While most homebuyers don’t initially scour the real estate listings with the intention of buying a home that’s for sale by the owner (FSBO), it’s undeniable that these types of properties pop up in the market REGULARLY. And if you’re actively looking for a home right now, you’re probably asking yourself if you should follow up on these off-market listings or just steer clear of it.
So what’s the verdict? Before you buy a home directly from a homeowner, here are nine things you need to consider.
Start low when making an offer
If you’ve found the perfect FSBO home and are already willing to make an offer, make sure to search online for recent sales in the area you want to buy in beforehand. Looking for homes that are similar to the one you want to buy will give you an idea of how much this type of home is selling.
If you’re doing research, the seller probably is too. So, if the prospective FSBO home is close to the selling price of those comparable homes, make an offer as low as you think the seller will agree to. Then, make your way up from there.
A purchase contract
Formally establish the terms of the sale between you and the seller through a purchase contract. Doing so will help you avoid any complications during and after the whole buying process.
If you’re uncomfortable writing one yourself, enlist the aid of an agent or call a real estate lawyer to handle this aspect of the transaction for you. An attorney waiting in the wings will ensure that the transaction is accomplished legally and all your rights are protected.
Write in contingencies
Give yourself a way out of the transaction if you find physical defects in the property that the seller won’t fix or if your loan is not approved, among other issues, by writing in contingencies.
These contingencies usually include a satisfactory appraisal, loan approval, a satisfactory home and pest inspection, clear title from the seller, approval of the seller’s disclosures, and insurability. If any of these factors are not met, the contract will be null and void if included in proper contingency clauses.
Don’t give your earnest money deposit to the seller
It’s best to give your earnest money deposit to a third party to hold for you instead of giving it directly to the seller in an FSBO transaction.
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.
Make sure to follow this tip to avoid losing money, in case the seller spends it all and the deal falls through.
Determine who pays for what
There are no hard and fast rules about who pays for what, so work smart and use prorations to reduce your costs. Figure out whether any given proration will be in your favor.
Be sure to determine who will pay for transfer taxes, escrow, and title fees. If you’re an excellent negotiator, all the better.
Determine when you’ll take possession
Specify when the seller will hand you the keys so you can take possession of the property. In most parts of the country, expecting possession on the day of closing is acceptable. It’s also not unheard of for the seller to have relocation issues, especially if the deal came together quickly.
Determine whether you’re willing to let the seller rent from you for some time after closing.
Ask for a home inspection
It’s never a bad idea to hire a reputable home inspector before purchasing a home, especially if it’s an FSBO property. Doing so will give you several options if any major problems occur. You can either ask the seller to make any repairs, give you some credit, or drop the sale price– all of which are to your advantage.
Get a title policy
Title insurance is always worth the cost. This type of insurance will cover 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, we’re not kidding!).
In any case, you’re only paying for it once, so it’s much more cost-effective than other forms of insurance that require monthly commitments.
Consider seeking help from a buyer’s agent
While the seller obviously doesn’t want to hire a listing agent, many homeowners are willing to pay a buyer’s agent. If you already have an agent, they can contact the seller on your behalf. If you don’t have one yet, consider finding one who’s willing to take on the job.
Having an agent can be extremely helpful throughout the entire process, and the seller typically pays the agent’s commission, so there’s no reason not to work with someone. Why go it alone if you don’t have to?
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