How to Buy a Home for Sale by Owner

Four Parts:Shopping for a HomeInvestigating the HomeMaking an OfferClosing on the Home

There are pros and cons to buying a home that is for sale by owner (FSBO). You can avoid paying agent fees, and you can talk to the seller directly. You will not have as much experience as a real estate expert, so it may be more difficult to navigate the process. Pulling in a real estate attorney, a professional home inspector, and a buyer’s agent will make the process much easier.

Part 1
Shopping for a Home

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    Get pre-approved. A seller needs to know that you are serious and can afford to purchase their home. Meet with a lender to get pre-approved for a loan. The lender will consider the following factors:[1]
    • Your income
    • Credit score
    • Existing debt
    • Previous loan history
    • Savings account
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    Search for homes. There are multiple ways to find a FSBO home. Do your own research before you visit a real estate office. Here are some sources you can check out:[2]
    • Regional Multiple Listing Service (MLS) systems websites
    • FSBO websites
    • Classified ads in your local newspaper
    • Online classified ads
    • Drive around neighborhoods you are interested in
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    Consider working with a buyer’s agent. If you are an inexperienced home buyer, you may want to work with a buyer’s agent. A buyer’s agent can guide you through the process. A buyer’s agent works on your behalf and does not represent the interests of the seller. Buyer’s agents usually buy cheaper homes so the commission is smaller.[3]
    • The commission is typically 2.5-3% of the sale price.
    • Working with a buyer’s agent is not necessary. You can shop and make an offer on a home without one.
    • Your agent should be an Accredited Buyer Representative. Visit the National Association of Realtors' website[4] or the National Association of Exclusive Buyer Agents' website.[5] to find an accredited agent.
    • Ask to for the contact information of your agent's three most recent clients. If they are satisfied and have good things to say, you probably found a good agent.[6] It's a bad sign if the agent refuses to give you references.

Part 2
Investigating the Home

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    Talk to the owner. Call or email the owner to express your interest and set up a time to view the home. Ask the owner as many questions as you need to. Questions you should ask include:[7][8]
    • Why are you selling?
    • How long has the house been on the market?
    • Any issues with the neighborhood or your neighbors?
    • What is included in the sale?
    • Does the house have any problems?
    • Have there been any major renovations or repairs?
    • How old are the house, appliances, roof, heating and cooling system, plumbing systems, and electrical systems?
    • What do you enjoy about living in this home?
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    Obtain a CLUE report. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange. This report will give you a 5 year history of all the insurance claims that have been filed for the home you are interested in. You must ask the seller for permission before you run the report. It will cost you $20 or less.[9]
    • The report will identify any problems that the house is likely to have and give you an idea of the insurance rates for the home.
    • Insurance companies typically use past claims to calculate insurance rates.
    • Only the owner if a property can access the CLUE report.[10] Ask the seller to request a report. The seller can call 1-866-312-8076 or visit the LexisNexis website to make an online request.[11]
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    Have the home inspected. The homeowner may not tell you about all of the problems in their home, or they may not know some of the problems. A home inspector will thoroughly check the property and give you all the information you need to make a decision. The home inspector should check:[12]
    • Electrical wiring
    • Moisture levels
    • Carbon monoxide levels
    • Asbestos
    • Lead electromagnetic fields
    • Radon
    • Inspections usually do not happen until you make an offer, but you can always ask the seller to let you have one earlier in the process. Be present during the inspection so you can ask questions and see things firsthand.
    • Visit the American Society of Home Inspectors' website or call 1-800-743-2744 to find an accredited inspector.[13]
    • Before hiring an inspector, ask the how much it will cost and if you can be there. If the inspector does not want you to be at the inspection, choose a different inspector.[14]

Part 3
Making an Offer

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    Work with a real estate attorney. A sales contract and closing process are complicated. A real estate attorney can help you navigate this process and ensure that you have a way out of your contract if there problems with the home inspection or with the seller.[15]
    • Your attorney can also help you negotiate who will pay the title transfer fee and taxes.
    • Bring your real estate attorney in early on.
    • Choose a local attorney that is familiar with the neighborhood that you are buying in.[16]
    • An attorney usually charges a flat fee or requires you to pay by the hour. If you are paying by the hour, show up as prepared as you can to reduce the amount of time you are paying for.
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    Obtain a valuation report of neighboring homes. The seller’s asking price should only be used as a starting point. Realtors usually help sellers set a price, but your seller is not working with a realtor. Find the property value of the neighboring homes to give you an idea of what the home is actually worth.[17]
    • Also check the recent sale prices of homes that are similar to the home you are interested in.
    • You can get appraisals from websites such as Zillow, Real Estate ABC, and Electronic Appraiser. The Electronic Appraiser website offers the most accurate report and costs $29.95.[18]
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    Determine your offer price. Base your offer price on the asking price, the market value of the home, the value of the neighboring homes, and the current housing market. If the housing market is strong in your area, you will need to make an offer that is above the asking price. If the market is not strong, you may be able to offer below or right at the asking price.[19]
    • For example, if the asking price is $200,000, and the estimated home value was $170,000, you may start with an offer of $153,000 (90% of the market value). This offer would be acceptable in a market that is not very strong.
    • If the market was strong, you may start with the appraised value of the home: $170,000.
    • If you bid too low, the seller may immediately reject your offer. Work with your attorney to set your offer.
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    Negotiate the offer. The seller may not accept and then counter your offer. The seller may hope that you split the difference or the counteroffer may be firm and non-negotiable. The seller may also outright reject your offer.[20]
    • If the seller is hoping for a split, find an amount that is in between the counter offer and your original offer. For example, if you offered $153,000 and the seller countered with $193,000, you may offer $173,000.
    • If the seller counteroffers and says they are not willing to negotiate any further, you can either accept the offer or tell the seller to let you know if they have a change of heart.
    • If you can afford to wait, the seller may change their mind and be willing to negotiate.

Part 4
Closing on the Home

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    Get the house appraised. Your lender will choose an appraiser to see if the house is actually worth what you offered to pay. If the appraisal is lower than your offer, the seller will need to lower the price.
    • Be sure to request an appraiser that is familiar with the neighborhood that your home is in.
    • If you have to find an appraiser, visit the American Society of Appraisers' website[21] or the Appraisal Institute website to find an accredited appraiser in your area. Ask how much they will charge.
    • If you do not agree with the first appraisal, you can request a second appraisal.
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    Have the home inspected. If you were not able to have a home inspection earlier, you can have one now. Again, find an accredited home inspector. If there are any problems with the home, you can ask the seller to fix them or you can withdraw your offer.[22]
    • If your offer was low, the seller is less likely to pay for the repairs. If you made a higher offer, the seller may pay for the repairs.
    • Your lender may also request that repairs be made before escrow closes.
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    Go through the escrow process. The house will go through a month long escrow process. During this process, the title is transferred. The cost of this is usually split between you and the seller. A few days before the escrow closes, you will sign a ton of documents.[23]
    • The escrow officer will call you at the beginning of the process.
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    Go over the contract. Sit with your attorney and go over the sales contract again. You should also do a final inspection at this time. You want to make sure that any negotiated repairs have been made and that the house has not been damaged during escrow.
    • If the seller is leaving some appliances, make sure that they are there.
    • Do not sign any papers until you are comfortable with the terms of the contract, and you have a clear understanding of everything.
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    Work with a title company. A title company will do a title search and will assist with the closing process. Ask your attorney for recommendations. You can also find a title company by contacting the American Land Title Association. Your attorney and title company will work together.[24]
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    Sign the papers. Once all of your forms are filled out and both you and the seller are happy, it is time to sign the papers and get your keys. You may or may not meet with the seller on closing day.[25]
    • If you are working with a buyer's agent, you will sign at their office.
    • If you are handling this on your own, you will sign at the escrow office or title insurance company.

Tips

  • If the seller requires earnest money, do not pay the seller directly. Hold the money in an escrow account.

Sources and Citations

  1. http://www.forsalebyowner.com/real-estate-help/buying-a-house/home-search/find-a-real-estate-agent/buy-home-directly-owner/
  2. http://www.fsboprimer.com/shopping.html
  3. http://www.fsboprimer.com/buyersagents2.html
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Categories: Buying Property