Early spring is always a popular time to buy a home, and, if you’re in the market for one, you’ll probably come across some homes that are for sale by owner or FSBO (pronounced Fizzbo). There are some definite pros to buying a FSBO home, but you’ll want to have a good understanding of the negatives before you go to buy a home directly from the owner.
The pros and cons of buying a FSBO home will shift in weight a bit depending on whether you get your information from a real estate agent or a place like ForSalebyOwner.com. Obviously, both have a biased opinion of the situation. There are always home sales with real estate agents that go terribly wrong and sales with the owner that go just fine, but the collective wisdom would suggest that there are a lot of risks to buying a home without any help from a professional.
If you’re buying a home directly from the owner, you don’t have to pay agent fees.
You and the seller can talk directly without dealing with the pressure and possibly self-interested goals of an agent. You can discuss your specific goals and attempt to build a rapport with the owner that can really help the process.
You might have a better bargaining opportunity. Since the seller isn’t paying the 5-7% agent commission, he/she can afford to sell the home for less.
The owner knows the home and the neighborhood much better than an agent would, so he/she can point out all of the home’s perks, as well as answer your questions about the neighbors, the area, the schools, etc.
In most cases, you and/or the seller won’t have a lot of real estate experience, so, without the guidance of an experienced agent, there’ll be a lot more potential obstacles and pitfalls to navigate while trying to close on the home.
Without legal advice, you can get yourself into some trouble here, potentially being forced to purchase the home when you didn’t want to. The way to avoid this is to include all of the necessary contingencies – the things you want to have/get done before you are willing to buy the home.
Remember, the main reason someone is selling his/her home without an agent is to save money. So, they’re probably going to have their home listed at a higher price to save/make even more money, especially if they’re looking to move into a more expensive home. Many people price their home at what they want or “need” to get out of it, not what it’s realistically worth in the current market.
Some General Tips
Have the home inspected and appraised by qualified, reliable professionals.
Never rely on verbal agreements – get everything in writing.
Don’t give the seller your earnest money deposit; give it to a third party, like an escrow account. Your lender should be able to help you set this up.
If there are any setup fees associated with the escrow account, you can ask the seller to cover them. This is one major point I should make: when it comes to the costs/fees associated with buying a home (aside from the actual purchase of the home of course) there are many negotiables. Ask the seller to cover some of the fees, or ask him/her to lower the price accordingly. All he/she can do is say no.
Here’s a list of some of the many extra fees:
• Owner’s title insurance policy
• Document preparation fee
• Transfer taxes
• Loan fees for FHA or VA loans
• Pest inspection fee
• Unpaid homeowners association dues
• Bonds or assessments
• Delinquent taxes
• Notary fees
Get a Comprehensive Loss Underwriting Exchange, C.L.U.E., report. It shows any insurance claims that have been made on the home in the past five years. This way, you’ll be able to see what kind of damage, especially from water, the home has sustained, so you’ll know to look for things like mold. This report requires the seller’s permission, so, again, ask him/her to order and pay for it.
Specify when you get possession – is it at the time of closing or at a later date.
In the final analysis, if you ask a real estate agent, you’re most likely going to hear that buying a FSBO home on your own is a bad idea. If you ask someone from a FSBO website or other organization, you’re probably going to be told it’s really easy and saves you lots of money.
The best course of action isn’t to shy away from FSBO homes but to be prepared and hire an agent/attorney to help you through the paperwork-heavy closing process, at the very least.
This post should be a great jumping-off point for your research, and if you have any comments or come across some helpful info on your own, please share them with us!