What You Need To Know Before Buying A FSBO Home
FSBO homes are houses that are directly listed for sale by their owners. When you’re shopping for a home, there are several reasons why you may consider a home for sale by owner (FSBO). That includes negotiating a lower price and the chance to speak directly with the homeowner. You’ll be able to ask about the history of the house, repairs, improvement, learn more about the local neighborhood/town etc.
Nonetheless, there are several overlooked aspects of buying an FSBO property that may outweigh the benefits. This is mostly true if you’re also looking to buy without hiring a representative. So what exactly should you be careful about before signing any deal to buy a FSBO property?
Potential pitfalls of buying a FSBO home
Here are pitfalls you should lookout or if you’re looking to buy a home for sale by owner:
1) Full disclosure my not be truly full
Licensed real estate agents are required by law to make full disclosure about the condition of whatever property they are selling. But if you’re buying directly from the owner, odds are you won’t get the full disclosure you expect. For instance, the owner may refuse to tell you that the property was once a crime scene or once used as a meth lab or doesn’t adhere to current zoning laws.
The homeowner may skip all of these in order to sell the property as quickly as possible. In fact, one of the reasons why some home owners go FSBO is because they don’t want to make full disclosure about the property so they can sell it at a higher price than its actual worth.
2) You may pay more than the home is actually worth
It’s easy for homebuyers to assume that it’s cheaper to buy a FSBO home because the owner didn’t hire a real estate agent and won’t be paying any commission. But that assumption is often far from the truth. Unlike a listing agent, most homeowners don’t have full access to the local Multiple Listing Service. So they cannot compare home prices and put a price tag on their home based on current market conditions. The outcome? They overprice their property and if you’re also house hunting without an agent, you may end up paying more than what the home is worth.
3) You could get stuck in the transaction
In most cases, buying a home FSBO could mean an attorney or a buyer’s representative isn’t assisting you with the purchase. When that happens, it means no one is assisting you with contract details. And that includes contingencies that would release you from the sales contract (like an undisclosed defect found during home inspection). Without anyone assisting you, it could mean you’ll end up making the purchase no matter what. In order to prevent such scenarios, some states actually require attorneys to be in all real estate deals.
4) Your security deposit may disappear into thin air
If the homeowner requests for “up front” or earnest money, place the payment in an escrow account through your lender or financial institution. That way, your deposit can be refunded if the transaction does not go as expected. Don’t make the mistake of giving earnest money directly to the seller.
5) You may end up paying most of the closing costs
If you don’t have an agent to help you negotiate who pays for what at closing, you may end up paying most or all of the closing costs or even all of the closing fees and expenses. These closing fees often include but are not limited to;
- Title search fees
- Owner’s title insurance policy
- Notary fees
- Delinquent taxes
- HOA dues (current and past)
- Pest inspection fees
- Appraisal costs
- Transfer taxes
- Document preparation fees
Buying a FSBO property requires some level of caution. Once you decide to buy one without a representative, do all you can to protect yourself from losing in the long run. So get all agreements in writing, get inspection, negotiate closing fees, use escrow, and indicate the date you’ll take possession on the contract.