When buying a house you will encounter a “For Sale by Owner” property. Though appealing to many buyers, those properties present their own unique risks and challenges.
So, you may want to buy a house. While looking at potential new homes, you will occasionally find a house that is “For Sale by Owner.” To protect yourself and any potential investment in such a home, here are 8 things you need to know to ensure things go smoothly.
1. Get a pre-approval letter before you do anything else.
When starting the journey of buying a house, your first thought should be to visit your bank or mortgage company. Always start with getting a pre-approval letter. This will let the seller know upfront that you can afford the property without having to discuss personal matters like income or finances. Pre-approval also provides you leverage as the buyer and can be strong negotiation tool if competing against bidders who aren’t pre-approved.
2. Always use a third-party company to manage earnest money.
Earnest money, or the money you need to pay to confirm a contract, will likely need to be paid when buying a house “For Sale by Owner.” Many sellers might want to hold onto that earnest money. But instead, ask that an escrow account be opened and that money be deposited at that time. This will protect you so if something goes wrong between you and the seller, or during the closing, you can get your money back without much fuss. Though there might be a small fee to set-up an escrow account, it is worth it for the peace of mind.
3. Gather the value and prices of houses in the neighborhood before making an offer.
When you have found a house that you like, it is easy to become emotionally attached. Buying a house is an investment, so taking a step back to ensure you are making a smart investment before making an offer is the right move. Take a look at other houses in the neighborhood that are also for sale. How much does the seller want for those properties? Look online and look up the value of the home you want to buy and the value of homes around the neighborhood. Your job as the buyer is to find some common ground between how much the owner wants, and how much the house and its actual value.
4. You will be making a sacrifice by not working with a realtor.
Buying a house that is “For Sale by Owner” can be a positive experience, but it doesn’t come without making some small sacrifices. By not working with a realtor, there is nobody to turn to if you have questions or problems regarding the sale. Realtors, while they do work based on commissions; they are there to ensure you make a smart investment. Just be aware upfront that you will be on your own when buying a house that is “For Sale by Owner.”
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5. Be critical and pay close attention when visiting houses.
When visiting homes that are “For Sale by Owner” you will be given a tour by the owners themselves. The property is their home, it is where they live – or have lived – and understandably are often emotionally attached. When viewing the property it can be challenging when you feel that they are watching your every move. But despite this fact, be critical of the home. Ask questions and look everywhere, and observe carefully the quality and conditions of what you are observing. It may be their home, but if you buy, it will be your home. So remain focused and observant.
6. Hire a real estate attorney.
When you are looking to buy a house, you are likely to come across an occasional “For Sale by Owner” sign. If one or more of these houses strongly appeal to you, you may be wondering how to go about looking at and purchasing this type of home. Buying a For Sale by Owner house can present a few risks and challenges, as you will not have the benefit of working with a real estate agent, but it can be done if you know what to watch out for and how to go about making the transaction go as smoothly as possible.
7. Always get a copy of the property’s C.L.U.E. report.
A Comprehensive Loss Underwriting Exchange report, or C.L.U.E., report outlines any insurance claims that have been filed for the property in the past five years. To obtain one, you need the seller’s permission. However once obtained, the out of pocket cost for the report is typically under $20 but can provide a wealth of information. It can show you what issues the house is prone to and might result in higher insurance rates.
8. Don’t forget to always get the home inspected.
Whether you are buying a house through a realtor or a “For Sale by Owner” home, always get it inspected. The owner might have forgotten, or have intentionally failed, to disclose certain issues with the property. In some cases, the owner may not be aware of the issues themselves. Home inspectors are trained to find the problems that you need to know about as the buyer before making that final investment of buying a house. Protect yourself and always get the home you want to buy inspected.
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If you are in the process of looking for or buying as new home, Blitz wishes you the best of luck. Have you ever bought or sold a house “For Sale by Owner”? We would love to hear about your experiences. Share your comments and feedback below!