It works for some, not for others. Buying a for-sale-by-owner (FSBO) home takes some guts, market knowledge and patience.
Ideally, the buyer gets a better deal. If the seller of a $300,000 home stands to save $18,000 by avoiding a 6 percent agent’s commission, the buyer might negotiate a $291,000 price that gives each party half of the savings.
In today’s depressed housing market, buyer’s have a lot of choices, and therefore good prospects for pressing sellers to improve terms.
But there are things to consider in buying a FSBO.
• Be upfront with your broker. Most buyers work through agents, and most agents are paid a percentage of the sales price. A buyer’s agent is likely to ask for a commission equal to 3 percent of the sales price. If you’re not willing to pay this out of your own pocket, you’ll have to convince the owner to pay it, and the owner’s likely to tack that on to the sales price. Remember, commissions are negotiable, and you might convince an agent to settle for 1 or 2 percent.
• Get professional help. Even if you use an agent, have an appraiser inspect the property to estimate its value and make sure the owner’s claims about its condition are true. Also have a real estate lawyer sign off on all paperwork.
• Hunt carefully. Not all FSBOs are included in the Multiple Listing Service, the agents’ running list of homes for sale in the area. You should check newspaper classifieds and online services like Craigslist. Also, cruise the neighborhoods that interest you, as FSBO’s typically use lawn signs.
• Do some extra sleuthing. The seller may not tell you things that an agent would about nearby construction projects or other issues that could affect the property’s appeal and value. Talk to neighbors and town officials and scrutinize local news web sites. Your lawyer or a title company can provide proper disclosure forms to be filled out by the seller. All agreements must be in writing.
• Use a third party to hold earnest and down payments. Don’t given any money directly to the seller, as you could have trouble getting it back if the deal falls through. A title company or bank can set up an escrow account.
If you shop without an agent, use sales data from comparable properties to assess the seller’s asking price. Find current listings at the National Association of Realtors web site, and use free property-pricing services like Zillow.com.
Finally, be sure you have a clear idea as to the amount of mortgage you can afford and the pros and cons of different types of loans. When you make an offer, specify it is contingent on you being approved for a loan within a set time, such as 60 days, for a given amount at a no more than a maximum rate.
Use the BankingMyWay.com survey to keep abreast of average rates, and the mortgage search tool to find good deals, as they can vary considerably.
Citibank (Stock Quote: C) offers a 30-year fixed-rate loan for 5 percent, while SunTrust (Stock Quote: STI) has one at 5.125 percent. But the Citibank loan carries discount points of 0.875 percent, while SunTrust has none.
BankingMyWay.com also offers a number of mortgage calculators, including a Mortgage Loan calculator to help figure payments and evaluate various loan options. With the Mortgage Points calculator, for example, you can determine whether it’s worth paying points to get a lower rate.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.