You may believe that buying a home directly from a seller is your cheapest option, as you’ll save on the commission that would otherwise be paid to a real estate agent.
However, buyer beware: There are plenty of traps for the unwary in buying a For Sale By Owner (FSBO.)
The selling price
Take the value of the property: In an FSBO, the seller sets the price, usually without consulting an agent. However, regardless of what either you or the seller think the property is worth, it still must stand up to the scrutiny of a lenders’ appraisal.
Why? Because lenders, who have their own appraisal review departments, will only lend money against either the lower of the appraised value or the contract price.
As the buyer, you usually pay for the appraisal; if the property turns out to be overpriced, and the seller is adamant that, regardless of what the appraisal says, the asking price is fair, you’re not going to be able to borrow the money to purchase the property from that lender…and you will have spent money on an appraisal that is non-refundable.
The way to establish the true value of the property is through a Comparative Market Analysis (CMA), which is available through a real estate agent.
This is a review of what similar properties in the same area have sold for recently, and it will give you an idea of what to expect on an appraisal.
The sales contract
Secondly, there are many variables inherent in the process, particularly in the sales contract. If you were purchasing a home using a real estate agent, you likely would have a good real estate attorney. This is even more important in purchasing an FSBO. You will need to hire an experienced real estate lawyer to ensure the contract is properly written.
Better still, think twice before you sign on for an FSBO.