For Sale By Owner: What You Need to Know
Whether you’re a real estate investor or just looking to buy a new home, you’ve probably more than once come across a home with a “For Sale By Owner” sign (hereafter referred to as FSBO). With the advent of the Internet and more ways for sellers to find prospective buyers, FSBO homes are a little more common than they used to be. Often, less experienced investors or buyers tend to think that a FBSO automatically means a cheaper price, but it’s important to remember that this method only guarantees fewer costs for the seller, not the buyer, so don’t assume that you’ve found yourself a bargain just because the home is being sold by the owner. Make no mistake; it can amount to savings on your end, but not always.
When someone lists their home through a real estate agent, they’re responsible for paying realtor’s fees to both their agent and the agent representing the buyer. Occasionally sellers will opt to save money by listing and selling the house on their own. Sometimes this means the opportunity for a better deal for both the buyer and the seller, but again, not always. The only real guaranteed savings for anyone is on the seller’s part.
If you’re interested in a FSBO property, you’ll have to look at it and make any offers or negotiations with the seller without the benefit of a real estate agent’s help. You need to understand that you’re sacrificing the services and benefits of a real estate agent, who works with other licensed professionals such as home inspectors and appraisers to help you see if you are making a sound investment. In other words, you need to make sure that the mere chance at reduced costs is worth the extra work on your end and the risk of unforeseen consequences down the road.
So let’s say you pass by a property with a FSBO sign on the lawn. It might pique your interest, and that’s great. In fact, your first step should be to indulge your curiosity and make a simple initial inquiry. Some things you’ll want to ask are how long the home has been on the market, which can help confirm how reasonable the price is or hint at issues with the property that haven’t been disclosed, and whether or not the owner has already purchased another home, which can help you determine their seriousness. Remember, if it seems too good to be true, it probably is.
Should you employ a real estate agent on your end? That’s entirely up to you, but remember that either way someone has to check on certain aspects of the property, and absent an agent, that someone is going to be you. Don’t expect or rely on the owner to be fully forthcoming with every detail regarding their property. More to the point, they may not even know every single issue with their property anyway, which is part of why you want to gauge their seriousness with some preliminary questions (and a home inspection, which we’ll get to in a minute).
Often, we’re asked by buyers considering FSBO homes whether or not they should employ an attorney, and again, that’s up to you and dependent on just how much work you think you’re capable of doing. Remember, though an attorney will be present at closing, they’re not there to represent you; they can’t, because they can’t represent both parties simultaneously, so don’t assume you’re off the hook just because they’re there. Don’t let the seller hold money in escrow either; you’ll want to arrange for an attorney or title company to do that.
It’s important to get a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report, which reveals any insurance claims sellers have made on a property within five years. Only the seller can request a report, but you should insist on it as the buyer because if there’s nothing to hide, it shouldn’t be an issue. The report will include the dates of claims, the amount paid and cause of the loss, and if the issue was related to a catastrophe like a tornado. You’ll be looking for things like water damage that could cause future problems such as mold or structural damage. You might consider offering to pay for the report yourself, as the cost is negligible.
Finally, you still need to get a home inspection (for more on that, you can check out our article on home inspections here). We brought this up a moment ago, but even if we assume that the FSBO seller is honest, he or she may not know everything that might be wrong with the home. To avoid surprises later, hire an inspector to check every wire, pipe and puddle, and make sure the inspection also checks for things like asbestos.
Buying a FSBO can be either a great deal or a huge headache, and unfortunately there’s no one answer to account for every situation. If you keep these things in mind next time you see that “For Sale By Owner” sign, though, you may be able to determine the best course of action and might find a bargain or discover that the sale might be a hassle without wasting too much time.
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– Get It Right Solutions