We recently worked with a buyer who purchased a house for sale by owner. The owner was actually a flipper who had hired a listing brokerage to put the property into the Multiple Listing Service. The owner was the point of contact and handled all the negotiations.
Top 5 things to know to protect your best interest when buying a FSBO
- THE SELLER DOESN'T KNOW WHAT SHE DOESN'T KNOW - Every jurisdiction has addendums and requirements which become part of the contract. Several of these addendums are provided by the seller. For example, in Montgomery County Maryland, it's mandatory for the seller to perform a radon test and provide the results to the buyer. The seller is not required to pay for remediation but the test has to be done. If the FISBO hasn't done their homework, they could miss important documents & requirements which are in place to protect the buyer. A good buyer's agent will make sure all required documents are included in the contract.
- CONTINGENCIES IN THE CONTRACT ARE THERE TO PROTECT THE BUYER - If you are buying a for sale by owner house, be sure your buyer's agent includes inspection, financing and appraisal contingencies. The home inspection should include the right to negotiate and the right to walk away from the deal. There will be a time period written into the contract that allows the buyer to hire a home inspector and complete the inspection. The inspector writes a detailed report and based on this information, the buyer decides to negotiate repairs and credits or walk away from the deal. The financing contingency is in place to protect the buyer should they not be able to purchase the property through no fault of their own. And if the appraiser determines that the value of the property is less than what the buyer is offering, the appraisal contingency gives the buyer the right to negotiate the price and get out of the deal if they can't come to an agreement with the seller.
- THE SELLER IS NOT BOUND BY A CODE OF ETHICS - Real estate agents are supposed to follow the rules and the code of ethics. This includes not misleading buyers, responding as quickly as possible to offers & counter offers and disclosure of pertinent facts and latent defects about the property. If real estate agents break any of the rules they could be fined and/or lose their license. A seller has not agreed to a code of ethics or standard of practice. This leaves room for dishonest people to not disclose all the important details of a property.
- SELLER MAY OVERVALUE THEIR PROPERTY - It's not uncommon for a homeowner to overvalue their property. I remember a conversation I had with a FISBO who listed the cost of the back deck and bathroom renovations he had done 10 years prior. He was expecting to be compensated for the expense! Review the comparables provided by your buyer agent. These will show what similar houses sold for over the past 6 months to a year. Look closely at the condition of the other houses. Using this information, you can determine what you want to offer for the house. Keep in mind that you may also be negotiating repairs and/or credit for items found during the home inspection.
- GET EVERYTHING IN WRITING - Did the seller say they would take the junk out of the backyard? Get it in writing! Everything you have either verbally or via email agreed on, write up an addendum that spells it out and is signed by both parties. If it's not in writing, it's not enforceable.