You're driving down the street and notice a For Sale By Owner sign on a house that looks great from the outside. You write down the number from the sign and plan on calling to schedule a showing as soon as possible.
Before you call the owner, you ask are there any risks involved in a FSBO transaction? The answer is yes, depending on the situation. Some of the things to be aware of include and some of the reasons that FSBO transactions often do not close include:
1.) The homeowner is often the one showing you the property. While most sellers are honest they may not understand "full disclosure". Realtor(R) are subject to full disclosure of any "adverse material fact" about a property. This means that if the basement flooded five years ago, it should be disclosed.
2.) There are legal forms that can be overlooked. For instance, in the state of Montana, sellers are required to complete a Mold Disclosure and a Lead-Based Paint Disclosure when they transfer a property. Sellers also complete a Seller's Property Disclosure form that acknowledges and issues with the home, zoning, covenants, easements, etc. These protect both the buyer and seller.
3.) A profession
al home inspection is a critical part of any home sale. An inspector can help identify structural issues and problems caused by deferred maintenance. A radon test can also be performed. Depending on the property, additional inspections may be necessary. A Realtor (R) or other trusted advisor can help you identify areas of concern.
4.) A seller may not be able to convey title to the property. When a property is listed with a Realtor (R), ownership is verified and a preliminary title report is obtained. This allows for early identification of any title issues, liens, easements or other issues that would encumber the title. In today's market, it is also possible that a Seller may not have enough funds to close, depending on their loan and financial situation.
5.) FSBO's may not be aware of specific requirements for lenders, especially for first-time homebuyer programs, FHA loans, VA loans, etc. This can also apply to certain kinds of properties - a modular home, older homes with private well and sewer, fireplaces or wood stoves, etc.
6.) Limitations on uses for the property - a detailed review of zoning, covenants, condo associations, and other property limitations can be overlooked. It is important to verify that a property can be used as intended prior to purcahse. A Realtor (R) or trusted advisor can assist you in gathering and reviewing this information.
So, what can you do if you still want to buy a FSBO home?
- It is often possible for a real estate professional to represent you as the buyer. Many times sellers are willing to pay a buyer's agent for their services since they aren't paying a seller's agent. It is worth checking with a trusted real estate professional to see if that is the case.
- Perform your due diligence. Inspect, inspect, inspect, and independently verify all information that is critical to the sale.
-Consult an attorney to assist with contracts and to verify that your are compliant with all state and federal laws.
-Spend time at the title company to make sure you understand the property boundaries, any easements or encumbrances, and to make sure you are covered by an adequate title policy.
So whether you work with a Realtor(R) or decide to go it alone with a FSBO, be aware of the risks and do your research. Afterall, your home is likely to be one of your biggest investments.
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