10 steps to buy “for sale by owner”

With approximately 20 percent of the real estate marketplace comprised of “for sale by owner” listings, many homebuyers are left scratching their heads wondering, “Do I need an agent to go ahead and buy that “for sale by owner” home?” Not only are agents not needed to buy a home, involving one during a FSBO transaction could actually hinder the buying process, as the agent would want the seller and/or the buyer to commit to paying an expensive commission fee.

To buy a “for sale by owner” home, follow these 10 simple steps:

1. Determine Your Budget: The first step in any home buying process is determining how much you can afford. It’s important to not overextend yourself. Luckily, there’s many Internet-based mortgage calculators that will tell you how much you can afford based upon your income, debt level, mortgage rate and available cash for a down payment. Visit our Mortgage Calculators page to determine your housing budget.

2. Get Pre-Approved: Now that you know the price range that you can afford, you’ll want to get pre-approved so that you can move forward in the home buying process. In today's market, buyers with a large down payment and a strong credit rating are more likely to obtain a mortgage. Start the pre-approval process by clicking here. Getting a pre-approval letter is a quick process that will tell sellers that you are a serious buyer who can afford their home.

3. Search For Homes: This part is simple. Just use the http://hotpads.com/ search page to find your ideal home.

4. Contact the Owner Directly: Unlike homes represented by an agent, there’s no middleman to interfere with you from getting directly in touch with the seller. Phone or email the seller and ask additional questions about the home that wasn’t on the online property description. If you’re still interested, agree on a mutually convenient time to tour the home.

5. Get a Valuation Report of the Home: Either before or after you see the home, get a valuation or property report to see how the home’s asking price compares to other recently sold homes within the neighborhood. It’s similar to a real estate agent’s CMA (comparative market analysis), and it will compare the home you’re considering to up to 20 nearby recent home sales. Remember that such property reports and CMAs do not factor in any recent renovations -- such as kitchen or bathroom remodeling -- so the price of the home will be affected accordingly.

6. Hire an Attorney: For a few hundred dollars, a quality real estate attorney will provide you with all the advice and counsel you’ll need to go from the offer to closing. Use a local attorney who is knowledgeable about your town’s ordinances when it comes to real estate transactions, as well as your state’s disclosure laws. Our Find a Pro page can help find an attorney near you.

7. Make an Offer: Now that you’ve seen the home firsthand and have a property valuation report, plus an attorney in your corner, you’re ready to present the seller with an offer. Your attorney should have the necessary offer forms and you can also visit our Real Estate Forms section for all the state-specific paperwork you’ll need.

8. Lock in Your Mortgage Rate: Assuming that the seller is entertaining your offer, you’ll want to shop around for the lowest mortgage rate. Quicken Loans has a fast, online mortgage approval process, and Bankrate.com has a great mortgage comparison tool that will give you current rates at major lending institutions. You should also visit local banks and contact mortgage brokers to price compare. Once you’ve settled on a lender and a mortgage product, they will lock you in that mortgage rate and give you a set amount of time to close the real estate transaction. A 30 day or 60 day “lock in” period is most common.

9. Get the Home Inspected: The next step is hiring a quality home inspector who will go through the home – from foundation to attic – to see what condition the home is in. A home inspector will cost $300-$600 and the inspection will take around 2 hours. You’ll get an inspection report outlining any mechanical or structural problems that the home might have. Again, visit our Find a Pro page to find an inspector near you.

Depending on the results on the inspection report, you might want to re-negotiate the purchase price. For example, the inspector might tell you that the furnace needs to be replaced. Negotiate with the seller to lower the price to compensate for any such expense.

10. Close the Deal: Your real estate attorney will handle most of the details at closing and, depending on your state and local area, will advise you on any special paperwork that needs to be completed between you and the seller. Your attorney and your mortgage lender will also assist you with coordinating the financing and providing payment to the seller. The seller will sign over the deed of the home and, voila, you’re the new homeowner!