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Buying a “For Sale by Owner” Home

You’ve found your perfect home, but soon learn that it’s “for sale by owner” (FSBO). While you shouldn’t shy away from these types of properties, you should understand the nuances of FSBO transactions, as they differ a bit from the typical home buying process. Conversely, if you’d like to sell your home by yourself, check out our guide on the FSBO process for sellers.

So what does FSBO actually mean?

Traditionally, buyers and sellers are represented by real estate agents, but in this case, the seller has opted to forgo the help of a real estate professional or listing agent. This means you (or your buyer’s agent, if you opt to use one) will communicate directly with the homeowner.

Consider these actions to help you successfully get to closing.

1. Get pre-approved. Getting pre-approved by a lender is a critical first step. Many homeowners will want you to have secured a lender preapproval in order to schedule showings of their homes. This will also help you become a more informed buyer to know how much money you’ll have to work with. At AmeriSave, the preapproval process has never been easier when you’re looking to purchase a home.

2. Get a buyer’s agent, if you choose. Even though the seller has chosen not to use a real estate agent, that doesn’t mean you have to follow suit. A buyer’s agent can represent you throughout the process, ensuring paperwork is handled correctly, and negotiating the purchase price and potential seller concessions on your behalf. It helps to find a real estate professional who has experience with FSBO properties. The silver lining is that the seller usually pays the buyer’s agent’s commission; so get them to agree to this up front if you can.

3. Look at homes and ask questions. Most FSBO homes don’t appear on popular home sites and traditional platforms like multiple listing service (MLS). If you find them (word of mouth, by canvasing neighborhoods, etc.), you or your buyer’s agent can arrange for a showing. The sellers will likely be present, giving you the prime opportunity to ask in-depth questions, including whether there have been past issues with the home or property.

4. Make an offer and negotiate. A buyer’s agent can advise you on the asking price of the home and help you prepare an offer, which will include how much earnest money you’ll put in an escrow account as a good faith deposit (Note: Be sure to give these funds to a third party such as title company; do not give it directly to the seller.) If you’re not using an agent, do your research on the market value of similar homes in the area. Research also boosts your negotiation tactics, as you’ll be fully informed of comparable prices in the neighborhood. This is also the time to negotiate repairs, and if the homeowner’s not willing to handle them, you can discuss coming down on the FSBO purchase price.

5. Close. Your lender preapproval will come in handy here again, as you’ll confirm final approval on your mortgage and make sure the loan is cleared to close. The home officially becomes yours once you sign the legal papers and pay the down payment and closing costs.

Other considerations when buying a FSBO home

As part of the negotiation step you’ll need a purchase agreement, which is the contract between you and the seller that lays out all the terms of the real estate transaction. Your agent can assist with drafting this agreement, and if you choose not to use an agent, you can hire a real estate attorney or draw one up. Be sure it includes the following information:

  • Buyer and seller details
  • Pricing and financing
  • Homeowners Insurance
  • Property details
  • Closing and possession dates
  • Conflict resolutions
  • Title considerations
  • Any additional info that may be needed for a legally binding real estate transaction

After creating your purchase agreement, the next step should be obtaining homeowners insurance, which is required to procure a loan from a mortgage lender. Mortgage lenders want you to have homeowners insurance, which protects you and everyone else invested in your home from property damage and potential financial losses.

Equally important in purchasing a FSBO property is scheduling a home appraisal and a home inspection. The appraiser evaluates the home’s condition and determines the worth of a property by comparing it to the values of other homes in the area. A home inspector, on the other hand, is looking to confirm the home is structurally sound, meets safety protocols and doesn’t require major repairs. While not required, a home inspection is money well spent in terms of finding issues with a home before it’s too late. Make sure to use a reputable home inspector and plan to attend the inspection if you’d like.

The Pros and Cons of Buying a FSBO Home

FSBOs have some definite advantages.

  • Savings. FSBO homes are often more affordable than similar, agent-listed homes. And the seller is not paying the standard 3 percent commission to a listing agent, they may be willing to list for less or come down on price. If you’re looking to save, another option could be purchasing a house undergoing foreclosure. These purchases come with their own set of challenges, so be sure to read our guide to purchasing a foreclosure before starting your search.
  • Communication. You’ll deal directly with the sellers, without a go-between, throughout the sales process. Ask them for as much detailed information as you want and potentially negotiate more effectively without the added layer of a third-party.
  • Efficiency. The process of scheduling showings and arranging inspections is streamlined. And you determine when you want to view a house or ask the homeowner a question.

There are, of course, potential disadvantages.

  • Overpricing. FSBO homes are sometimes inflated because the sellers don’t price based on market value or because they have a sentimental attachment to their home. Also, they may be looking to save commission money and thus may be unwilling to negotiate on purchase price.
  • Undisclosed problems. The law requires sellers, FSBO and otherwise, to disclose a home’s material defects prior to closing. But an FSBO seller may not be up on disclosures around what they need to convey. Buyer beware!
  • Lack of expertise. Without an agent on the seller’s end, and especially on the buyer’s end, there is a risk that something can get overlooked relative to the contract documents, the appraisal, the inspection, etc.

Buying a property that’s for sale by owner doesn’t have to be difficult. But you should think through the benefits and risks when pursuing FSBO homes, in order to ensure the entire home buying process goes off without a hitch. If you have questions about FSBO or anything related to home financing as part of your homebuying process, reach out to one of AmeriSave’s experienced loan originators today.

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