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Friday 07/28/2017 Mortgage Rates

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For Sale By Owner Homes

A home that is being sold by its owner is referred to as a for sale by owner (FSBO) home. In this article, you will find all the information you need on FSBO homes and the two scenarios that you could find yourself in. The two scenarios will put you in the shoes of both the seller and buyer. In this way, you will understand what is involved in FSBOs from all angles.

Come Prepared

Include conditions in writing and let the seller know that they need to abide by them. If they don't comply, then you're probably running the risk of buying a problem that's waiting to happen. Your conditions should include the following:

  • A purchase contract can lay out the conditions of the could-be transaction by a real estate lawyer of your choice.
  • A mortgage approval to let your FSBO seller know that you won't go through with the transaction unless you've been approved for a loan.
  • A home inspection to let you know if the home has foregone damages from fires, termites, rodents, or water.
  • A clear title which details the property's history of ownership and the names of previous owners up to that point.
  • An appraisal which achieves the same thing as "comps" but it is a professional service designated by your mortgage lender and a necessary step for loan approval.

When You Are the Buyer of a FSBO

Tip: If there are similar homes surrounding what you have your eye on, ask about their costs to gain more leverage when negotiating with your FSBO seller. 

The Pros of Buying a FSBO:

  • Direct communication.
    If the seller is not to be trusted, you can pick up on things that you couldn't have if an agent was doing the work for you.
  • A better bargain.
    Agent commissions range between 5% and 7%, and since there is no agent involved, the cost of the home will be that much cheaper.
  • Sharing of fees.
    You can negotiate with your seller on how you can both share the costs of escrows, home inspections, transfer taxes, and unpaid property taxes.

The Cons of Buying a FSBO:

  • Less leverage.
    The seller can have a leg up on you during negotiations because they know more about the property than you do.
  • Additional fees.
    You might have to bear the fees of third-party affiliates like real estate lawyers, appraisers, and home inspectors if the seller is unable to cooperate. 
  • The real price.
    With no realtor, you won't have access to the real price of the home besides a close estimate.

Additional Tips on Buying FSBOs

Comparables - also known as "comps" - compare homes within the same area in terms of their sizes, footprint, sale prices, and their dates of construction. For instance, if your home is priced at $294 per square foot and the average price for the rest of the neighborhood was $231, this should give you enough leverage to offer the seller a lower listing price.

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