Have you ever thought about buying a For Sale by Owner Home? There are some things that you need to be aware of when buying a house directly from the owner.
Nowadays, everyone is trying to save money and sell their house on their own. You can save money buying a for sale by owner home. You can also get yourself into a lot of trouble if you are not sure what to look for.
The first thing to check into if you are buying a for sale by owner home is the price. Many people will price their house based on how they think their house compares to their neighbors house that may be for sale. Sellers often get emotional over what they perceive is the value of their house.
Sellers always think that their house is way better than any other house in the neighborhood. They have all of the great memories there. The kids first steps, Christmas mornings, kids graduations, etc.
Even though you may think the house is perfect for you, do some research on the price. Unless you are paying cash for the house, an appraiser from the bank is going to come out. You may think "no big deal". The problem is that the bank will be charging you for the appraisal. These appraisals can cost from $600-1000. Nobody wants to spend $1000 on a house that they are not going to buy!
If the appraiser says that the value is lower than what you have agreed to pay, you now have a situation with the seller. They can either agree to now sell you the house at the price that the appraiser came up with, or the bank will make you come up with the difference before they will give you a loan. For example, the bank will not lend you $250K on a house that appraised for $230K even if you qualify for that amount. Basically, the bank is buying the house, so they want to make sure they can get rid of it if you quit making your payments.
This is something that you can negotiate. When you write up the purchase agreement or buy-sell, you can ask for the owner to pay for the appraisal if it comes in low. If he is so confident of his price, he should be willing to pay for the appraisal if it comes in low.
This brings me to another point. Always remember that EVERYTHING is negotiable. You should hammer out every detail before you get too far down the line with the sale. The last thing that you want to have happen is that you are a couple of weeks away from closing and something comes up that will cost money to fix. This is where many deals fall apart. Emotions can run high if the seller is half moved out of the house and you start asking for repairs or discounts on the sale price.
Another huge thing to keep in mind, is that if the owners are not using a realtor, they probably have not filled out a property disclosure form. When a house is listed by a real estate company, the company will require the seller to fill out and sign a document that discloses every issue with the house that they are aware of.
The document covers everything about the house and property. For example, if they put on a new roof 3 years ago, if they remodeled the kitchen, etc.. The document also has them disclose if there ever was a water leak or any other kind of damage to the house. They must disclose if they ever had to treat the house for mold, or radon.
I am not accusing anyone who is trying to sell their house on their own of lying, but if they don't have to fill out one of these forms, they may forget to tell you about something that could cause problems in the future for you.
This is where the home inspection becomes so very important when buying a for sale by owner home. You may hit it off with the seller, you may totally trust the seller, but you must do an inspection! The seller may not be aware that his attic is full of mold. The seller may not be aware that the foundation of the house has issues. There are so many things that may be wrong with the house that will turn into your problem if you don't do an inspection.
Depending on the size of the house, an inspection will probably cost around $400. This is the best money you can ever spend. That $400 could save you thousands in future repairs.
One thing that I would ask the seller right out of the gate is why are they selling? What is their motivation? Are they having financial troubles, or do they just need to move. Think about it, if someone is in desperate need to sell due to financial problems, they may be more likely to forget to tell you something that may be wrong with the house. Again, I am not saying that all FSBO's are dishonest or that they are all trying to screw you. It would be in your best interest to find out as much as you can about the seller. If they have nothing to hide, they should be very open about their past and the homes past.
Another thing to research if needed, is the water situation. In Montana, water rights are a huge deal. If you are buying a place on a larger piece of land, look into the water rights. The last thing that you want is to find out that you don't have access to much water or you have to pay someone for more water.
You can call the local DNRC office and find out if there are any water rights that go with the land. If the land that you are buying is on a lake or a stream, you can't just pump water out of it without the proper water rights.
If there is a septic system, this should also be addressed. When buying a for sale by owner home, you should go down to the sanitation department and get the septic permit for the house. With an older house, there may not be a permit at all. If this is the case, some banks or loan programs will not work. If you can find all of this out in the beginning, you won't be out all of the money for the inspection and appraisal just to find out that you can't buy the house.
Another thing to look for on the septic report is the size of the system. The systems are approved for the amount of bedrooms in the house. If someone has added on to the house, the permit might be wrong. The septic permit might be for a 3 bedroom house, but the house now has 4 bedrooms. This can also be an issue with some of the loans that you may be using for the purchase. It can also be an issue if you have problems with the system in the future. If you have to do repairs you will need a permit from the sanitation department. They may require you to put in a whole new system that can handle the extra bedroom. This is not a cheap project.
Obviously, every house is different. There are many, many things that you need to check into. When buying a for sale by owner home, the main thing that you need to keep in mind is to do your homework on these things up front. All of these things can be negotiated before you get too far into the deal. The key is to do your homework! Find out about all of these things before you spend a bunch of money on inspections and appraisals.
When you are doing the negotiations, you will also learn a lot about the seller. You will be able to figure out what type of person he or she is and how much you should trust them going forward with the deal. This is all up to you, the more work you do up front, the more you will benefit.
If you are thinking of buying a for sale by owner home or if you are in the middle of one of these deals, feel free to contact us with any questions.