Don’t let the fact that there’s no agent involved sway you from looking at the home.
After all, there’s nothing that precludes you from hiring a buyer’s agent instead of going it alone. But if you do choose to go this route there are some things you need to be aware of when buying a for sale by owner home.
1. Not all agents are willing to show FSBO homes
Some buyer’s agents don’t really like working with FSBOs.
Because often, they end up doing the work of both the buyer and the seller. And this is without being compensated for the extra time and effort involved in selling a home.
But in most cases, the seller pays the agent’s commission. So if you really want to use an agent you can essentially get their expertise without spending extra to get it.
Assuming you find a good agent who will work with the FSBO seller what happens next?
2. Make your offer…start low…but not too low
Search online for recent sales in the area you want to buy in. Look for homes that are similar to the one you want to buy to get an idea of what homes are selling for.
If you’re looking at comparable homes you can bet the seller is too. So if the FSBO home is close to the selling price of comparable homes make your offer as low as you think the seller might agree too, but not so low as to insult their intelligence.
3. The purchase contract
Once you and the seller have come to terms with the price and any contingencies (e.g. a satisfactory appraisal) a purchase contract needs to be drawn up.
Normally, this is something an agent would do, but if you’re not using an agent it’s not a bad idea to hire a real estate lawyer to handle all necessary paperwork.
Contingencies offer a way to back out of the deal should any problems be found with the property.
For example, if you’re financing the purchase you can make your offer contingent upon getting financing or the home passing inspection.
Don’t give your earnest money deposit to the seller. If the seller has an attorney, they or the title company that closes the transaction will hold your earnest money deposit in an escrow account.
At the closing, your earnest deposit will be credited towards the purchase of the home.
Should the purchase fall through for reasons not controlled by you you’ll most likely receive your deposit back.
6. Negotiate costs
There are no hard and fast rules about who pays for what, so you can use prorations to reduce your costs.
For example, the unused portion of property taxes is usually credited back to the seller if they’ve already paid them for the year.
In that situation, you might request no prorations.
However if the taxes are paid in arrears, you will receive a credit for the taxes from the seller, so you want prorations to be used.
7. Taking possession
Taking possession can happen on the day of closing, but it’s not uncommon to take possession the day after closing to give the seller time to move.
In some cases, for example if a sale happened very quickly, for a seller to have relocation issues. In this scenario you can agree – but you’re not entitled to – rent your home to the seller for a period of time after the closing.
8. Home inspection
If you’re experienced and confident enough you can inspect the home yourself, however it’s always money well spent to hire a reputable home inspector.
If major problems are found you have several options. You can ask the seller to:
Make any repairs.
Assuming the contract doesn’t specify that you’re buying the property “as is”, the seller isn’t required to do the best job or hire the best contractor.
Give you a credit
The seller can credit you enough money to hire a contractor yourself after closing. (hint: don’t add that the credit is for repairs to your contract addendum)
Drop the sales price
Usually by an amount that’s in line with the expected cost to make repairs.
9. Get a title policy
Title insurance is well worth the cost.
If there are any issues with the ownership of the property including unresolved interests that prior owners may still have, unresolved liens, or major easements going right through your living room. (yes, this has happened!)
And, since you’re only paying for it once, it’s much more cost effective than other forms of insurance that require monthly commitments.
10. Common FSBO myths
They’re not serious
While a few may be testing the waters, most of them do want to sell their homes.
They won’t negotiate
Buyers who discover a home that’s for sale by owner think that there’s no wiggle room for negotiation. They imagine that the seller has to have all of the money out of the deal and won’t budget on the selling price.
In reality, according to the National Association of Realtors (NAR), most FSBO sellers will get less for their homes than those who list with an agent.
Unless sellers are experienced negotiators they often get less than if they had hired an agent.
For Sale by Owners are hiding something
The same laws that real estate agents must follow also apply to individuals selling their homes without an agent. They’re required to give state and federal mandated disclosures and to reveal any major deficiencies with the property.
You don’t need to be pre-approved for financing
No, getting a pre-approval isn’t required to put in an offer, but it’s helpful to not only define what you can afford, but could help your offer stand out from others if the seller has more than one offer to consider.