Tips on Buying a FSBO Home

With “by owner” real listings accounting for approximately 20% of all homes on the market, ForSaleByOwner.com offers the following tips on how to buy a “by owner” home without using a real estate agent:

1. Determine Your Budget: The first step in any home buying process is determining how much you can afford. It’s important to not overextend yourself. There are many Internet-based mortgage calculators that will tell you how much you can afford based upon your income, debt level, mortgage rate and available cash for a down payment.

2. Get Pre-Approved: Now that you know the price range that you can afford, you’ll want to get pre-approved so that you can move forward in the home buying process. In today's market, buyers with a large down payment and a strong credit rating are more likely to obtain a mortgage. Getting a pre-approval letter is a quick process that will tell sellers that you are a serious buyer who can afford their home.

3. Search For Homes: This part is simple. Nearly 90% of all buyers use the Internet to search for a home, so ForSaleByOwner.com can help find your ideal home. Keep in mind that nearly 25% of all properties on the market are “by owner” listings, so remember these properties as you search for your next home.

4. Contact the Owner Directly: Unlike homes represented by an agent, there’s no middleman to interfere with you from getting directly in touch with the seller. Phone or email the seller and ask additional questions about the home that wasn’t on the online property description. If you’re still interested, agree on a mutually convenient time to tour the home.

5. Get a Valuation Report of the Home: Either before or after you see the home, get a valuation or property report to see how the home’s asking price compares to other recently sold homes within the neighborhood. It’s similar to a real estate agent’s CMA (comparative market analysis), and it will compare the home you’re considering with recent nearby home sales. Remember that such property reports and CMAs do not factor in any recent renovations -- such as kitchen or bathroom remodeling -- so the price of the home will be affected accordingly.

6. Hire an Attorney: For a few hundred dollars, a quality real estate attorney will provide you with all the advice and counsel you’ll need to go from the offer to closing. Use a local attorney who is knowledgeable about your town’s ordinances when it comes to real estate transactions, as well as your state’s disclosure laws.

7. Make an Offer: Now that you’ve seen the home firsthand and have a property valuation report, plus an attorney in your corner, you’re ready to present the seller with an offer. Your attorney should have the necessary offer forms or you can use ForSaleByOwner.com to get all of the state-specific paperwork that you’ll need.

8. Lock in Your Mortgage Rate: Assuming that the seller is entertaining your offer, you’ll want to shop around for the lowest mortgage rate. You should contact major lenders, visit local banks and contact mortgage brokers to price compare. Once you’ve settled on a lender and a mortgage product, they will lock you in that mortgage rate and give you a set amount of time to close the real estate transaction. A 30 day or 60 day “lock in” period is most common.

9. Get the Home Inspected: The next step is hiring a quality home inspector who will go through the home – from foundation to attic – to see what condition the home is in. A home inspector will cost $300-$600 and the inspection will take around 2 hours. You’ll get an inspection report outlining any mechanical or structural problems that the home might have.

Depending on the results on the inspection report, you might want to re-negotiate the purchase price. For example, the inspector might tell you that the furnace to be replaced. Negotiate with the seller to lower the price to compensate for any such expense.

10. Close the Deal: Your real estate attorney will handle most of the details at closing and, depending on your state and local area, will advise you on any special paperwork that needs to be completed between you and the seller. Your attorney and your mortgage lender will also assist you with coordinating the financing and providing payment to the seller. The seller will sign over the deed of the home and, voila, you’re the new homeowner!

Qualifying Buyers for a Mortgage

One of the biggest headaches any home seller can experience is working with an interested buyer and negotiating a sales price, only to find days or weeks later that the buyer is unable to obtain a mortgage. That's precious time wasted and perhaps you even turned down offers from other interested parties.

According to the Mortgage Bankers Association, roughly half of all mortgage applications are being rejected. Lenders aren’t giving mortgages to just anyone nowadays. They’re turning down applicants who don’t have a high enough credit score or are not making a sufficient down payment.

As a seller, you’ll want to focus your attention on those who can afford your home and can get the necessary mortgage necessary. Ask interested buyers if they have a pre-approval letter from a mortgage lender. They might say that they are “pre-qualified,” which isn’t as strong as being pre-approved because the lender has not verified the buyer’s credit score, income, assets or liabilities. (click here for more about pre-qualified vs. pre-approved).

If the buyer is pre-approved, great! If not, before you spend any significant amount of time negotiating a sales price, ask that they take the important step of getting pre-approved. Not only will you be putting yourself in a situation to only work with those who are more likely to get a mortgage, you will be providing sound advice to buyers who will gain more confidence in buying a “for sale by owner” home without the help of a real estate agent.

Tell them to visit local banks that handle mortgages or contact any of the large home lenders, such as Wells Fargo or Bank of America, to get a pre-approval letter. Online lender Quicken Loans can even help buyers get fully approved for up to four months while they shop for a home.

Having your buyer get pre-approved is actually a very simple process and will benefit both you and the buyer.