Question on buying FSBO House

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My wife and I recently relocated to Kansas from Ohio and are looking to buy a house. We have found one that fits all of the items that we want in a house and can easily see ourselves living there for many years. The home is currently FSBO and the owners are wanting to move, and have indicated that they are willing to work with us on the price. Any help that the members of this forum could provide would be appreciated!

My questions are:
- How do we place an offer on the house? Do we engage a real estate attorney right now and ask them to put together a letter?
- If we can make an offer ourselves without an attorney, do we put earnest money into an escrow account and then engage the attorney? I guess I am just a bit confused on which steps come first. I don't want to invest my money into an attorney if we can do a few steps beforehand.
- Ideally we would like to avoid going the route of a buyer's agent, and use an attorney. What is a reasonable estimate for legal fees?
- Are there any pitfalls with going the route of FSBO?

Member Summary
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I would have a closing date of soon and a possession date of November. Then I would rent to them. Then I would kick th... (more)

nullterm (Apr. 09, 2013 @ 11:21p) |

Thanks for the quick reply! One challenge with the near term close is the owner-occupied provision of most mortgages. Fr... (more)

pfischer01 (Apr. 10, 2013 @ 9:42a) |

You are going to have to work with a lender you trust and ask them to get creative. For example, in the year we bought ... (more)

nullterm (Apr. 10, 2013 @ 11:22a) |

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westernskies said:   If we can make an offer ourselves without an attorney,

If you are thinking of getting an attorney, get one BEFORE you make an offer.

The offer is a binding contract.

I'd get in touch with an attorney first. Then proceed with their guidance. That is the point of having one in your corner.

If you have a clue how to research comparables to make sure you aren't overpaying for the FSBO house, realize you need a home inspection, etc., I don't see any downfall to using FSBO. I suppose there is a chance you have a moron seller who ruins the whole process, but that is why you have an attorney to make sure everything is square.

And if you've already found the house, then you don't need a buyer's agent. That is basically all they do for you. They aren't an attorney, they aren't a home inspector, they aren't a loan officer, and you shouldn't use anyone they tell you to use anyway.

You can do everything without an attorney.

Your starting hurdle is probably the contract or, more precisely, the offer form, that you don't have.
Instead of paying an attorney $500 to write a custom letter, you can probably download a standard form from the internet, most likely for a fee.. $10 to $20.. much cheaper than the attorney.

Check out legalzoom.com

or this one

https://www.rocketlawyer.com/secure/interview/new.aspx?id=137&ut...

I did not follow the process to see their cost, but it's probably cheaper than $500.

Make sure that the contract has escape contingencies for you as the buyer, i.e. an inspection contingency and a financing contingency -- unless you pay all cash. Per contract, the buyer should remove these contingencies after a certain amount of days, e.g. 14 days.

Once the offer is signed by you and by the seller, you are in a binding contract.

You will need to open escrow with a reputated escrow company, such as First American or Chicago. The big companies will offer Title AND Escrow services. You should obtain an owner's title insurance, and if you finance the purchase, a lender's policy as well. [The lender will insist.]

The contract will determine who pays for these policies, meaning, it's up to you and the seller to negotiate. Same with who pays for inspections, does the house need a clean termite report (seller would be a fool to agree to this, but you can try!), who pays for the home warranty (should be seller as well), and who pays for county/ city transfer taxes if applicable..

Once you are in contract and escrow is opened, the staff at the Escrow company will tell you what you need to do from there.

I have bought and sold houses without attorneys or RE agents, but only in California.


p.s.:
DISCLAIMER: I am not an attorney nor am I licensed to sell real estate in Ohio. I have never been in Ohio. For your protection, you should always consult your doctor and attorney, and other licensed professionals.

BEEFjerKAY said:   westernskies said:   If we can make an offer ourselves without an attorney,

If you are thinking of getting an attorney, get one BEFORE you make an offer.

The offer is a binding contract.



No correct. An offer alone is not a binding contract.
2 more things need to happen.

1) seller needs to accept the offer and sign it

2) seller or his agent need to communicate the acceptance to the buyer
and ideally, the buyer should acknowledge acceptance.

*Then* you are in contract.

At this point, the buyer has typically the upper hand, as the buyer can always cancel the contract using an inspection or financing contingency.
The buyer can try to renegotiate the price or other terms.
The seller has no choice but follow the contract. As long as the buyer performs on time, the seller cannot cancel or modify.

Do not waste your money on an attorney from the start!

Making an offer is easy; barebones you can simply talk about it over the phone. Since this is a large purchase, its probably best to do this by paper so that both sides can 'think about things' before commiting. Google Real Property Contract and you can find many examples. Find something that is simple.

Purchase price of X, list that it is contgent and final approval of financing. State how the closing costs will be divided. You can 'cut them down the middle', ask for the seller to pay all, you pay all, seller provide title policy and you the rest, etc. Also you can state 'Contigent on third party inspection and you have the right to bail if more than $1000 in repairs are needed'.

List a date to close.

Its that easy. You *might* need an attorney to actually close; I would call a random local 'Title Company' and ask what you need to do a by owner sale. They usually have an attorney they will provide.

Good luck; DONT BE AFRAID of a by owner purchase! Its the best way to buy a property.

You don't need a lawyer or escrow agency and certainly don't need a RE agent. A couple of years ago I bought a warehouse that was FSBO. Went to look at it on a Saturday morning, checked it out for 10 minutes, haggled on the price, agreed on a price, and wrote a $5,000 deposit check right there along with a basic agreement on the terms of the sale. Monday I contacted a title service with the details and they took over from there. 2 weeks later we had the settlement.

Each state has different laws on whether you need a lawyer or not for a RE transaction. You need to find out if you need one in your state or not.

ptiemann said:   BEEFjerKAY said:   westernskies said:   If we can make an offer ourselves without an attorney,

If you are thinking of getting an attorney, get one BEFORE you make an offer.

The offer is a binding contract.



No correct. An offer alone is not a binding contract.
2 more things need to happen.

1) seller needs to accept the offer and sign it

2) seller or his agent need to communicate the acceptance to the buyer
and ideally, the buyer should acknowledge acceptance.

*Then* you are in contract.

At this point, the buyer has typically the upper hand, as the buyer can always cancel the contract using an inspection or financing contingency.
The buyer can try to renegotiate the price or other terms.
The seller has no choice but follow the contract. As long as the buyer performs on time, the seller cannot cancel or modify.
Making an offer can result in a self-executing contract from the Buyer's position.

Thanks for all of the advice! Here's an update of what we did today, we took the sellers out to coffee and gave them a price that was a little below our target price for the house. After talking about the benefits within the house (which there are numerous) compared to other properties we discovered that our target prices were within $500.00 from each other. We settled on splitting the $500.00 and we will be splitting all closing costs as well.

They want to stay in the house until the end of the school year so their children can finish the year in Kansas, and we have a lease until June- so the timeframe is going to work out for the best. We plan on putting 25% down, with a 20 year mortgage from Wells Fargo (they have been my bank since I was little and they treat me well)

A little background on the house, its listed for $249,000 with other houses selling for $220-230. It is being sold with all appliances that are less than 3 years old, new A/C unit and attic fan, new cedar fence and new windows. They were looking to get 230,500 out of the house and we were wanting to pay 230,000 for it. We settled on 230,250.

Thanks for the help, we are going to take it one step at a time and let my mortgage guy do a lot of the heavy lifting!

westernskies said:   Thanks for all of the advice! Here's an update of what we did today, we took the sellers out to coffee and gave them a price that was a little below our target price for the house. After talking about the benefits within the house (which there are numerous) compared to other properties we discovered that our target prices were within $500.00 from each other. We settled on splitting the $500.00 and we will be splitting all closing costs as well.

They want to stay in the house until the end of the school year so their children can finish the year in Kansas, and we have a lease until June- so the timeframe is going to work out for the best. We plan on putting 25% down, with a 20 year mortgage from Wells Fargo (they have been my bank since I was little and they treat me well)

A little background on the house, its listed for $249,000 with other houses selling for $220-230. It is being sold with all appliances that are less than 3 years old, new A/C unit and attic fan, new cedar fence and new windows. They were looking to get 230,500 out of the house and we were wanting to pay 230,000 for it. We settled on 230,250.

Thanks for the help, we are going to take it one step at a time and let my mortgage guy do a lot of the heavy lifting!


Are you still planning on getting an inspection? I would recommend shopping around for your mortgage, not necessarily to avoid WF, but to get some leverage to drive WF's price/terms down. Putting 25% down is a nice goal, but how does that leave you from a cashflow/emergency fund perspective. Yes, some of the items are new/newer but potentially plan on a replacement furnace/boiler or hot water heater, plus other things that pop up. Personally, with low interest rates, I would keep as much cash as possible and borrow all they would give me. That way if the sh** hits the fan you can walk and not be out your downpayment. [not sure if OH is recourse or not]

Congrats. We closed on our house in Dec and it was FSBO. This was not our first house, so I am not new to the process. I did the same as you, just sat down with the owner and negotiated the price. I researched and wrote the contract myself ( the sellers union attorney wrote a poorly written boilerplate contract first- even misspelled the owners name). With appraisals coming in low, I wrote the contract so that the inspection could happen within 45 days of acceptance ( no reason to pay for inspection if appraisal comes in too low). Had the inspection done 1 week before close ( I non-professionally inspected myself early in the process).

I would check a local credit union or penfed for mortgage rates, may save you $$$$ in closing costs and interest.

You're making the biggest purchase of your life here, and setting yourself up for complex problems if the deal goes south or if the house turns out to have serious defects.

Take a couple hours to make sure you're not going to fall into any of the traps that can snag you in this process.

For starters, I'd suggest:
1) Go to your local bookstore and page through various books on "For Sale By Owner" resources. Spend a half hour browsing, purchase one, and read it cover to cover.
2) After you've read the book, call 3 Real Estate attorneys and ask them questions for 5 mins about your risks. Consider hiring one of them. It will add maybe $500 - $1000 to the cost of your transaction, but it could save you a whole lot of headaches and financial problems.

I've bought 4 houses, 1 FSBO, the others through Realtors. The FSBO was by far the easiest to complete the transaction on, but I made sure I bought the book, read it, and talked to a couple attorneys. One attorney was recommended by a friend, he spent 20 mins on the phone with me and told me I had my ducks lined up pretty well, I offered to pay him for a full consultation, but he declined.

Good luck!

Thanks again for all of the advice, in response to some of the questions
1) We aren't going to be dipping into our reserves right now,we will still have 8 months of emergency funds available (including the amount for house payments) and should be able to contribute 15-20K more after the bonus season ends for my job and my wifes job.
2) We will definitely look at a few local credit unions to see what rates/closing fees we can get. Worst case scenario we talk Wells Fargo into cutting costs a bit.
3) I went to Barnes and Noble and picked up a couple of FSBO books on my way into work this morning. We have also reached out to a few inspectors and will have them take a look. I am getting referrals for inspectors from a few friends who have purchased homes in the past 6 months.

Overall I feel confident with this purchase- it's in a good area, close to work and best of all it has a climate controlled oversized garage for a woodshop! Now on to convince the wife I need to buy new tools now.

Thanks for all of the help so far, if I learn anything from the process I will definitely share it on the boards.

With the time frame between now and closing I would consider an inspection now, and a second inspection a week or so before closing. This should give you some protection against any issues that arise while someone else is living in a house you have a contract to buy.

Using the same inspector and letting them know there will be a second would be very helpful.

People do crazy things, protect yourself.

Congrats on the new house!

flyboy said:   With the time frame between now and closing I would consider an inspection now, and a second inspection a week or so before closing. This should give you some protection against any issues that arise while someone else is living in a house you have a contract to buy.

Using the same inspector and letting them know there will be a second would be very helpful.

People do crazy things, protect yourself.

Congrats on the new house!


You are the second person that has suggested this, the inspector we are looking at also suggested it. He said he would give us 50% off the 2nd inspection as well. He has good references and is trusted by co-workers. We definitely don't want them to go Walter White on us and start cooking meth in the basement after we agree to buy it.

westernskies said:   Thanks for all of the advice! Here's an update of what we did today, we took the sellers out to coffee and gave them a price that was a little below our target price for the house. After talking about the benefits within the house (which there are numerous) compared to other properties we discovered that our target prices were within $500.00 from each other. We settled on splitting the $500.00 and we will be splitting all closing costs as well.

They want to stay in the house until the end of the school year so their children can finish the year in Kansas, and we have a lease until June- so the timeframe is going to work out for the best. We plan on putting 25% down, with a 20 year mortgage from Wells Fargo (they have been my bank since I was little and they treat me well)

A little background on the house, its listed for $249,000 with other houses selling for $220-230. It is being sold with all appliances that are less than 3 years old, new A/C unit and attic fan, new cedar fence and new windows. They were looking to get 230,500 out of the house and we were wanting to pay 230,000 for it. We settled on 230,250.

Thanks for the help, we are going to take it one step at a time and let my mortgage guy do a lot of the heavy lifting!


PLEASE shop around on the mortgage. Me and my wife had Wells Fargo last year with a good deal of money with them. They were one of the most costly mortgages and not great rates in CDs or savings.
We switched to a credit union and last year we reported less than $100 in intrest with WF. This year, same amount, we reported over $600 in intrest. Rates are better, for our savings and also if we wanted loans.

westernskies said:   flyboy said:   With the time frame between now and closing I would consider an inspection now, and a second inspection a week or so before closing. This should give you some protection against any issues that arise while someone else is living in a house you have a contract to buy.

Using the same inspector and letting them know there will be a second would be very helpful.

People do crazy things, protect yourself.

Congrats on the new house!


You are the second person that has suggested this, the inspector we are looking at also suggested it. He said he would give us 50% off the 2nd inspection as well. He has good references and is trusted by co-workers. We definitely don't want them to go Walter White on us and start cooking meth in the basement after we agree to buy it.


You still get to do the final walkthrough. Two inspections is overkill, unless the first reveals too many unacceptable conditions that you do not feel comfortable evaluating yourself after repairs are completed. I assume your contract has inspection period, renegotiation period, etc., all built in to protect yourself? Just out of curiosity, how did you draw up the contract?

nullterm said:    Just out of curiosity, how did you draw up the contract?

The company I work for has a really good legal team, and they have a template archive that after answering quick list of questions with one of them they send you a document. They will make customization to it also, but it's done after hours.

- How do we place an offer on the house? Do we engage a real estate attorney right now and ask them to put together a letter?

Is a RE attorney typical in that state? If not, I'd go to a title office for advice on FSBO.
You can, in many states, piggy-back on the standard association of Realtors contract that is the standard.

- If we can make an offer ourselves without an attorney, do we put earnest money into an escrow account and then engage the attorney? I guess I am just a bit confused on which steps come first. I don't want to invest my money into an attorney if we can do a few steps beforehand.

A title company can help with earnest money. Generally speaking, we're taking about "1%" - "I'm serious" money.


- Ideally we would like to avoid going the route of a buyer's agent, and use an attorney. What is a reasonable estimate for legal fees?

Ask the title company. They charge legal fees for most of the contracts. They're usually flat fees on forms...

- Are there any pitfalls with going the route of FSBO?

Sure. Signing a contract without contingency would be one. Providing earnest money to a seller with no escrow. Stick with a fairly standard RE contract with contingencies on inspection and financing.. Escrow your funds, you'll be fine.

Note, the last home I sold FSBO, the buyer was wary - like you. They ended up paying a Realtor $1500 flat fee to handle the transaction. That's probably less than attorney... The real closing happens at the title company.

This is a great thread. I appreciate all the good guidance.

We're looking to buy an FSBO with one potential challenge. The owners are currently building another house, estimated to be completed in November. They prefer to stay in their current house until then. We're fine renting until then, but will rates rise, should we close sooner and rent back to them?. We appreciate any suggestions on how to best handle this, particularly noting any nuances with rent-backs (e.g., owner occupied provisions of most mortgages). Thank you.

pfischer01 said:   This is a great thread. I appreciate all the good guidance.

We're looking to buy an FSBO with one potential challenge. The owners are currently building another house, estimated to be completed in November. They prefer to stay in their current house until then. We're fine renting until then, but will rates rise, should we close sooner and rent back to them?. We appreciate any suggestions on how to best handle this, particularly noting any nuances with rent-backs (e.g., owner occupied provisions of most mortgages). Thank you.


I would have a closing date of soon and a possession date of November. Then I would rent to them. Then I would kick them out in November if (when) their new build is delayed. I would also not try to arrange this all on your own.

Thanks for the quick reply! One challenge with the near term close is the owner-occupied provision of most mortgages. From what I've learned, most lenders only allow rent-backs of roughly 60 days prior to the owner occupying the property. Is this an accurate assumption on my part? Thanks again!

pfischer01 said:   Thanks for the quick reply! One challenge with the near term close is the owner-occupied provision of most mortgages. From what I've learned, most lenders only allow rent-backs of roughly 60 days prior to the owner occupying the property. Is this an accurate assumption on my part? Thanks again!

You are going to have to work with a lender you trust and ask them to get creative. For example, in the year we bought our current personal residence, we closed in May but did not completely occupy until October. There was also the 60-day rule. The lender informed us that they would not be doing drive-bys to verify anything. We had an air mattress on the floor of the sunroom in case we needed to occupy quickly. I hope you are reading between the lines here.



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