You are in the market to purchase a home and wondering about buying an „FSBO“ – For Sale by Owner – home. What advantages are there to buying an FSBO, and what are the challenges?
The primary advantage
Let us say that you have completed an exceptionally effective due diligence in researching the housing market and your FSBO home of choice. You had the home inspected (and any areas of concern addressed), an attorney prepared and reviewed all documents related to the sale, and an acceptable price was agreed upon. The primary advantage? You may have gained the home of your dreams.
You may choose to complete the process of purchasing an FSBO entirely on your own, or you may utilize the services of a buyer’s agent to assist you through the transactions.
The basics of buying an FSBO
These are considered to be some of the basic steps to buying an FSBO home:
- Preapproval – provides you with the knowledge of how much home you can afford, and is the most important tool for negotiating with a seller. Preapproval also reassures the seller that yours is a „good faith“ negotiation.
- The Search – your search for an FSBO home may include using the internet, searching the newspaper and realty magazines, perusing the home listings in classified advertisement websites, and noting FSBO signs in the target neighborhood.
- Valuation Report – this report helps you compare the FSBO home’s asking price with other recently sold homes in the area.
- Attorney review – obtain counsel from a local real estate-knowledgeable attorney to assist you through the process (from offer to closing). Legal review is essential before signing any agreements and the attorney can also coach you through the negotiations process.
- The offer – if you have completed each step of your due diligence, you may be ready to present an offer to the seller. Your attorney should provide all necessary offer forms and state-related paperwork that will be needed. The offer should be realistic, leave room for negotiation, and not insultingly low.
- Lock in the mortgage rate – this is completed after you have reached a signed agreement and the house is under contract. Your offer must be presented to the lender for a firm commitment on the mortgage (even if you are prequalified). The lender will arrange to have the house appraised in terms of the sale and the property.
- Home inspection – always arrange for a property inspection from a licensed home inspector of any home you are considering. Ask the inspector to pay particular attention to improvements: are they in compliance with building codes?
- Renegotiations – based on the results of the inspection, you may wish/need to renegotiate the offer.
- Close – your real estate attorney and mortgage lender will help with the necessary details, special paperwork, and coordination of financing/payment to the seller.
Those are the basics of purchasing an FBSO home, but part of your due diligence process includes additional steps and considerations, including:
- In most cases, the seller is choosing to FSBO to save money by avoiding paying an agent’s commission. This does not guarantee that the seller will pass any of those savings onto the buyer.
- What is the motivation for selling? This information can be useful in preparing your offer and in the negotiation process.
- How long has the property been on the market? Was it represented in MLS by an agent(s) prior to being marketed as an FSBO?
- You may not save any significant amount of money by purchasing an FSBO. Be aware that some sellers can be stubborn and unrealistic. Be sure you complete the comparative process to know what area homes are selling for and what is the estimated value of the property of interest.
- Be sure to obtain title information to determine who actually owns title, are there any liens on the property, etc.
- Get everything in writing! Verbal agreements are insufficient and risky.
- Arrange for a neutral escrow account where the down payment and sale payment will be held. The seller should NOT be allowed to hold the money in escrow.
Truly, knowledge is power. Before you begin your search and line up your funding, learn as much as possible about the process of buying a home, particularly an FSBO home. Some realty agencies offer seminars on home buying and there is much information available in print and online.
There is no foolproof system for succeeding at buying an FSBO home. However, you can significantly reduce your risks by being well informed about the process, completing a thorough due diligence, working with a good real estate attorney, and treating the transaction as the business arrangement that it really is. Best wishes for your success.