How to Buy a House from the Owner

Home Shopping Guide:
How to Buy a House from the Owner

by Bill & Toni Supple

The following is a simple step-by-step guide to buy a house from the owner. These tips are provided by the publishers of Picket Fence Preview and reflect their 15+ years experience helping people buy and sell real estate on their own.

The steps involved in purchasing a home are quite straightforward and can be summarized into three separate concepts: define and refine the type of property you are looking for, find the money to purchase it and, lastly, to fulfill the terms and conditions of the written Purchase and Sales Contract.

Narrow down what you are looking for: Take a few moments to discuss what you're looking for with your spouse or partner before you start setting up appointments to look at properties. Make a list of "Must have" features together, then discuss other "Would like, but can live without" features. After you've looked at a dozen or so properties, re-evaluate your criteria . Often priorities shift with time and what was an earlier definite "must-have" feature is now re-classified as "desirable, but can live without feature."

How much can you afford? Have a realistic idea of how much you can afford before you start looking (most lenders will pre-qualify you for free). Not only will this save time, but will also avoid needless disappointment on everyone's part.

Sell my current house first or buy, then sell? Much depends upon market conditions... if you're buying during a "seller's market", many sellers won't be willing to wait for you to sell your house in order to buy theirs. In this scenario, its best to at least have your home already on the market when you start your search, and preferably already under contract. Conversely, in a buyer's market, sellers are less picky and more willing to accept the terms on your conditions.

If you find the house you want to buy before you've sold your present home, and the seller is reluctant to sign a contract with you with the contingency that you sell your home first, you may draw up a contract that allows the seller to continue marketing and advertising the property yet gives you the "first right of refusal" should he receive another offer. This way you will be notified immediately if the seller has another offer, giving you an opportunity to re-offer if necessary. Another option is to put a non-refundable deposit on the property. This shows the sellers that you are serious about buying their property and this could sway them into accepting your offer over other competing offers.

If you sell your house before finding a home you want to buy, be sure your sales contract is contingent upon you, the seller, finding suitable housing! There are stories of homesellers frantic to find a home under pressure, and even having to rent after the closing, because they sold first. Remember, the sellers are legally bound to sell once the contract is signed.

Searching for Your Dream Home

To ensure that you're seeing the best on the market in your price range, be sure to include for sale by owner properties in your search
Internet sites: The internet has changed the way properties are bought and sold. No longer are buyers dependent upon real estate agents when searching for non-local properties; now, anyone can log onto the internet to search throughout the world. Realtor.com offers access to most agent-listed properties. For For-Sale-by-Owner sites, it is best to do a search by typing in the state and "real estate", "house", or "For Sale by Owner" to obtain comprehensive For Sale by Owner websites. You'll see that PicketFencePreview.com comes up first in Google when you search home for sale by owner vermont or similar such searches.  Even searches like "real estate Vermont" Picket Fence is 3rd or 4th! Most will provide you with the homeseller's phone number or email address. Simply contact them to arrange a showing. Beware of websites that don't provide the homeseller's contact information as these have a middle man involved -- it could be a discount brokerage company, or a mortgage company interested primarily in lending you, the buyer, money. These websites typically have little incentive to keep property listings updated, since their primary function is to generate leads.. Since the homeseller doesn't pay to have their property advertised, and only the company gets the buyer's call, the homeowner has little incentive to tell the company if he sold already, listed with an agent, or took his home off the market!

Print media: For Sale by Owner publications and newspaper classifieds are standard sources of For Sale by Owner properties.. For Sale by Owner publications usually have a photo and more detail about the property than a classified ads, and often will provide their homesellers with standard legal forms so that offers can easily be made.

Drive-by first: It is a good idea to drive by the property first before scheduling an appointment, particularly if you're calling on a classified ad (how you imagine it can be very different from reality!). This can save both parties time if the location, or house, just isn't right for you.

Looking with real estate agents: The key thing to remember if that the agent is representing the seller, even if he/ she is driving you around in their car. Be careful in disclosing information that might hurt you in the negotiation process. You can hire an agent to represent you as your personal buyer broker, but just be careful if the agent or agency is listing the property you are being shown.
DON'T EVER SIGN a contract with an agent that locks you into looking with only him or her, or guarantees them a commission even if you find the house yourself! Specify that a commission be paid only if you buy a property shown to you by that agent. This enables you to look with other agents, and also at for-sale-by-owner properties, at your own convenience.
Don't bring an agent with you to look at for-sale-by-owner properties, or bring them into the picture when it's time to draw up a contract, unless you are willing to pay their commission through either a higher sales price, or out of your own pocket. Otherwise, you may risk losing the house. (note: your lawyer can help you if you aren't sure of the process).

Presenting your offer

If the property is being sold by owner, call the seller and tell them you'd like to make an offer. This can be done verbally over the phone, or in person. When presenting an offer, be courteous and respectful of the sellers. In general, avoid criticizing the property with statements like "we don't care for the wallpaper, and therefore will have to replace it." This will not justify a lower offer and may possibly insult the sellers, decreasing your chances of their accepting your offer. Generally, sellers usually are given 24 - 48 hours to consider an offer. The time frame for getting back to you should be discussed if the offer is not verbally accepted immediately.

Put it in writing: In real estate, all agreements must be in writing to be legal. Some sellers will have the necessary legal forms to sign, particularly if they are advertising with a For Sale by Owner website or publication. (If forms are not available, you or the seller will need to obtain a Purchase and Sales agreement from an attorney). You simply fill in the blanks with the information that is pertinent to your sale. This can be done at the kitchen table together with the seller, or the written agreement can be passed back and forth. Put everything in writing. If the seller says they will clean up the mess behind the shed before you move in, get it in writing. The contract should be reviewed by a real estate attorney or title company before both parties sign to make sure the agreement clearly states what both parties desire.

Include a deposit check with the written offer: Most deposits are in the range of 1 to 3% of the sales price. This, of course, is up to you. In general, the larger the deposit you include with your written offer, the more likely the seller is to accept your offer. The check should be written out to either attorney's escrow account.

If you are unsure about the value of the property you are purchasing, you can make your offer contingent upon the property appraising for the selling price or higher. This is a common contingency that is required by the lender underwriting the mortgage on the property. They want to make sure that the value of the property will cover the amount of their mortgage interest in the property. .
Request a final walk-through inspection: Request that you be permitted to walk-through the house (shortly before closing) after the furniture is removed to make sure that faults weren't covered with furniture, rugs, or wall coverings. It is far easier to correct any problems, or arrange for necessary repair work, before the house is sold than afterwards.
Know the condition of the property: Request that the seller complete a property disclosure form, stating the condition of the major aspects of the property, before you make an offer.

Building Inspection : If you don't know much about building construction, don't worry. Simply make your offer contingent upon the property passing a professional housing inspection (hired and paid for by you). This is also an excellent way to become more familiar with the current condition and maintenance needs of your future home.

Your offer is accepted, now what?

First of all, relax. Once your offer is accepted, you just need to stay on top of a few details and the process will proceed along course. Your attorney or the attorney / closing officer of your mortgage company will be gathering most of the required paperwork and forms for the closing as an integral part of the loan process. To finalize the sale , you and the seller will probably work with a third party, usually an attorney or lending officer , to handle deposits, documents and instructions necessary to complete your home purchase. This period of time between when the offer is accepted and the deal closes is known as the escrow period. Escrow can be a trying time, but if the sales contract isn't loaded with unusual contingencies, and buyer and seller work together, expect the process to take one to two months.

During escrow, your attorney or closing officer will make sure contingencies are satisfied, prorate property tax payments, record and exchange deeds, work to clear the title, among other tasks.

Opening escrow

Generally, here's what you can expect during the escrow period: An escrow account is opened with a title company, or with an attorney or the lender's escrow department. Which one is used really depends on local custom and procedure. In general, in the eastern United States attorneys or mortgage companies tend to perform this function, while in the west, title companies or escrow officers perform this task. As with finding any qualified professional, ask people you trust for referrals to an attorney, closing officer or escrow officer.

First, the buyer's check (the deposit) will be deposited into the escrow account Area custom dictates who - the buyer or the seller - opens the account. Also file any additional documents related to the transaction (such as the Purchase & Sale Agreement). Deposits into this account will be applied to the purchase price, or returned if the deal should fall through. At this point, it's the buyer's responsibility (or the buyer's attorney) to order title insurance (which protects the buyer and the lender against unknown claims on the title) and most likely a preliminary title search report to determine if there are any claims currently against the title. The lender will require the buyer do so.

Title reports

When you and the seller have signed the Purchase and Sale contract, a buyer can order a preliminary title report. The report summarizes the condition of the title, including any liens against the property, encumbrances or claims (such as a second mortgage) against the title and easements. Should a problem be found, learning about it early in the process will give ample time to correct it before the scheduled closing . The Title company or Lender will likely request that a recheck should be performed as close to the closing date as possible (usually within 10 days) to ensure that no liens or judgements have been filed in the meantime.

You must resolve any claims against the title, such as liens or judgments, which could threaten your right to title and ownership of the property.

Other problems that crop up very rarely are newly discovered easements, lawsuits disputing the boundary line, law suits filed against the sellers, common interest development covenants, conditions and restrictions and /or an unknown heir could appear and lay claim to the property. If any of these conditions exist, it will require legal assistance to resolve. If the title report uncovers items that cannot immediately be resolved the buyer can back out of the sale, negotiate with for a remedy, or buy the home with an imperfect title.

Contingencies

The Purchase and Sale contract likely contains contingencies (items/tasks that must be completed before the deal can progress), and each one is said to be removed or released when the item has been answered or resolved. Common contingencies include general home inspections, roof inspections, termite inspections, completing a related home sale and evidence of adequate financing.

If, for example, the buyer can't obtain adequate financing in the time prescribed, the seller can back out or negotiate with the buyer to extend the escrow period. This is also known as a Purchase and Sale contract extension. The seller may want assurance that you are working in good faith and can ask for an increase in deposit or some other concession on your part. So if you put contingencies into a Purchase and Sale contract make sure that if that contingency requires you to do something by a certain date that you do it, or risk losing the house to another buyer.

Choosing a Home Inspector: Keep in mind that expertise varies greatly in this field, and many states do not require inspectors to be licensed -- virtually anyone can call himself an inspector, with or without training. While Uncle Bob or a contractor can check over the structural and foundation of the building, they typically aren't well trained for all major systems in the home -- wiring, plumbing, heating, etc., and contractors typically are not familiar with older systems since they deal with new construction.

The National Institute of Building Inspectors (NIBI) recommends the following guidelines for choosing an inspector:

1. Make sure the inspector is certified by a reputable training institute (such as the NIBI), which requires re-testing annually. 2. Make sure a written report, including a summary, is provided.
3. Check the Insurance coverage: It should include general liability, worker's compensation and especially Errors and Omissions insurance, which is comparable to malpractice insurance. 4.Get a guarantee: a qualified inspector should be willing to provide a written guarantee to back up his inspection findings.
5. Avoid a conflict of interest: professional home inspectors who also are part-time contractors should be avoided, since every home defect found presents an opportunity for them to offer a repair.

Closing escrow, or closing the sale

A few days before escrow is scheduled to close, the buyer has a right to inspect the property, looking for any changes that may have occurred since the Purchase and Sales contract was signed. They buyer will want to make sure fixtures, appliances, window coverings and other agreed upon items are still in place and that all are in good working order.

If the buyer discovers problems, he or she can insist on delaying the closing until the problem is remedied, or go ahead and close with a credit from the seller to remedy the problem. Some of the remaining paperwork that you will be asked to sign before the closing includes final escrow instructions, settlement sheet of disbursements or settlement statement, copy of the preliminary title report, deed of trust and other lender forms, copies of inspection reports, tax statements, and a rental agreement if the seller will continue to live in the home after closing. The deal will close when the new deed is recorded in the buyer's name, the seller is paid for the home, and other monies that are due the seller and others are paid. On rare occasions money may be requested to be held in escrow after the closing, to pay any contractors or other vendors for unfinished work.

These steps will vary based on regional customs. Please ask your attorney or mortgage lender for further information.

Buyer's remorse

Many homebuyers will have second-thoughts about buying the house shortly after making the offer or at some time during the period of time leading up to the closing. This is commonly know as buyer's remorse. Buyer's remorse is completely normal and most homeowners experience it to some degree. Buying a home is such a major life changing event that there are bound to be many emotions associated with it. Thinking that you may have made a big mistake, that you're getting in over your head or that the new home will just be too much responsibility are common thoughts for even the most experienced homeowners. Don't let this throw you. You've done your research and have found a new home that will give you many years of enjoyment and form the basis of lots of happy memories. Enjoy it!