Buying a home can
be a complicated process. Due to a lack of familiarity with the
various steps and legal implications, most home buyers choose to be
represented by real estate agents. And since the commission is
generally paid by the seller, there is no need for the home buyer to
go it alone.
However, this changes when dealing with a person that is selling their
property by owner. They have likely opted for this approach in order
to save the money that would otherwise be paid to real estate agents.
The traditional method of selling a home usually costs the seller as
much as six percent of the selling price in real estate agent
commissions, which could be a considerable sum of money.
Although not always the case, buying a property that is for sale
by owner can save the buyer a considerable amount of money. This is
not always the case because in many instances the seller simply wants
to save the money that would otherwise go to real estate agent
commissions, but the selling price is still the same. However, in
some cases, the seller is willing to lower the price to obtain a
faster sale.
Selling by owner allows the property owner the option of lowering the
price by as much as six percent, without actually losing money. This
is where the buyer stands to benefit. But conducting this kind of
transaction can be fraught with complications for the ill-informed
buyer. For this reason, this section provides information relative to
professionals that can help you as the buyer. Most of them are the
same people that real estate agents are paid to deal with. A little
education about the process can potentially save you thousands.
Below you will find information on how the following professionals
can help you make the best of buying a property that is for sale by
owner.
Escrow Company
Title
Insurance Company
Loan Officer
Appraisal Service
Home Inspection Company
1. Escrow Company
Escrow is perhaps the most essential element of a real estate
transaction. The escrow company functions as an intermediary between
the seller and the buyer, protecting the interests of both. When a
property is purchased, the funds flow from the buyer, or his lender,
through the escrow company to the seller, or his lender. But there is
much more involved in the escrow process. Other vital services
performed by the escrow company can include:
-
Preparing and
providing the escrow instructions to the seller and buyer
-
Ascertain the
legal ownership of the property, including all loans and other
encumbrances, through a title search
-
Confirm that the
property meets the qualifications required by the lender for the
loan to be funded
-
Confirm that the
buyer meets the lender's qualifications to purchase the property
-
Confirm that all
legal documentation is complete and accurate
-
Confirm that all
financial obligations have been correctly prorated
-
Close escrow when
all obligations have been met by the seller, buyer, and involved
lending institutions
-
Disburse the
funds to the respective parties (seller, seller's mortgage company,
title insurance company, etc.)
-
Complete final
statements
Escrow services are
frequently performed by stand alone escrow companies which are
licensed in their respective states. Escrow services can also be
performed by banks, savings and loan institutions and some title
insurance companies. The activities of escrow companies are subject
to review by state governmental authorities. This oversight protects
property of sellers and buyers, and ensures that the activities performed
by the escrow company stay within the confines of the law.
When purchasing a property that is for sale by owner, the buyer can
use the escrow company of his choice. The escrow company can also
help the buyer identify companies that provide other services that
will be essential in the transaction (i.e. title insurance company,
certified appraiser, home inspection company, etc.).
In view of the key role that the escrow company plays, the buyer
should be sure to select a reputable company, known for the quality of
its service in the community.
2. Title Insurance Company
When you purchase a property, the document which identifies you as
the owner is called the title. If you have title to a property, it
means that you own it. The Title Insurance Company performs a
thorough search to insure that there are no hidden liens or claims on
the property that you are purchasing. Examples of such hidden liens
or claims can include:
-
Liens from a
prior foreclosure
-
Property
easements which could allow your land to be used for other purposes
-
Tax liens from
the Internal Revenue Service
-
Long lost heirs
to the property
-
Forged or
falsified property records
In most real estate
transactions, the seller must provide a title insurance policy
covering the buyer. The buyer receives such a policy when escrow
closes. Nevertheless most, if not all, lenders also require the buyer
to obtain title insurance covering the loan amount. The buyer usually
pays for this policy and it must provided to the lender when escrow
closes.
If any claim or lien appears after you have purchased the property,
your title insurance policy will reimburse you for the losses covered
under the terms of your policy. Although rarely needed, the
protection provided by the Title Insurance Company is absolutely
essential.
3. Loan Officer
If you’re serious about buying a home, your first step should be to
get pre-qualified. Pre-qualification will
let you know exactly what you can afford, and will prevent you from
wasting your time on properties that are out of your range. You might
also learn that you can afford a nicer home than you had imagined.
Being pre-qualified will also let any sellers know that you are
serious and may save you money since most sellers will be inclined to
take your offer more seriously.
4. Appraisal Service
You should have some idea as to the market value of the property
before making an offer. But after your offer has been made and
accepted, an appraiser will need to appraise the property. This is a
necessary step in securing a loan. It will also satisfy any anxiety
you may have about the value of the property versus your offer. Our
loan officers, at your request, will put you in touch with a certified
appraisal service.
5. Home Inspection Company
No one would willingly purchase a property in need of costly repairs.
The exception to this rule is the buyer that wishes to buy a
"fixer-upper". For the sake of this discussion, let's assume that you
are looking for a property free of any expensive problems. The
disadvantage to the buyer is that it can be difficult to know if a
property is in need of such expensive repair work. This is where the
Home Inspection come in. A home inspector is paid to go through a
property, checking for common problems that could be unknown to the
seller, and difficult for the buyer to identify. Examples of such
problems include, plumbing problems, foundation problems, termite
infestation, dry rote, and so on.
As a buyer, you can request an inspection by a Certified Home
Inspector. Once you have a written report, you can be relatively
assured of what you are getting. A word of caution is in order. Be
certain that any home inspector that is used is a member of the
American Society of Home Inspectors (ASHI) or a reputable local home
inspection regulatory body. For more information about the ASHI,
visit http://www.ashi.com/. Their Web Site can also assist you in
locating an Inspector. Visit them at:
http://www.ashi.com/find/.
BlueMortgage.com provides a wealth of information about the various
phases of a real estate loan transaction. We also provide helpful advice
to assist you through the process. Take a look at our
Mortgage Information Gateway menu, and
click on any option that interests you.
