Watch Outs
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consultation with our home loan experts.
When you buy a
property that is for sale by owner, there are a few “watch out”
situations that you should be alert to. Doing so can save you time,
money, and headaches.
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If buying
a property “as is”, know what you’re getting
Most
states have laws on the books that require a seller to disclose the
true condition of a property to the buyer. Although you might agree
to purchase a property “as is”, you must understand exactly what “as
is” means. The sellers idea as to what “as is” actually means may
be far different from the “as is” property that you come to own.
.
To illustrate, the seller might honestly disclose specific problems
that he knows about, such as a leaky roof or a broken window, and
you might assume that “as is” means that these are the only problems
the property has. But later, you discover that there are serious
problems with the property, such as extensive termite damage, a
faulty foundation, or asbestos contamination. Having signed an “as
is” contract means you get to pay for these surprises.
Although you might opt to bring a lawsuit against the former owner
for these newly discovered problems, the time and money you stand to
lose could be considerable. For this reason, it is absolutely
imperative that you have the owner spell out in writing what “as is”
includes.
This is where the services of a Certified Home Inspector can be of
great benefit. These professionals are paid to identify problems
that the owner might not be aware of. Even if there are no
problems, having an inspection performed will give you great peace
of mind.
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Buying a
For Sale By Owner property doesn't necessarily mean that you will
save money
Many
property owners sell by owner because they want to avoid paying real
estate agent commissions. The savings can be as high as 6%, since
this is what real estate agent commission typically cost the
seller. The objective of selling by owner is not necessarily to
save you money. The buyer may still want top dollar. That being
said, you should also know that buying a property for sale by owner
will frequently mean that you can save money - at times a
substantial sum. But to save money, you will need to do your
homework.
If you want to buy a property below market, the first step is to
know what the property is worth. This is subjective since there are
many factors influencing a property's worth. If you are interested
in the property, make an offer contingent upon an inspection. There
is nothing that says that you shouldn't make an offer significantly
below the market value or asking price of the property. Your first
offer might actually be accepted. In most cases, the seller will
present you with a counter offer. You can usually expect to pay
less than the original asking price, although there are some
instances in which the owner will not budge one cent. Your research
and interest in a property will dictate what your final offer should
be.
Try to determine why the property is being sold by owner. If it
is to save money, consider meeting the seller somewhere in the
middle. To illustrate, consider a property that has a market value
of $200,000. If represented by a real estate agent, the seller
could expect to pay as much as $12,000 in real estate commissions.
Selling by owner could save the seller this amount of money. The
same seller might be content to save half of this amount, passing
along the other savings to you. With so many factors involved,
you'll want to bear in mind.
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Don't be
too quick to leave a deposit
What if the person that shows you this beautiful home, and
agrees to sell it to you at a great price, isn't really the owner?
What if this person is only renting, maybe even on the verge of
being evicted? What if the real owner doesn't know that his renter
has listed the property for sale, and is about to run off with your
$3000 deposit? Need we say more? Be sure to know who you're
dealing with.
You should also be sure that you are qualified to obtain a loan for
the amount that you offer. If you agree to purchase a property for
a given amount, leave a deposit, and then don't qualify for the
loan, you might rightfully lose your deposit. Of course, what
happens with your deposit in the event that something unexpected
comes up should be discussed in advance and placed in writing. This
is why the service of a Real Estate Attorney are so valuable. They
will keep you out of trouble.
-
Don't
underestimate the legal implications of a real estate transaction
A real estate transaction can at times be free of problems. But
a real estate transaction can also turn into a costly nightmare if
there's a misunderstanding regarding nearly any detail of the
transaction. We won't attempt to discuss the myriad of issues that
can complicate the purchase or sale of a home and cost you money.
What we will do is advise you not to be fooled into thinking that
purchasing a home is a simple process.
The following are a few of the many issues you should not overlook:
-
Verify
that you are working with the legitimate owner, owners, or their
legally authorized representative.
-
Don't
offer or pay more than fair market value for the property.
-
Ascertain
that the property is sound condition and/or that any defects are
disclosed in writing.
-
Consider
making any offer contingent upon a written report from a Certified
Home Inspection Company.
-
Be sure
that you qualify for the amount you offer.
-
Only leave
a deposit with a real estate attorney or escrow company.
-
Clearly
spell out the terms regarding any deposits left.
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If you are
represented by a real estate agent, but are also looking at
properties independent of your real estate agent, be sure to
clarify what the specific terms will be if you locate a "for sale
by owner" and wish to proceed without the assistance of your real
estate agent.
-
If you are
represented by a real estate agent that finds a "for sale by
owner" that interests you, be sure that the seller knows that he
will be responsible for paying a buyer's real estate agent
commission. This should usually only occur if the real estate
agent finds the property for you.
-
Obtain a
Title Insurance Policy to protect you in the event that any
claim or lien appears after you have
purchased the property.
-
Be sure that you understand who
will pay for what in the transaction.
-
Conduct a walk-through before
closing to ascertain that nothing has changed, been damaged, or is
being left behind that was not specified in the original contract.
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Track the
progress of the transaction
When there is no real estate agent involved, someone must keep
on top of the progress of the transaction. It is in both the buyer
and seller's interests to track the transaction's progress. If you
didn't select the Escrow Company, be sure that you find out the name
and telephone number of the escrow officer that is handling your
transaction. Discuss early on all time frames and make certain that
the Escrow Company knows how to contact you and your loan agent. If
the progress slows, get answers immediately.
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Know who
is paying for what
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