You’re driving around, looking at houses for sale, and you suddenly see what looks like the house of your dreams – the only problem is, the sign outside the home reads, “For Sale By Owner.” This may immediately conjure up thoughts of a desperate homeowner anxious to get rid of his defective property for a ridiculous amount of money. But can there be any advantages to buying a home that has been listed directly by the owner? The answer is yes, IF you know what to do. So here are some things to keep in mind before purchasing an FSBO home:
The first thing to keep in mind is that the seller has made the decision to forego the services of a real estate agent for a reason. The most obvious reason is that he wants to avoid paying the commission costs involved in selling with an agent. So technically, his selling price should be lower than comparable homes in his neighbourhood, right? But this is not always the case, as most FSBO houses are listed at the same price, or at an even higher price, than other houses which are sold through an intermediary. This is because most homeowners tend to be biased about their own dwelling, and believe it to be more valuable than a market analysis would suggest. But all home prices are negotiable.
If you are willing to pursue the purchase of this home, your next step is to decide whether you yourself desire the services of a real estate broker. If the answer is yes, but the owner is unwilling to pay any commission, then you will be responsible for paying your agent’s commission once the house is purchased. Your real estate broker will take care of all the details of the sale with you. But if you decide to forego the services of a realtor, then you are completely on your own. You now become responsible for taking care of all aspects of the sale:
- Make sure your documentation is in order. You will need to do a title search, and find out if there is an existing lien on the property, and find out whether the owner is indeed the rightful owner of the property. You’ll need to ask the owner for an up-to-date copy of his certificate of location, which will give you the true measurements of the house as well as the lot on which it sits, and will let you know if there are any existing encroachments. You’ll want to have the owner fill out a seller’s declaration so that you will know, in writing, whether there has been any damage to the property and whether any defects have been resolved. You’ll want a pre-approved mortgage from your mortgage lender, to reassure the owner that you have the means to pay for your purchase, and you’ll need to draw up a legal offer to purchase, which includes any exceptions or conditions. You’ll want to examine municipal and school taxes, repair and renovation invoices, and find out which renovations carry a warranty that would be transferable to the new owner.
- You should hire an inspector to go over the home, of course, but you will also want to ask the owner to furnish proof of the maintenance history of his home and whether there have been any insurance claims. You’ll also need to know ahead of time whether the owner would be willing to make any repairs or whether he is selling “as is.”
- You will need to negotiate all aspects of the sale – not just price, but also selling date, occupation date, inclusions, exclusions, repairs to be done, and any other conditions that come up in the process of negotiation.
- You’ll need to find out whether the owner has received an appraisal or a comparative market analysis on which he based his selling price.
- You’ll need to hire a notary or lawyer to conclude the sale and make sure that everything has been done legally.
It is possible, of course, that you are willing to do all the paperwork yourself, and that you have the know-how to do that. But there is no doubt that it is a challenging process, and often a frustrating one. You will in all likelihood end up paying the same price you would have paid if you had chosen to work with a professional real estate broker. And, according to market statistics, if you wait before buying the FSBO home, in all likelihood the owner will end up listing with a real estate agent anyways.