Are you eyeing a For Sale by Owner property?
Based on 2018 statistics from the National Association of Realtors (NAR), 91% of sellers received assistance from an agent. In the same year, FSBO homes only accounted for 7% of the total home sales.
Yes, For Sale by Owner properties are not too common. However, you may be able to purchase your new home for less by dealing directly with the owner, not the agent. If the seller has concerns about the property such as needing more time to vacate, it would also be more convenient to discuss the terms directly to the buyer.
Since the average real estate broker charges around 5% of the sales price, proceeding with the transaction on your own will save you a $10K commission for a $200K property.
Aside from the extra cash, transacting directly with the buyer can be more convenient. Unfortunately, there are risks in doing business with an FSBO seller.
Here are the top struggles For Sale by Owner Sellers and Buyers usually deal with and how you can deal with these hiccups in the home buying process.
1. Negotiating with FSBO Sellers Can Be Complicated
FSBO sellers are the best people to show you around the house and talk about its features. Unfortunately, they are not necessarily skilled in negotiating terms. As the homeowner, sellers are often emotional when they part with their property.
In some cases, the seller may have unreasonable terms or worse, they may back out in the middle of the deal. While touring you around the property, you may find it hard to express an honest opinion in front of the previous homeowner. Sellers can be unreasonable with some things and rather than deal with all of these things on your own, it is better to hire a broker or attorney to represent you.
Note that not all brokers may be enthusiastic in dealing with a for sale by owner property. Some professionals feel that representing clients who will buy the property properly will also require them to advise the FSBO seller as to their duties and obligations. This task would have been up to the listing agent had the seller hired one. In addition, some sellers are difficult and unrealistic. So, being the broker in charge who does twice the workload for half the pay is not attractive.
Your best bet is to find a broker who is willing to go through all these troubles to help you buy the FSBO property.
2. For Sale by Owner Property Prices are Often Inaccurate
For sale by owner properties are usually sold in less than two weeks. This turnaround time is quicker than homes listed under real estate agents. If you don’t act quickly when you see the sign on the property’s front yard, you may lose the chance to buy it. The quicker selling cycle is usually because the sale is made to someone related to the seller.
NAR statistics indicate that the average price for FSBO homes are usually lower than properties sold through an agent. This is a big advantage to you as the buyer.
In 2018, the average FSBO home sold for a median price of $200K as opposed to a sale coursed through an agent which had a median price of $264,900. If you know the property owner, you may get an even lower price.
While this may be the norm, there are cases when the For Sale by Owner property is overpriced. People who decide to sell their homes on their own often struggle in listing the right price.
Solution: Hire an appraiser
Property appraisal typically costs between $300 to $400. Appraisers provide an impartial opinion based on the condition and location of your home and other properties for sale with similar features as your property. The appraiser will look into these things to provide an appraised value:
- Size of the property and your home
- Age and general conditions of your home
- Features including the number of baths and bedrooms
- Home improvements, additions, and remodeling
- Architectural features including fireplaces and skylights
Buyers often shoulder the cost of appraising the property anyway since this document is needed if they take out a mortgage.
You can also look into the comparative market analysis from a real estate agent to determine the appropriate listing price and if the price of the property you are buying is reasonable.
Note: Appraised value is different from the fair market value. While an appraisal may help you determine the home’s valuation, you still need to consider the price of similar properties in the neighborhood to assess the home’s market value.
Top 4 Dont’s When Researching For Sale by Owner Property Values
- Don’t use the tax assessment value as a reference. While these prices are close to the true market value of the home, it is still not as accurate as the price determined through an appraisal.
- Don’t consider the full cost of the seller’s home improvements in estimating the value of the property.
- Don’t rely entirely on Zillow’s Zestimate. Zillow is one of the hottest places online to list a property. But the website’s property estimating function may provide overstated values. The numbers are something sellers like to see and buyers should NOT consider these figures as the property’s market value.
- Don’t hesitate to dispute the appraisal. Appraisers are theoretically impartial. But the process can be subjective, and it depends on several factors. If you suspect a mistake in appraising the property, don’t hesitate to dispute the figures or request for a review.
Why For Sale By Owner Sellers Fail Price their Properties Right
Most FSBO sellers chose to find the right property price to be their top concern and for good reason. Listing the property too low means leaving money on the table. On the other hand, listing for at a price too high would put your property in the market for too long. As the buyer, you should do enough research to find the most equitable price for the property.
3. Managing and Understanding the Paperwork Is Burdensome
Buying a for sale by owner property becomes burdensome when it’s time to take care of the paperwork. After receiving offers for the property, the owner has to consider the offers. Your agent may be wary of working with FSBOs because it means extra work for them. If you are doing business with a seller without an agent, the process can also be confusing.
The seller may also feel overwhelmed by the legalese involved. Instead of saving time, the entire process of selling the property becomes burdensome.
A real estate agent would have taken over this process. Without one, the seller and you as the buyer have to do everything by yourselves. When purchasing for sale by owner properties the biggest risks revolves around buying a problematic property.
Solution: Employ a Real Estate Attorney
You have to request the assistance of a real estate attorney in reviewing the contract. By having a professional review of the contract, the deed, transfer documents, and the settlement of funds at closing, you will feel reassured to have an extra security blanket if complications arise. Aside from that, you won’t enter blindly into a deal which could cause you to commit to the sale even if there are issues linked to the property.
Without an attorney, you may find yourself dealing with problems such as:
- Shouldering all the closing fees and expenses including transfer taxes, notary fees, appraisal costs, document preparation fees, HOA dues, delinquent taxes, title search fees, pest inspection fees, and title insurance policy.
- Ending up stuck with the property because your sales contract has no contingencies allowing you to back out of the sale.
- Losing the earnest or up-front money because you gave it to the seller for safekeeping instead of palcing it on an escrow account.
Hiring an attorney typically costs between $1 to $3K but prepare to spend up to $5K. The total attorney’s fees will depend on your situation and the attorney’s hourly rate which could be $150 to $300 an hour. While most attorneys require retainer fees, most wouldn’t charge you for small sale transactions. However, in the following circumstances you may have to consider hiring one:
- The seller received a foreclosure notice.
- The seller is considering a short sale.
- There are liens and judgments attached to the property.
- The seller inherited the property.
- The seller is going through a divorce or separation.
Learn the Required State Disclosures
Most US states require sellers to disclose dangers, hidden flaws, and weak spots in the property.
California, for instance, requires sellers to provide buyers with disclosure listing home defects including deaths within the property in the past three years, a leaky roof, a nuisance in the neighborhood such as barking dogs among others.
Having a real estate lawyer will make sure that the seller complied with all the disclosures required by the state.
Take note that in states such as New York, Alabama, Georgia, Hawaii, Massachusetts, New Hampshire, Maine, Vermont, Rhode Island, Connecticut, West Virginia, and Delaware, you need a real estate attorney at closing. Check if your state requires you to have an attorney represent you. However, don’t expect your legal representative to do the legwork.
While an attorney can help you look over the legal aspects, you may still shoulder most of the paperwork.
4. Transacting with an FSBO Seller May Take Longer than Buying Through an Agent
Among the problems For Sale by Owner sellers struggle with is devoting enough time to the same of their home. Setting a schedule with an agent may be troublesome, but dealing with the paperwork to sell a property would require a lot of time too!
Without a representative or connections in the real estate industry, you could struggle a lot too. Finding appraisers, bankers, and inspectors could take up much of your time. It wouldn’t even stop at requesting the inspection and appraisal. You also have to study both and make sure they are satisfactory.
Given all the steps you have to observe, buying a for sale by owner property could take much longer. On top of that, the seller might need more time in the house or back out. Sometimes, scheduling issues may also make it challenging to meet with the seller to iron things out.
When you are dealing directly with the seller, you can work together to have a realistic timeline for the sale. Unfortunately, there could still be hiccups and you may have to make adjustments to meet a seller’s schedule.
For Sale by Owner Homes: The Verdict
Buying a for sale by owner property has advantages and disadvantages. Given that most FSBO sellers are not real estate agents, you may several thousands of dollars knocked out from the selling price. Depending on your goals and situation, the savings you get might be worth the extra effort.
If you are ready to deal with emotional sellers who may or may not have enough time to close the deal quickly, FSBO homes may be your best option. Without professionals to help you navigate through the process, you may find yourself at a stalemate with the buyer during the negotiation process.
Remember that the choice whether to buy a for sale by owner or not lies with you. However, if you don’t have a representative either, you may want to look into these things:
- Arranging a home inspection
- Putting all agreements you had with the seller in writing
- Determining the party who will pay for closing costs
- Seeking legal help to go over sales contracts and closing
- Specifying the date you will take possession in the contract
While there are disadvantages in pursuing a property for sale by owner, there could be obvious advantages too.