The process for buying a for sale by owner property and one that is listed through a real estate brokerage are the same.
You’ll want to go over the same process when you buy a FSBO that you do when you purchase any other property, but there are a few specific issues that you’ll need to consider when you find a property for sale by owner that you’re interested in buying.
Here’s what you should keep in mind:
- Overpaying for a FSBO is common.
This is the common problem that new home buyers face after purchasing a for sale by owner property. You can always look at a home and compare it to other properties in the area to determine a cost that you’d be willing to pay.
The problem with for sale by owner properties is that the neighborhood changes that happen have a direct impact on the price that aren’t apparent during the buying process.
The owner doesn’t have to share all of the information they know about the area that could have a direct impact on the value of their property, which could end up hurting you.
- The seller is less likely to reduce the sales price.
Sellers that go through a real estate transaction with a broker usually reduce the amount that you pay for the property because of broker’s fees.
Properties that the owner sells him or herself might not be willing to accept a lower offer because of the amount of money they’re saving by selling it themselves, so you’ll have to come up with additional sales data in order to negotiate the sales price.
- Some for sale by owner properties come with problems.
Many for sale by owner properties are priced based on what the owners want.
If a real estate agent has already told them that no one would be willing to pay as much as they want for their property, they might be listing their property as a FSBO in order to trick a potential buyer into paying a higher price.
A seller might refuse to accept that there are common problems associated with their home that might lower the intrinsic value of the home because they are so attached to their property.
You as a home buyer have to determine what the pros and cons of the FSBO that you’re considering are ahead of time, by deciding whether certain property features have a positive or negative impact on the price of the home.
If the home is going to be more difficult for you to sell because of certain features, then it might be a good reason to forgo buying the property so that you can purchase something else instead.
- Negotiate as much as possible.
If you’re unaware of whether it’s a buyers or seller’s market, chances are you won’t know whether you should keep negotiating on price in order to get the best deal possible. This will undercut the amount of money you’re able to save on a property.
Therefore you should know exactly what you want out of the deal and have a limit to what you’re willing to pay on a property.
Hold firm at that price and don’t allow a seller to talk you into paying more if it exceeds what you’re willing to pay for a FSBO property.
- Request the proper disclosures from the seller.
There’s a list of disclosures that you have to receive as a requirement of the state that you live in.
Some sellers won’t be aware of all the disclosures that they have to give sellers, so if you’re buying without an agent you have to make sure that you get all of the disclosures that you’re entitled to.
It’s good to also have an attorney that can help guide you through purchasing a property for the area that you’re in.
An escrow or title company can also inform you of the forms and contracts that you need to access to purchase a FSBO.
- Give your earnest money to the appropriate person.
When you make an offer to an owner, you usually put down earnest money that acts as a good faith deposit when you sign the contract.
Do not give the seller the earnest money since there aren’t any brokers connected to the sale of the property. Instead, find someone that can hold on to your good faith deposit.
The title company, escrow company, or another third party should hold on to your deposit and keep the funds safe instead of the owner.
You can also have your attorney hold on to the earnest money so that you don’t get scammed during the transaction.
- Buy an owner’s title policy in addition to a lender’s title policy to protect yourself.
Depending on the state that you’re in, the buyer may pay for a title insurance policy.
In other states this responsibility falls on the seller.
If the seller normally buys the title policy where you’re considering living, make sure that your seller follows through.
If you have to pay for the title policy, make sure that your escrow or title agent assists you in ordering the title.
- Prepare all of the proper documents.
Real estate agents usually help you get all of the proper documents in order so that you can purchase and close on a property.
When you buy a property without an agent, you need to make sure that the title company hasn’t forgotten any necessary paperwork that allows you to buy a property.
It’s never fun to show up to a closing and realize that you don’t have all the proper paperwork to complete the closing.
- Use the right forms for your contract.
Make sure that you have an attorney that can help you determine whether the contract and contingencies in your forms are protecting all of your rights.
If you don’t have an attorney, then check in with the title or escrow company so that an agent helps you gather the contracts and forms that will help you.
Even though you’ll probably be able to find forms and contracts online, not all of them are created equally, and not all of them will protect your rights as a home buyer.
You’ll need the right forms no matter if you’re in an escrow state or another state, so choose a good contract where the words and paragraphs end up protecting you with your large home purchase.
- Check out the property for yourself.
Don’t take the owner’s word on everything that he or she says.
You need to make sure that everything with the property checks out with what the seller says.
Real estate purchases are major considerations that costs lots of money, so check out everything that the seller days for yourself.
Make sure that you get a home inspection from a professional and go through a final walk through, even if the seller tells you that the property is clean.
If something doesn’t seem right about your property or doesn’t pass inspection, make sure that you do your due-diligence to ensure that the home is up to standard.
If you wait until you close to make sure that your property is good, then it’s already too late. This can be an expensive and heartbreaking experience that you don’t want to go through as a home buyer, first time or otherwise.
Make sure that you check out everything before you back anything with money in order to get the best deal possible on a property.