Homes for Sale By Owner (FSBO)

Purchasing a ‘for sale by owner ‘(FSBO) home can be the right choice for the savvy investor. If the price is right, this can be an ideal way to save money on your next real estate investment.

The obvious advantage of a FSBO home is the fact that you won’t be paying a percentage to a real estate agent. The entire transaction takes place directly with the homeowner.  Some of the additional advantages to this type of purchase include the following:

•    Financing:  Some homeowners are willing to do their own financing. For individuals currently experiencing credit problems, this can be an ideal way to buy. The contract can be drawn up a number of ways, but the most common is to give the current homeowner an agreed upon down payment and then make payments directly to the owner for a number of months or years until bank financing can be obtained.
•    Negotiations: Another plus to purchasing a FSBO, is having negotiation options. Dealing directly with an owner does allow more room for negotiating a purchase price or even certain items that should remain on the property.
•    No waiting period: Usually a home purchased through a real estate agent has a 30 day waiting period while the house goes through the closing procedure. With a home that is for sale by owner, the move in date is determined between you and the seller.

These are all excellent advantages to take into consideration. The most difficult part of purchasing an FSBO is finding them. Instead of one MLS database, you’ll have to search local newspapers, online ads, Craigslist and even resort to driving around your desired neighborhood in search of these sometimes hidden gems.

If you are not planning on working out financing with the seller, but will need a loan, it is wise to get pre-approved from your lending institution. Having a letter of approval will let the seller know you are a serious potential buyer and will put you at the front of the line when making an offer.

The following tips will guide you through the steps you’ll need to take to finalize your purchase:

Obtain a valuation report of the home. Since you won’t have a real estate agent to supply you with a comparative market analysis on recently sold homes in the neighborhood, you’ll need to do this part yourself. A property valuation can be obtained online. When purchasing one, be sure it includes the following:
•    Estimated Market Value based on at least 10 recent comparable sales
•    Up to date property information
•    Neighborhood and school reports
•    Tax Assessment Data
•    Home information: Lot Size, Square footage, Legal description, Sales History

Before making an offer you may want to hire a real estate attorney, especially if this is your first ‘for sale by owner’ purchase. You’ll need counsel and direction to lead you properly from the initial offer through the closing process. A real estate lawyer can keep you from making costly mistakes.

Once you make an offer to the current home owner, be sure to lock in your mortgage rate with your lender. There is generally a 30 or 60 day lock in that will allow you to close without worry of rising mortgage rates.

One of the final steps is your home inspection. This generally costs a few hundred dollars and is well worth it. The inspector will carefully document every detail, from non-working outlets to potential structural problems. Depending on the results of the home inspection, there may be room for a renegotiation. If certain appliances need to be replaced or repair work is in order, the purchase price should be adjusted accordingly.

Assuming you have hired an attorney, most of the final details and paperwork will be handled for you. Purchasing a FSBO home can be an easy step by step process that saves you thousands of dollars if handled properly.