Over the decades I have helped hundreds of For-Sale-By-Owner (FSBO) clients sell their property successfully with zero problems when closing. If you’re planning on selling a home without a real estate agent here are some potential pitfalls you can avoid so your property will sail through a closing without a hitch.
First of all, you should tell your attorney what problems you are facing and specifically what you are trying to accomplish, whether it be to have a “normal” sale to a qualified buyer, or, are simply in trouble with your bank and are trying to “dump” the property.
You need to be aware that you don’t have control of all aspects of the transaction. For example, if your buyer is like 99% of buyers and has to get a loan, you need to know that the buyer’s bank is going to require that you, the seller, fix items in the house and pay some closing costs.
If you negotiate an agreement claiming the seller is selling the property “as is” your agreement won’t work in a real estate transaction as the buyer’s lender will make requirements in the transaction that the seller has to comply with. I have sellers that just want to get rid of a home that has been on the market for some time and sell the home for what is owed against it, or “dump” the home. Some sellers do not know or take into account that there will be repair costs resulting from the appraisal, termite and mechanical inspections that the buyer’s bank will require. Also, the seller is responsible for the cost of a title policy, document filings and property taxes. All this needs to be addressed during negotiations with the buyer or you can be in for some nasty surprises that no one can fix, especially when it comes to closing on the property.
Here are 5 mistakes FSBO sellers should avoid:
- Drafting a real estate contract without an attorney. As stated previously, this will help you avoid nasty surprises at closing and give you a clear idea of your responsibilities from the buyer and the bank.
- Failing to provide the buyer with a seller’s disclosure. Most real estate transactions have a disclosure from the seller to the buyer listing all known problems with the property like mechanical and structural defects. By not disclosing this information to the buyer you open yourself up to potential lawsuits after the sale.
- Not pricing the property correctly. As an FSBO seller you will save on real estate agent brokerage fees but you should still get a fair market price for the property. Many sellers undercut their selling price hoping for a fast sale but fail to take into account potential repair and closing costs. The last thing you want to do is lose money on the sale! You should always get an independent appraisal or the pricing opinion from some local real estate brokers.
- Not understanding negotiation power. A lot of FSBO sellers are not experienced negotiators. Issues such as inspections, loan approval, possession date, earnest money, repairs and closing costs can all play a huge role when negotiating a sales contract. A good grasp of all potential contingencies helps when it comes to closing the deal and getting the best deal.
- Not hiring a local escrow or title insurance firm for the closing. Local companies know their territory and give you a higher probability of closing successfully. Nothing is more frustrating than errors in documents and paperwork that postpone or kill a closing. A good local real estate attorney knows reputable firms you can count on.
This short list is by no means everything you should be aware of, but it’s a good start.
Bottom line, don’t find a buyer and make a deal without first talking to your attorney, finding out what bank the buyer will be using, and what your costs will be in the transaction.
Additionally, check how much you owe on your mortgage. You shouldn’t guess at this because interest and fees are piling up every day. If you are going to handle a transaction that consists of tens of thousands of dollars, don’t just guess about what you might need to know to handle it. Get yourself informed so you can negotiate a contract you can close. Know your closing costs, unpaid property taxes, title insurance and other contingencies before you set a price. Hire your attorney BEFORE you make a deal so you have a clean and seamless closing. You’ll be glad you did.