Tips For Buying A “For Sale By Owner”
There are some advantages to buying a “For Sale By Owner’ (FSBO) property. However, there are some things you should take into consideration before buying a FSBO property.
A Purchase Agreement
You found the perfect “For Sale By Owner” property, so your first task is to complete the purchase agreement/ contract. If there’s no real estate agent around to help, you could hire a real estate lawyer to draw up the agreement for you. Many lawyers will draw up a purchase offer and any other needed documents for a reasonable fee. Should you decide to just do it yourself, you need to include some basic information in order to get the home under contract. Provide your mortgage banker with a copy of the agreement, be sure it includes the following:
- Buyer and seller first and last name – be sure to include all names if there’s multiple buyers/ sellers
- Full property address, including the county – also add the unit number if applicable
- Purchase price of the property
- Buyer’s indication of satisfaction with the inspection results
- Target closing date – if you need help determining what’s realistic, ask your lender.
- Write in contingencies – make sure you have a way out of the transaction if you find physical defects in the property that the seller won’t fix, or if your loan is not approved, among other issues.
- The signature of all buyers and sellers
When buying a “For Sale By Owner” property, always get a home inspection by a licensed home inspector. The inspector will walk through the home and be able to tell you which problems they see – big or small. They’ll also be able to indicate what may need maintenance in the future.You have a few options if major problems are found with the inspection. You can ask the seller to:
- Fix the problem, but keep in mind that many contracts specify that the property is being sold “as is,” so check yours.
- Credit you the money to hire your own contractor after closing. This amount will apply toward your closing costs.
- Reduce the sales price, typically by an amount around the anticipated cost of the repairs.
Lenders will NOT do a loan for a home that doesn’t have homeowners insurance. Homeowners insurance protects you from loss of investment if there’s property damage, and it also protects the lender and mortgage investor from losing the huge investment they put in your home.
Shop around because different homeowners insurance policies have different limits and stipulations about what is and isn’t covered. You should consider starting with your current auto or life insurance company. In most cases, they’ll offer discounts if you bundle services.
In any case, when buying a “For Sale By Owner” property, make sure you have your insurance lined up before closing because the lender will need to see proof.
Things to Know
Finally, there are some general guidelines you should follow when buying a “For Sale By Owner” property before heading to the closing.
- Bring your valid identification along with your Social Security Card or relevant citizenship documentation.
- Be sure any funds needed to close are ready PRIOR to closing. Your lender can let you know how the funds need to be transferred. Also, it’s important to keep in mind that the lender needs to see a paper trail of where all these funds come from, as soon as possible in order to close smoothly.
- If you’re using power of attorney to act on someone else’s behalf, the lender and closing agent need to know as soon as possible.
- Have proof of homeowners insurance.
- If you’re married, your spouse may need to sign documents as well.
- Both you and the seller need to sign the purchase agreement and seller’s disclosure statement in which a seller discloses any known issues with the property.
Now you should feel a bit more confident making an offer on the FSBO house you’ve had your eyes on, but don’t be afraid to seek legal and tax advice if you have any questions. It’s typically a little bit risky to buy a For Sale By Owner property when these people don’t have experience selling homes.