You've found your dream home, but there's just one catch – it's for sale by owner (FSBO).
You can usually identify these homes by their signs and listings, as they will be noticeably vacant of real estate agent information. Some are even handmade. Many homebuyers shy away from purchasing a home that's a FSBO property for a number of reasons: advice of their real estate agent, advice of a friend or lack of familiarity with the transaction process.
FSBO homes may offer a deal you can't resist. When it comes to deciding whether to make an offer on a FSBO home, you'll need to weigh the pros and cons based on your specific situation and preferences. Below we'll discuss the pros and cons of a FSBO home to help you determine whether it's a purchase transaction you'd like to pursue.
So what are the pros of purchasing a home that is for sale by owner? We'll outline a few below:
Lower contract price. When the seller isn't paying a real estate agent, he may have the ability to list the price more competitively than that of similar homes, which can result in lower monthly payments for you.
Creative contracting. Are you the type of person that likes to get creative with your deals? Assuming VA and lender guidelines are met, you can get creative with the purchase contract. For example, say the seller wants to remain living in the home for 2 weeks after the closing date. You can include this provision in your contract. By putting the seller directly across the table, you can put your heads together and find win-win solutions to some issues that may arise.
More information. When real estate agents are involved you're communicating with the seller through third parties. By breaking down the barriers of communication between buyer and seller you may find out more about the history of the property than you would otherwise. You can brainstorm numerous questions to ask the seller and assuming he's honest, you have the opportunity to learn about the intricacies of the home.
Daily involvement. Without a real estate agent as your go-between with the seller, inspectors, title company and other third parties, you'll be involved in the transaction almost daily to ensure your desired time-frames are met and you remain on schedule. As you can imagine, this could also be considered a con if you're extremely busy with other endeavors or are frazzled easily.
Despite the pros, FSBO homes have these consideration for VA loan homebuyers:
Paying real estate agent fees. Generally, the reason a home is listed as For Sale By Owner is an attempt to cut costs. On regular purchase contracts, the seller pays for all real estate agent fees, adding up to a significant chunk of money. By listing the home on their own, sellers look to avoid paying these fees. This doesn't mean you can't use a real estate agent. But, it's likely that the seller would ask that you be responsible for your own agent's fees. This is an additional out-of-pocket cost for you to incur at closing because the VA doesn't allow agent fees to be rolled into your mortgage financing.
Daily involvement. The typical length of time a buyer is under contract with us here at Veterans United is approximately 30 days from the date a contract is received (we've got the process streamlined, but depending on your circumstances it could take more or less time). As we discussed above, if you don't have the time to take daily phone calls or meetings, then it may be worth it to pay a real estate agent to handle the day to day.
Complicated documents. You've read (skimmed?) scores of contracts for products and services, rental agreements, and even possibly employment contracts. But most of us haven't drafted an extensive contract for a purchase as important and expensive as a home. This is one of the major benefits of using a real estate agent. And like we discussed above, you aren't prohibited from using a real estate agent when purchasing a FSBO home, it's just likely going to come out of your pocket instead of the seller's. With that being said, if you work with a knowledgeable VA mortgage specialist she can notify you of specific items that will need to be included in a contract to be able to move forward. Having this guidance may be all you need (or want). It'll just depend on what you are comfortable with drafting.
Price. Some sellers may asses sentimental value to property and as a result, list the home above market value. A sentimental seller may also be less willing to negotiate on certain concessions that are common to see when working with a real estate agent. In reality you would like to pay below market price since most market comparisons include compensation for the agent in the sales price. If you aren't receiving the services of an agent, you shouldn't have to pay for it anyway.
Repairs. If you enter into contract on a FSBO home, just like any other, an appraisal will be conducted. If the appraisal notes any required repairs, the seller must make the repairs at no cost to you before a closing can occur. Many FSBO sellers wish to sell a home "as-is" so they have little out of pocket cost. If the home is in good repair and doesn't appear to need any major repairs, this may not be an issue. But, if you're looking at older homes or a home that may need repairs, you'll want to discuss with the seller in advance their willingness to fix repairs noted as necessary on an appraisal, as this could be a deal breaker.
Closing Costs. On many VA mortgage purchase contracts, a seller and buyer negotiate the contract to reflect the seller paying all or a portion of the buyer's closing costs. A FSBO seller doesn't have the guidance of a real estate agent on contract terms and you may be greeted with some resistance when asking for the seller to pay your closing costs. If you are unable to negotiate seller paid closing costs, you'll have to pay them out of pocket at closing.
After reviewing these pros and cons and considering your specific situation you should be able to determine if pursuing a for sale by owner home is in your best interests. If still in doubt, consult with your VA mortgage specialist, your real estate agent, and possibly the seller.
If you'd like to get an overview of the complete VA mortgage process you can check out this great guide. Also feel free to email me at firstname.lastname@example.org.