Many sellers do not want to list their home with an agent because they must pay the fees to both their agent, and the buyers. Oftentimes on a house hunt, you will see a home that is “Fore Sale by Owner.” If you see a home that interests you that is being sold by this method, it is normal to wonder how what the difference is, and how to go about it. Buying a home that is for sale by the owner can have its challenges, because you won’t have the benefit of working with a realtor. Here is some advice on how to go about a home listed for sale directly by the owner.
1. You are losing out on the benefits of services provided by realtors
If you have been working with a realtor while looking at other properties, but have set your eyes on one that is For Sale by Owner, you will not be able to ask your realtor for help. They work on commission, and in these types of deals, they can’t help. It is also against their license.
Agents work with other licensed professionals such as home inspectors and appraisers to help you see if you are not only making a good choice, but a good investment, because that’s what a home is, its an investment. They increase and decrease in value. Know that with a FSBO home, you are going in it alone.
2. Get pre-approval for a mortgage
Before you start looking at houses, you should get a pre-approval letter from a mortgage company. This may seem like a no-brainer, but it is surprising how many first time home buyers don’t realize this. This letter is extremely important because it lets the seller know that you can afford to purchase the house. It also is a great way to negotiate. If another interested party doesn’t have a letter, they’ll put you first.
3. Stay focused
A realtor is often called the “middleman.” Because you will no longer have one, you are going to be directly communicating with the homeowner yourself. Without realtors involved, the owner will be showing you the property. This can make a buyer very uncomfortable being you are being hovered over, which makes it difficult for you to really give thought to details as you walk around, while you have someone breathing down your neck. Be sure to examine all little things.
4. Get a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report
It is a critical element because it will reveal problems that the house may be prone to, as well as show you the potential for higher insurance rates for the property as most insurance companies will use the claims history on a property when calculating rates.
When you purchase a house through the owner, it is risky. Home inspections are a very important step to not overlook, as there can be hidden problems that were unknown, or, problems that were known by the seller but omitted altogether. A well-trained home inspector can find many of these problems so that you are fully aware of what you are getting into. Electrical wiring problems, or traces of lead throughout the home are just two examples.
6. Real estate attorney
You really should have a real estate attorney help you through the sales contract. In some states, it actually is mandatory that a real estate attorney handle the transfer documents and closing. Be sure that you are properly represented. Your attorney can ensure that your contract contains contingencies to enable you to back out of the contract, for example if there are problems found during the home inspection, appraisal or with liens.
7. Making an offer
When you know you are fully interested in a house, you must then make an offer. The listing price quoted by the seller may be arbitrary. This is because realtors use tools available to them to create an accurate and reasonable listing price. You want to make sure that your offer is in line with property values in the neighborhood where the house is located.
Just as a seller may be asking too much, sometimes a buyer might be offering too little. One way to find out how much the house is worth is to obtain a valuation report. These reports will use a number of different metrics such as trends, title records, market conditions and tax assessments, to determine the home’s value. You can also look at recent sales of similar houses in the neighborhood.
8. Earnest money
When you make your offer, you will likely be required to pay out some earnest money to secure the deal. It is generally a very good idea to use a 3rd party that will manage the earnest money. It should go into an escrow account, because if something goes wrong between when you put the money down and the closing, you will be able to get your money back with very little hassle.
Check out this video to find out about more Mistakes to Avoid When Buying a New Home.