8 Tips When Buying a Home “For Sale By Owner”
You could be in the market for a home when a friend asks you to consider looking at properties under “For Sale By Owner”. This is popularly referred to by its acronym FSBO. It is not a new concept and has been gaining popularity with property owners worldwide.
For Sale By Owner means exactly that. The property is sold directly by the owner without representation by a licensed real estate agent. Why are people going FSBO? There are 3 reasons for this:
- Increase net return on property; by not having to pay agent’s commissions, the property owner improves net return on the home by 2% to 3%.
- More control on expenses; the property owner can manage all expenses related to the sale of the home from ad marketing, scheduling home visits and preparation of contracts.
- Have the home sold faster; real estate agents attend to other clients and cannot devote 100% of their time on your property. By going FSBO, more resources will go to have your home sold as quickly as possible.
Knowing these 3 reasons is important when buying a home under the For Sale By Owner approach. You have an idea of the negotiation range; controlling marketing expenses improves the seller’s margin by 8%, and you know the home needs to be sold before its perceived market value starts to decline.
Buying a home directly from an owner is not much different than buying from a seller who hired a real estate agent to broker the sale. In certain respects, it could be easier because there is no filter. You can relate your concerns and objections directly with the owner.
Here are 8 important tips to consider when buying a home that is For Sale By Owner:
1. Determine Your Budget
Buying a home under any circumstances starts with what you can afford. Review your finances and determine your budget for a home.
Your vision of a dream home will only manifest itself into reality if you have the means to pay for it.
Find out how much you can afford to take out of savings and if your current stream of income can finance the balance within a realistic time table. Most sellers will only allow 90 days maximum to complete payment.
2. Find Out if You’re Qualified for a Loan
If your current financial status will fall short of financing your ideal home, you could consider getting a loan. The cash rate of Australia remains favorable to borrowers but banks are tightening up the qualification process.
You can have yourself pre-qualified for a loan. You can hire the services of a Mortgage Agent to do this for you. The advantage of going with a Mortgage Agent is they know specific bank officers who could be sympathetic to your situation.
Getting yourself pre-approved for a loan, is a big step toward a favorable negotiation process. The seller becomes confident knowing you can pay for his or her home and become more accommodating with price negotiations.
3. Conduct Research
If you’ve identified specific features you would want in a home or a neighborhood, conduct research on the area. Find out the following:
- Property trends
- Average selling price over the last 6 months
- Availability of homes that fit your qualifications around the area
Use the information to help you arrive at an offer price to the property owner. Of course, you would want the best price for your money. But it should not be too low that the property owner feels insulted.
4. Search for FSBO Homes
Visit reputable FSBO websites. These websites are dedicated to help property owners facilitate the sale of their own home. Many property owners who prefer FSBO regularly patronize these services.
These FSBO sites are well- maintained, secure and regularly updated by its subscribers.
5. Schedule a Home Visit
If you’ve identified a home that has caught your fancy, contact the seller directly and schedule a visit. It has to be a time and date that is convenient to the seller. You want to start the negotiation process to a good start by making a friendly first impression!
It is a good idea to bring an architect, engineer or interior designer with you during the home visit. You have to know if buying the home will entail repairs the cost of which may offset any pricing advantages.
Out of courtesy, advise the seller that you are planning to bring a professional to inspect the home.
6. Get a Valuation on the Home
Even before you visit the home, get a valuation done. You can do this a number of ways:
- Purchase the comparative report from a real estate agency
- Hire a desk appraiser
- Visit a home valuation website
Knowing the current valuation of the home will give you an idea of how to position your offer. You should anticipate that the preliminary negotiation process could begin immediately after the home inspection is done.
7. Hire a Real Estate Attorney
Every city state will have its own legislation on property. There may be provisions and laws specific to the sale of property in the area that you should know about. For a few hundred dollars, a real estate attorney can have all of these done for you.
In addition, the real estate attorney can review the contract of sale as drafted by the seller and give you his or her recommendations. You could also ask the attorney to have the title verified at the Land Titles Office or LTO.
8. Submit an Offer
If you liked the house, the required repairs are well within reason and preliminary negotiations appeared to be productive, submit an offer to the property owner.
Keep it within the low end of the market range for similar property in the area. You have to anticipate that the property owner will not agree with your price and ask for a higher offer price.
All of this is part of the negotiation process. Approach it with a protagonist mindset whereby the goal is to arrive at a middle ground that best serves the interest of both buyer and seller.
A successful negotiation happens when both parties walk away happy and satisfied at the agreed upon price.
Buying a home via FSBO is not as difficult as you might think. You are essentially in the same position as the seller; you both want the best value for your asset. With a bit of time invested in research and planning, you could have a successful experience buying your dream home directly from the owner.