The Southern Maryland housing market is moving at warp speed these days, and homes that are in decent condition and priced right flying off the market in a matter of days. When will it end? Nobody knows.
But one thing that is certain is that the percentage of homes on the market being sold by owners sits at around 8 percent nationwide. So, after being turned down in the bidding wars, many buyers are tempted to pursue FSBOs – short for “for sale by owner.”
At first glance, buying directly from the owner might seem attractive. But there are several very real problems that commonly occur when the seller and buyer aren’t represented by a real estate agent. Let’s take a look at three of them.
According to the 2015 National Association of Realtors’ Profile of Home Buyers and Sellers, “paperwork” is one of the most challenging aspects of selling a home without an agent. The first challenge in buying or selling a FSBO is knowing which forms are required. A Google search of “What forms do I need to sell my house” returns, in fact, 118,000,000 results.
And online discount brokers aren’t all that helpful when it comes to the proper forms, either. In fact, one of the largest offers only a purchase agreement. So, what happens when a FSBO buyer wants to amend that agreement with a demand for repairs? What form will the seller and buyer use, and where will they get it?
Let’s say you happen to get all the right paperwork. The next challenge FSBOs claim they have with the paperwork is understanding it. Unless the seller is a lawyer or a real estate agent, or has a deep understanding of state law, this is makes perfect sense. These may look like “forms,” but each one is a legal document and, naturally, filled with legalese.
This lack of understanding leads many FSBOs to make assumptions about the documents’ meaning and about his or her responsibilities. Buying a Southern Maryland home is a huge financial investment – be overly cautious about assumptions made by a legal and real estate novice when buying something as expensive as a home.
During the FSBO purchase process, you’ll require the services of an attorney. It’s just far too dangerous to proceed without professional consultation. So, from the outset, buying a FSBO is going to cost you far more than it would if you were working with a Southern Maryland real estate agent to buy a home. Remember: The seller pays real estate agent commissions, so your agent’s services don’t cost you a dime!
Then, there are three additional but seldom-considered financial pitfalls when dealing with a homeowner directly. The first is price. While coming up with a list price is easy, determining what buyers will actually pay for a home is a bit trickier, and most homeowners haven’t a clue as to the true market value of their homes.
Even if the homeowner has decided to employ the services of an online discount broker or a for-sale-by-owner company, there’s no guarantee that he or she will have accurately priced the home for the market. In fact, since many of these companies aren’t helmed by real estate professionals, there’s a very real possibility that the homeowner received bad advice and that home you’re contemplating making an offer on is overpriced.
“There are a lot of variables that come into play when determining the list price of a home including local inventory, interest rates, average market price for comparable homes, appraisal value and the sellers’ personal and financial objectives,” Steve Udelson, President of Online Real Estate at Altisource (which oversees Owners.com and Hubzu) wrote in an article he contributed to forbes.com.
Now, in all fairness, Udelson admits that he is not a real estate professional. Yet, if his customers follow his advice, they may end up overpricing the home. And a homebuyer who lacks representation may just end up overpaying for it.
The list price of a home should ideally match, or come close to, its current market value. This value has little to do with the asking price of currently listed homes, local inventory, and interest rates, and nothing to do with the “… sellers’ personal and financial objectives.”
It has everything to do with what a willing buyer will pay for the home. The proof of that amount of money is reflected only in recent sold prices of comparable homes.
Where can you get that information? It’s not easy to come by without a real estate professional’s access to the Multiple Listing Service statistics. And, no, what you see on the big aggregator websites is not typically taken from the MLS and is rarely accurate.
So, how will you know that you aren’t overpaying for the home?
The second financial issue is the common assumption among homebuyers that, since the seller is saving money by not having to pay a real estate commission, he or she will pass some of that savings on to the buyer.
But according to studies by the National Association of Realtors, the No. 1 reason a homeowner decides to go it alone is to “save money.” Sharing the savings with the buyer rather defeats that purpose, don’t you agree? So, no, don’t count on getting a discount.
Which brings us to the third financial pitfall: Closing costs. Do you know how to negotiate with the sellers to have them pay for all or part of your closing costs? Do you know the maximum amount your lender allows the seller to pay on your behalf? How will you word the purchase agreement to make the request?
Sellers have a duty nationwide to disclose the presence of lead-based paint in homes built before 1978. There are other state- and locally mandated disclosures required of sellers. The most significant of these is the disclosure outlining any material defects concerning the property. The proviso to this disclosure is that the seller is only required to disclose items that are within his or her knowledge.
An unscrupulous or ignorant seller may see this as an opportunity to “fudge” on the details. Sellers represented by professional Southern Maryland real estate agents, on the other hand, are warned that anything less than complete honesty is not in their best interests.
If it’s too late, and you’ve fallen in love with a FSBO home, take the following precautions:
- Get everything in writing.
- Do not sign anything until you’ve run it by your attorney.
- Deposit your earnest money deposit with a neutral third party (ask your lender how to set this up). Never give it to the seller.
- Never waive the home inspection and be willing to pay for additional inspections if conditions warrant.
- Ensure that the seller actually owns the home and that no-one else has a claim to it by ordering a title report.
Protect yourself before looking at FSBOs by communicating with your real estate agent. He or she can approach the homeowners to determine if they are amenable to paying the agent’s commission. This way, you are represented and protected — and at no cost to you.
Brandywine MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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