Meet John Tallarigo. John is the education content developer and is working on expanding PREC coursework into new states and additional courses for our current states.
How to Buy a House that is For Sale by Owner๏ปฟ
I’ve been looking for my first home purchase for the past several months. I’ve been working with a great financial expert to know my price range, I know my highest priority is location and price, and I know what kind of house I am looking for. And you would think that would be enough to get under contract by now!
But thanks to a slow December and January, not much has come on the market, which is admittedly a small one considering my search range includes properties within 15 minutes of where I work and no interstates. I love easy commutes. Instead, I got excited about a For Sale by Owner (“FSBO”) that had been on Zillow for over 2 months. “Maybe I can lowball them!” I thought every day I saw it still on the market.
I’ve been looking for my first home purchase for the past several months. I’ve been working with a great financial expert to know my price range, I know my highest priority is location and price, and I know what kind of house I am looking for. And you would think that would be enough to get under contract by now!
But thanks to a slow December and January, not much has come on the market, which is admittedly a small one considering my search range includes properties within 15 minutes of where I work and no interstates. I love easy commutes. Instead, I got excited about a For Sale by Owner (“FSBO”) that had been on Zillow for over 2 months. “Maybe I can lowball them!” I thought every day I saw it still on the market.
This blog is going to discuss some tips for dealing with FSBO sellers and you will get to read about my epic journey to homeownership! Spoiler Alert: I didn’t buy this turd of a house. This brings us to tip #1 for buying a For Sale by Owner.
Tip #1: Before you start looking at houses, get pre-approved for a loan.
Before looking at any property, it's crucial to know how much you can afford to spend. Consider the cost of the home, closing costs, property taxes, and other related expenses. Know what kind of mortgage works best for you.
A conventional mortgage may be ideal for some, but for a first-time homebuyer, an FHA loan or USDA loan can provide more security to the buyer, and both take less money out of the buyer’s pocket. Sometimes an FHA or USDA loan can backfire for FSBO sellers. Both have more strict inspection requirements and take longer to close, so FSBO sellers are more likely to require conventional loans or cash only in their posting.
So, after getting my finances in order and after 2 more weeks of checking the Zillow status twice a day, I got the courage to set up a showing for Saturday. I started looking into the complications of buying from a FSBO to help prepare me for the showing. Being a stereotypical attorney, I thought I knew more than the average buyer. And being a stereotypical attorney, I begrudgingly admit that that may have not been the case. I thought that going without an agent might make me a more attractive and valuable buyer.
Tip #2: Some buyer's agents avoid FSBO homes.
The biggest reason a FSBO seller is selling without an agent is that they want to save money on realtor fees. In a market like this, a seller’s agent will charge as much as 6% to list a home for sale, of course typically offering 3% to a buyer’s agent. Without a listing agent, that 3% buyer's agent fee is not guaranteed.
A good buyer’s agent will include in the offer a requirement to pay the buyer's agent fee but that is still a point of negotiation for the seller. With a listing agent, agent fees are typically settled before the house even hits the market. Also, a buyer’s agent may still avoid FSBOs because they know when they are dealing with a stubborn or ignorant seller.
This FSBO house appeared to check off a ton of boxes for me: located within 5 minutes of my work, middle of my price range, great size for a first-time homeowner at 1,300 square feet, 3 bedrooms with room to add a second bath upstairs, hardwood floors that looked newly finished, a driveway and garage, and half an acre, which is unheard of in this neighborhood. I don’t have kids yet, or pets yet, but for a first-time homeowner, this looked like a great opportunity!
WRONG! So wrong!
Tip #3: FSBOs take on lots of responsibility and sometimes they’re not ready for it.
A FSBO seller is taking on the role of listing agent with the only compensation of not having to pay the fees to a listing agent. They have to decide the listing price, stage the house, market the house, schedule and show the house, negotiate the offers, coordinate inspections and surveys, prepare and execute the legal documents and disclosure documents, and coordinate the closing on their own.
Unless they are an industry expert or married to one (read experienced real estate agent or real estate attorney) they are going to slip up in one or more of those areas. Most FSBOs end up with a listing agent anyway, and some agents specifically target FSBOs to gain new listings. As of 2020, the NAR estimates that only around 7% of all residential transactions are FSBO. That means that around 93% of all residential transactions have at least a seller’s agent.
Back to my FSBO seller and the showing. For the sake of the article, I will change his name to Zane. Zane’s home gave off a mighty impression. I knew the home was empty because of the pictures but I didn’t expect the beautiful hardwood to have such a level of dust everywhere. Apparently, Zane and his wife had moved out 2 years ago and they were just now getting around to selling the place. Zane had also been using the living room as a temporary construction site for various railings, windows, and the like and decided a quick sweep wasn’t warranted.
As we slipped through the living room into the kitchen, I noticed most of the outlets and light switches were older than grunge music (30 years for those born after 1999) and none of the door handles were the same. Their decisions on “updating” the house were baffling to me. There was a broken refrigerator from the 1950s doubling as a China cabinet slash toolbox that Zane insisted would be left behind (they had it up on Facebook marketplace for over a year).
They decided to install the cheapest and ugliest gray carpet in the “Master” bedroom, which connected to their newly installed, engineered hardwood flooring for the upstairs living space. The basement contained the world’s oldest electric washer and dryer and several other bent, wooden shelving units Zane insisted were all staying.
When they said they hadn’t lived in the home for 2 years, the backyard definitely proved it. They needed to read our blog on creating an ideal backyard oasis. The deck needed to be power washed and re-stained (if not removed entirely), a non-working koi pond I’m surprised didn’t have dead fish in it, and overgrown bushes along the back edge of the property. The old tree was dripping water onto the roof for so long, half of the roof was covered in mold. The gutters looked like planters with all the vegetation growing out of them.
It was at this point I asked him about filling out the form property disclosure sheet provided by the state real estate commission. He said he would have to talk to his wife about the disclosure laws since she was an attorney.
Tip #4: Someone will need an attorney.
When dealing with a FSBO seller, and if you are not represented by an agent, one or both parties should consult with an attorney about the legal documents needed to conduct and close the sale. Most states even require an attorney to conduct the closing and it is unlawful for a real estate agent to prepare the closing documents (deed, settlement statement, etc.).
Even if you don’t need an attorney, there are several complex scenarios in which agents would recommend hiring an attorney, specifically a real estate attorney. If someone is selling on behalf of a deceased relative, for instance, or if you’re purchasing a property from out of state, a real estate attorney can provide legal guidance for roadblocks that should be addressed before the closing.
She was a defense attorney for car insurance companies. I asked if she had ever prepared a real estate contract or closing documents and he obliviously said, “No, but she’s an attorney. She can handle all that.” Given all the work this house needed, and the fact that Zane and his attorney-wife were so confident in their listing price, I couldn’t get out of that house fast enough!
In conclusion, purchasing a for-sale-by-owner house can be a great opportunity to save money on real estate commission fees. However, it requires more effort and attention to detail from the buyer and buyer’s agent and sometimes does not yield the same quality of housing. As for me, the FSBO went pending a month later to a house flipper and I’m happy it did. I just hope I’m not still looking when the flipper puts it back on the market in 6 months! (Editor’s note, this piece was written in the first week of February. As of March 3rd, the FSBO home still has not been closed on and the seller is still the owner of the home. It has not been put back on Zillow.)
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