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Buying a For Sale By Owner: What You Need to Know

By Bill Gassett | March 20, 2019

What to Be Aware of When Buying a For Sale By Owner Property

Have you ever been driving around a local neighborhood and noticed a for sale by owner sign on a home that intrigued you? You are not alone. Many buyers will find the desire to inquire on what's known in real estate circles as a FSBO.

For sale by owner has been a very popular concept over the years. Thanks to online marketing it is far easier to market a home than ever before. However, is it such a good idea to buy a house which is listed as a for sale by owner?

There are a few pitfalls attached to this kind of deal. As a home buyer, it is essential to be aware of them before you move forward.

Buying a For Sale By Owner Home
What Should I Know About Buying a For Sale by Owner Home?

Cost of A New Home

Needless to say, most homeowners love the idea of for sale by owner. It makes them think that they are going to make a killing and save money. But is this reality or myth?

Remember the seller is thinking they are cutting out the commission pocketing the savings. You might be thinking the exact same thing.

Your first priority is to make sure that the property you are looking at is not overpriced. Is the seller not only trying to save a commission but not being realistic on the value of their home?

One of the most common reasons for sale by owners fail is because they did not price the house correctly.

Keep in mind that the home may not have been professionally evaluated. Lots of sellers like to pick a price out of thin air. Quite often the price is based on what they need or want and not reality. Other times sellers will use a crazy valuation method like a Zillow home value. You know the mantra - if it looks too good to be true it probably is. Putting stock is Zillow estimates is something a lot of unrepresented sellers do.

The wrong asking price is one of the most common home selling mistakes.

As a buyer you need to do your homework and check out other homes in the area and see how they compare. One of the best pieces of advice is to get yourself a buyer's agent who knows local property values like the back of their hand.

Keep in mind most for sale by owners are trying to save on a real estate commission. The success rate, however, is meager. Most end up hiring a real estate agent after giving it their best shot. In fact last year the National Association of Realtors reported that only seven percent of all homes sold were done for sale by owner.

The Benefits of a Real Estate Buying Agent

Most real estate agents who work as buyer's agents are happy to deal with "for sale by owner" homes. As long as they can agree on a commission fee, you will find that they are willing to come to some sort of arrangement.

Sometimes the for sale by owner is willing to pay the buyer's agent commission as well. It is certainly worth asking.

Is it a good idea to appoint a buying agent? Without a doubt! Going about trying to purchase a home without professional assistance can lead to a lot of problems.

They will take a look at the property and let you know what they think. As a matter of fact, they can save you a lot of money by not making financial mistakes. It is a buyer's agent job to tell you if a home is worth the money a homeowner is asking for it.

The price isn't the only thing that's important. It is also essential that all of the paperwork is correct. Most agents know how vital it is to check for crucial paperwork for home renovations. Are all of the relevant building permits in place? That is only one of the things a buying agent will look out for when he visits the home.

It may sound a bit harsh, but a buying agent will also know of other homes for sale in the area. Perhaps the home that you are looking at does not offer value for the money the seller wants.

When you try to do everything yourself, it is easy to overlook a simple thing like that. A buyer's agent will be a lot more objective than you are trying to negotiate the home sale yourself.

Here are nine critical things a buyer's agent does for their clients.

Are You Asking the Right Questions?

You need to make sure that you ask the right questions when you go for a sale by owner purchase. As a buyer purchasing a for sale by owner, you need to be even more cognizant of disclosures. In most traditional sales a real estate agent will have their seller clients fill out a property disclosure form.

The disclosure will list what the seller knows and doesn't know about their home. Quite often any significant issues that exist or have been fixed will be listed. You will not be getting any kind of disclosure with a FSBO.

Given the lack of disclosures, it becomes even more imperative to go over the home with a fine tooth comb. An exceptional buyer's agent should be a second set of eyes. They will look for the readily apparent deal breakers that you might miss.

Not only is checking out the condition of the home essential but the area as well. What is the neighborhood like? How about the school system? Is the crime rate acceptable? Where will I be buying my groceries? These are all important considerations when purchasing a home.

Real Estate agents like to call this home buying due diligence. It is those buyers who don't do their proper research that ends up getting burned.

Purchase Contract

Have you ever seen and read a purchase contract? A buyer's agent will have a standard offer to purchase contract. If a homeowner tells you that he is going to draw up his own purchase contract, you should make sure you get a real estate lawyer involved at the early stages.

This is very complicated, and it is best to make sure that you understand the contract thoroughly.

You should not pay anything until you know that any deposits are safe. Don't pay the owner directly. Instead, go for an escrow arrangement. Getting deposits back can be difficult unless you have agreed on the terms and conditions of any deposit. In a typical real estate transaction where agents are involved the listing real estate company will generally hold the deposit funds.

The concept of sale by the owner is a good idea, but it may not be the quick process that you think. It is still the road less traveled for most home buyers, and you should think twice about it before you take the first steps.

It can save you money, but remember that it can also cost you money.

Final thoughts

If you are going to be buying a for sale by owner home make sure you either have an attorney or buyer's agent looking out for your best interests. Makes are easy to make when purchasing a home. Don't be one of those home buyers who regrets their decision.

Other Realty Biz Articles Worth Reading

Read these additional articles to get more tips and advice when you are buying or selling a home.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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