Consider These Things When Buying or Selling FSBO Real Estate

FSBO, or “For Sale By Owner” real estate refers to properties that are listed as being for sale by their owners without the assistance of a real estate professional. When a seller acts as their own agent they often do so because of the large cost savings, which is usually around 5% of their original asking price.

When Selling FBSO Real Estate

Homeowners who are interested in selling their homes on their own should have a thorough understanding of the process before getting started. Working with an attorney experienced in real estate matters can be very helpful as an attorney can help execute the legally-binding contracts and property transfers needed when a home is sold.

Often overlooked, early payoff fees are something that homeowners should research before selling their own home. Mortgage companies often include an early payoff clause in their lending agreements, potentially charging homeowners thousands of dollars for paying off their home loan within 5 years of the start of the loan. Other lenders have a clause that starts the early payoff penalty high and let it drop to lower amounts the longer the loan is active, eventually disappearing after enough time has passed.

Closing costs also need to be factored into the asking price for the home; these costs can be up to 5% of the purchase price of the home and can include any inspections, appraisals, loan fees, insurance, and legal fees needed during the sale process.

If for any reason you are not able to find a qualified buyer for your property and do not want to work with any alternative payment strategies from a potential buyer, you may want to consider offering your property to a real estate investor. Investors are often seeking properties with the potential for large profits on their behalf, so be prepared to take less than you originally expected if you go this route.

When Buying FBSO Real Estate

If you are buying a home that is FSBO, the first thing you should consider is your mortgage. Take your time and consider your options; there are several search engines and loan comparison calculators online that can help you compare and contrast different lenders and their mortgage offerings. Next, take a good look at your credit report; if you can obtain a copy from each of the three principal bureaus that would be best as each keeps slightly different records. If your score is under 700 you might have a harder time finding and qualifying for a mortgage loan as lending decisions are made based on these scores. If you have a score on the lower end of the spectrum you can also expect to have a higher interest rate which can potentially add thousands of dollars to your mortgage costs over time.

As a buyer, it may be in your best interest to apply for preapproved financing. While being preapproved does not mean that a buyer is guaranteed to secure financing, it does show that they can afford a certain amount and also shows sellers that they are serious about buying a home. Buyers can then use their prequalification to encourage sellers to lower their asking price; it is tough to find qualified buyers in today’s troubled economy, and a prequalification can definitely give buyers the upper hand in negotiations.

If you do not qualify for a traditional mortgage loan, there are still other options open to you depending on what the seller is open to using. You could work with the seller using a lease to own agreement, or having the seller carry the financing for a specific period of time while you improve your credit score and apply for a mortgage again later on.

Buying a home that is FSBO is really no different than doing so with a realtor. Regardless of who is doing the selling the laws are the same; Sellers must provide buyers with disclosers stating the known defects of the property, and any contracts or transfer documents are still filed through the proper legal channels.

When buyers are unable to qualify for bank financing, they might be able to enter into creative financing options such as owner will carry financing or lease purchase option agreements. These finance strategies give buyers time to improve credit scores so they can qualify for a bank loan within a few years.

Both buyers and sellers stand to save a lot of money when working with FSBO properties. The best piece of advice anyone can offer those engaging in an FSBO transaction is to hire a competent attorney with experience in real estate law. This way everyone can rest assured that all potential risks are covered, contracts are binding, and due diligence has been covered for everyone involved.