paperwork needs to be there (some are state specific) and fully legal… It’s key to get a good lawyer to look everything over and catch what you might not. And that will come at a fee, but one that is completely worth it. In some states, it’s required that a lawyer take care of the transfer documents and the closing itself.
Lastly, it will not hurt if you understand all the terms and legalese that has in the past been left to your broker.
Spring is great time to be looking. Log in to your Account to Start Searching or Register for AHRN.com’s listings. Happy home hunting!
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