Buying a home directly from an owner can be challenging. Your emotions and those of the seller come into play in what can be a stressful and confrontational situation — and correctly deciding market value so you can make an offer can be difficult.
But if a for-sale-by-owner house is the one for you, the first and most important thing to do is ensure the deal will be legal, and you will have all the protections, and allow for all the contingencies, you need. That means hiring a real estate lawyer. Consider the tips from the experts in Patrick Crowley’s story on buying FSBO homes (above).
Usually a real estate agent is there to handle the negotiating and market research for you. So the first question you might ask the seller is whether he will pay a buyer agent’s commission. If the answer is yes, you might want to get an agent. If the answer is no and you already have a signed buyer’s agreement with an agent, it could cost you. Ideally, you should talk about potential FSBO deals with agents you are considering before signing a buyer’s agreement. Settle the issue in advance so you are not stuck paying the agent’s commission yourself.
If you are going this alone, the next step is to find out whether the seller’s price is reasonable. Don’t be swayed by sellers who tell you they have figured into their price the fact they are not paying real estate commissions, and be wary of those who have two prices, one for people with an agent and one for those without.
Search county tax records, either online or in person at the courthouse. Look for what the house sold for last, county valuations/assessments, taxes and the physical description. Look at records for similar houses on the block and in surrounding blocks that sold recently — say, in the last six months. Search Realtor Web sites for listings in the area and go to open houses to compare current prices. Recent sold prices and current listing prices will give you your ranges.
Use Web sites such as Zillow and Yahoo Real Estate as complementary information sources — they often add details — but consider the county tax records your gold standard. Ignore “ranges” of value offered by other sites. They generally are a mile wide and of little use.
The market information you come up with is critical because you do not want to overpay. If the house does not appraise for the contract sales price, your bank may not fund your loan.
Once you have an idea of market value, decide what you want to offer — keeping in mind the maximum you will pay for the house. Leave room for negotiation because, unless you are offering full price, most sellers will come back with a counter.
But if you find the offer you want to make is well below what the seller is asking for, ask him how he arrived at his price. See if he went through the same process you did. Keep tempers and opinions in check here — you are just gathering information. Most sellers are emotionally attached to their homes and proud of what they have done with them, but that is not part of market value.
Sellers also may include in their price maintenance costs that do not add value. They may try to recoup far more for their remodeling efforts than they should. They may value below-ground finished space the same as above-ground space, another mistake. Their price may not appropriately reflect the busy road they live on or their postage stamp-size backyard.
It’s easier to make a lowball offer if you have a buyer’s agent to take the brunt of the heat over it for you. Listing agents with unhappy sellers sometimes read buyer’s agents the riot act in very colorful language over low offers. Agents take it in stride as part of the job, and buyers usually get a very edited version of the conversation.
But if you are face to face with a seller and lowball the offer, be prepared for some fireworks. You might just make the seller mad enough to call off the deal.
During negotiations, be sure to keep track of the back-and-forth so in the end you know exactly what you agreed to. A final deal involves more than money — there are closing dates, move-out dates, financing contingencies, inspections, repairs and other details that make negotiations complex. Look to your attorney to advise you on making sure your deal is laid out in legal, enforceable documents.
Finally, if the deal ultimately goes south, try to end things cordially. Most FSBO sellers eventually give up and list with an agent, usually at a lower price, so you might get another shot at the house.
Ellen Beck coordinates real estate coverage for The Washington Examiner.
She was a Realtor in Virginia.
