Help Buying a FSBO Home (VANITY)

6-19-08 | Vanity

[DCPatriot]

In Maryland, most lenders require a clean wood-infestation report at the closing table.

The buyer chooses the company and pays for the inspection.

The Seller is obligated to pay for the extermination of active infestation and to pay for any repairs caused by said insects.

FHA and VA backed mortgages require pest inspections before they will fund the loan.

[silverleaf]

Get an attorney to represent YOUR interests, have your own attorney draw up or review all contracts before you sign them. VERY IMPORTANT. If you MUST sign anything, make it subject to review and approval by your attorney within reasonable time (72 hours).

Don't make out any deposit checks to the seller. Insist your deposit go into an escrow with a title company that will be handling settlement, and only with a signed contract. Note The attorney for the title company does not represent YOU, he represents the transaction. If the deal falls apart you won't get your deposit back unless the seller signs off on it.

Make sure your personal attorney is available at all times. Realtors work 24/7/ Make sure your attorney is similarly available.

Realtors have a name for attorneys “deal killers”. Keep this in mind depending on how bad you really wnat the house. Your attorney gets paid whether you buy the house or not.

Be prepared to do some research on your own. ie, tax records are public property. Get one for the property you are considering. But remember - tax assessments are really different than appraisals.

If the house is in a development or homeowners association get a copy of the rules. You may not be allowed to build a fence or pool, paint your house pink, own 3 dogs, park in the driveway, or operate a business from your home.

Have yourself mortgage-loan approved before you make an offer. Make your offer subject to lender's appraisal being at or greater than purchase price.

Interview home inspectors and decide who you will call. Make your purchase offer subject to a satisfactory (to you) home inspection to be completed with 72 hours of seller accepting your offer in writing.

Don't nickle and dime and renegotiate the price based on the home inspector suggesting cosmetic and “nice to have” upgrades. Factor the age of the roof and appliances and condition of the paint, carpet, fence, etc- into the price you offer from the get-go. On second thought- be a real pain in the axx. That's what FSBOs should be prepared to handle.

Many sales contracts used by Realtors number 20 pages or more-every one of those forms is based on someone elses’ past mistakes and misunderstandings.

This is all real simple, right? That's why it is so “easy” to be a Realtor who doesn't really “do anything” for that 2.5% of the sale price the FSBO seller is charging you anyway because he wants the same price for his house as all his neighbors who sold using Realtors.

[VRWCmember]

AC, you are getting lots of great input here, especially from the likes of DCPatriot.

One resource that I would add as a recommendation is to check out the Motley Fool Home & Real Estate Page available in the Personal Finance section of http://www.fool.com. There is a wealth of information available there to help you make good financial decisions.

[tailgunner]

You and your “buyer” are both looking to save the broker’s commission. How dumb is that?

[TexanToTheCore]

Every FSBO that I have seen has been overpriced. I would just go with a realtor and listen very carefully to what he has to say. He is a second set of eyes (which you need).

[TexanToTheCore]

Bottom line: The seller is not going to knock off the 6% or so that he normally would pay to the realtors in the deal. You will pay him that 6% so you might as well get the expertise that goes with it.

One other caveat. I have found that many FSBO sellers are a bit wierd which can add a note of mystery and suspense to the closing. I personally like a really boring closing for my clients.

[Matchett-PI]

Pay the best Real Estate Attorney in your area to handle the deal - from start to finish - for you. If anything goes awry, you will have recourse. It will be the best few hundred bucks you have ever spent.

[DCPatriot]

Thanks for your kind words.

[VRWCmember]

Thanks for your kind words.

Just giving credit where it is due.

[VRWCmember]

You and your “buyer” are both looking to save the broker’s commission.

He IS the "buyer".

[AngryCapitalist]

Thanks for all of your input everyone. As I am not experienced in these matters every little bit of advice I can get is worth its weight in gold. You guys have provided some very solid advice!! Thanks again.

[SaintDismas]

AC,

If this is your first home buying experience, by all means, get an agent and get a good one. You need to understand what everyone here is saying, that either this seller thinks he’s smart enough to do this deal on his own and wants to save the commission, or he’s upside down and can’t pay one if he wants to. Either way, he’s making you do all the work, determining real market value, determining your rights to inspection, required disclosures, etc. etc.

With a buyer agent working for you, that agent could even most likely find out what the seller paid and when he purchased this home, which could give you insight as to what the seller’s motives are for going FSBO in the first place.

The main thing you need to know before you sign a purchase contract is, is this property worth the asking price? And you absolutely have to have a way out of this contract should you find defects through your rights to inspect by professionals. Half of a purchase contract a real estate agent provides to you addresses the right to inspect the property, negotiate repairs, and will state that if you can’t negotiate repairs with the seller, you will get your earnest money back and truck on. As a real estate agent, I always advise my buyer clients to do this inspection immediately, before your UP FRONT appraisal money is spent by your lender, because once this is done, that money is GONE. ($400) Our contract verbiage has the buyer agreeing to get the appraisal ordered within 7 days, so you don’t have a long time to get your mechanical inspection.

As mentioned above, Realtors use a contract that covers every scenario possible, protecting the buyer and the seller in the transaction, and I sure as heck wouldn’t use one from Office Depot or wherever. You must protect yourself, hire a Realtor and put the commission costs to you in your offer with the seller if you can’t dig it out of your pocket.

Good luck!

[philled]

Every situation and market is different. However, if your property and local market are strong, you may want to consider FSBO. Our story may be the exception but was positive in purchasing a FSBO and we were intent on selling it the same way.

My first house (1997) was FSBO. It was in a neighborhood that routinely went FSBO because of desirability. Several months before we bought ours, a very comparable one next door sold FSBO. The sale price was public info so we had a pretty decent comp. We "bought" it on a Saturday afternoon during an open house by saying we'd meet their asking price and giving them a check for $500 and asking that they get in contact with our lawyer on Monday morning.

He drafted and reviewed the paperwork and had a cashier's check for earnest money. A woman from the bank I worked for handled the loan and (as we were first time buyers our state had a program) scheduled the inspections and appraisal for underwriting. It cost us about $750 in attorney's fees but we felt in good hands. He went to the closing with us (after having received advance copies of all documents).

Four years later, the house beside us sold FSBO in a week. Then, in early 2006, it went FSBO in a few days. We thought we'd possibly do something in mid-2007 and had been looking at houses through the fall of 2006. We had a realtor of a house we were interested in give us a "market appraisal" of our home. We also had a realtor that had a listing three blocks away do the same. They were within one percent of each other (and about five percent higher than what we'd been thinking).

The neighborhood realtor called and asked if we'd be interested in doing a "one party [one showing?]" listing. We agreed and four hours later had a full price offer (at ten percent more than we'd originally thought). We'd originally planned on doing FSBO with our attorney handling the paperwork.

The realtor was not a nice woman and acted inconvenienced by every question or having to deal with us. Outside of the closing, she had spent about two hours total with us. That was the only downside to having to pay her commission- I'd rather have given it to someone else. It turns out that it would have cost us about 1/8 of what we paid in commission but we didn't have to worry about a thing and (even after commission) came out ahead of what we would have done FSBO).

[isthisnickcool]

Here is something regarding the purchase of a used home in Texas. Some parts of the following may only be applicable in Texas but most of it applies to what you are doing:
1) Talk to the neighbors that live around the house you are considering purchasing before you purchase it. Don’t be shy, knock on the door and say hello. Maybe you might start by asking them about schools or local churches, or whatever. Then ask them if they know of any problems with the house. If they have seen any repair trucks at the house for example. Ask them if they know why the sellers are moving.
2) In Texas ALL real real estate inspectors are licensed with the state. Never hire any inspector suggested by any real estate agent involved in the deal! Find your own inspector and get references and CALL those references! See if you can find one with professional liability insurance. MAKE CAREFUL NOTE of the agreement the inspector wants you to sign! I repeat! Make careful note of the inspectors agreement! In Texas the inspectors all have a clause limiting their liability to what you pay them. So, if you pay them $495 and they make a huge mistake that costs you $100’s of thousands you are screwed. Strike through this part of the agreement if you can. I suggest you videotape the inspection. Open up every door in the place, every attic door and anything else you can get in to. And make the inspector look at everything you can. When you get the inspection report read every line! And demand the inspectors written notes they made during the inspection. Usually they just put what they noted in a computer and sometimes they screw up. Get the notes and compare it to the computer generated inspection report. If the inspector finds things to fix and writes up money estimates DO NOT trust that they know what the real costs are. If there is a plumbing issue and the inspector says it’s going to cost $100 get a real plumber in to give you real estimates, etc.
3) No matter what the inspector finds bring in a plumber, HVAC people. Hire an electrician, a roofer and pool company if there is a pool. If you have any question about anything bring in a professional! If they do an estimate make sure you read and understand it.
4) If the house is expensive hire an engineer to inspect the house besides hiring an inspector.
5) READ THE SELLER’S DISCLOSURE. READ ANYTHING THE SELLER PROVIDES THAT LISTS PRIOR WORK, IMPROVEMENTS or ANY KIND OF WORK THE SELLERS HAD DONE ON THE HOUSE!! If they have anything listed on the disclosure they repaired or improved get all the receipts for any work they have done.
6) Again, I’m speaking of “used houses” here. DEMAND they provide and carefully review the disclosure the person selling TO YOU received when THEY PURCHASED the house they are trying to sell you. Also get the inspection from when THEY purchased the house. The earnest money contract may stipulate that they have to give you prior inspections if they have lived in the house less than a certain number of years. No matter how long they have owned the house get the disclosure they received and the inspection they had done.
7) Go to city hall and find the permit department. Give them the address of the house you are considering buying and see if there are past permits that have been pulled for the house.
8) Call your insurance agent. Get them to run the address on the house you are looking at in the ChoicePoint CLUE system and the ISO A+ system. These databases may list past insurance claims. If your agent does not have access to these databases find one that does. You may find out things about the house they are not telling you about.
9) I’ve listed a lot of things above. if you can’t get these things RUN!
10) Ask the listing agent and the selling agent if they have Errors and Omissions insurance. If they don’t do not use them. Ask your agent to pull all the MLS data on the house you are looking at and to let you read it. Find out how long it’s been on the market and what the person selling to you paid for it when they bought it if possible. A lot of houses have been sold several times. This is especially true of houses with problems. If you can find out who the prior listing and selling agents were on prior sales CALL THEM and ask them if they know of any problems with the property.
11) Besides not using an agent that does not have liability insurance BEWARE of real estate agents that work as “independent contractors”. For example, there is one HUGE real estate organization (think balloons) who has agents that rent their offices, etc. from the franchise owner. In the event your “agent” that works for these types makes a mistake you will have a tough time getting to the rich folks that own the balloon.

OK, let’s say you do everything right. You hire the right people, you have a great inspector, etc. You do everything right and you buy by the house only to find that the house has horrible problems that have been covered up. And you are screwed. Big time! If you have to sue be very careful when it comes to lawyers and litigation. Find a board certified real estate lawyer and only sue of they take the case on contingency.

[Ben Ficklin]

I sold FSBO years ago. I went down to the Title Company and told the attorney that I would see to it that he got the title transfer business if he would advise me, which he did.