How to Deal with "For Sale by Owner"

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Whether the economic climate is strong or weak, real estate sells. Real-estate agents are experts in the intricacies of home sales, but homeowners can negotiate and finalize their own sales. The Internet makes this much easier. Homeowners are able to more readily advertise their real estate than they could in the days when an owner sold his house by putting up a "For Sale by Owner" sign on the front lawn. But buyers must learn how to guard their own interests when buying a house directly from the owner.

Step 1

Prepare guidelines that spell out the neighborhood you want to live in, the house size you need, any necessary amenities and the absolute top price you'll pay. Don't go house-hunting before these decisions are finalized and stick to these guidelines. It's easy to fall in love with an inappropriate house, buy it on a whim and be sorry later.

Step 2

Order a Comparable Market Analysis (CMA). The CMA lists recent sale information of comparable homes in the neighborhood, including the sale prices. This will offer both the buyer and the seller an excellent frame of reference when arriving at a fair sale price for the house. To see a list of available CMAs, see the resources below.

Step 3

Discuss the house with the owners. Submit questions in writing and ask that the answers be provided in writing. If there is a dispute later, this could bring clarity to the disagreement.

Step 4

Hire a real-estate lawyer. Each state's bar association will have contact information for accredited real-estate lawyers. Insist that the seller have his own lawyer as well. If a dispute ends up in court, one party can claim that he was at a disadvantage if the other party had a lawyer and he didn't..

Step 5

Submit any bids only in writing. Settle on a price and pay a deposit. An attorney should hold the deposit. Putting down a deposit shows good faith on both sides. The buyer puts money down, and the seller takes the house off the market. Make sure that the contract stipulates that, at this point, the buyer can still back out (and retrieve his deposit) if the home inspection turns up any serious problems or if financing doesn't come through.

Step 6

Hire a licensed home inspector, which you can find through the American Society for Home Inspectors. A home inspection should include inspection for termites, plumbing problems, electrical problems, signs of cracks or exterior damage, signs of leaks or damage in the house interior, roof leaks or damage, window problems, proper insulation, appliances in working order, signs of radon gas, signs of lead-based paint, and signs of asbestos. A portion of the deposit money generally pays for the home inspection.

Step 7

Hire an escrow company to do a title search. A title search investigates the home's ownership history, ensuring that there are no unpaid mortgages, unpaid taxes, lien claims or any other obligations that can pass on, unknowingly, to a new owner. Find local escrow companies through Internet searches. Check with the Better Business Bureau to make sure that the escrow company is reputable.

Step 8

Complete any requirements that the lender demands. These generally include having the house appraised and obtaining homeowner's insurance. The lender usually sends its own appraiser, and the buyer arranges for his own homeowner's insurance policy. Compare at least three estimates for homeowner's insurance. Policies differ from company to company.

Step 9

Close the sale with the owner. The lending institution transfers the mortgage money to the escrow company, which pays all transaction costs and pays the seller's mortgage. The escrow company summarizes all these payments in a closing statement. Once the escrow company verifies that these payments are made, it disburses the remaining funds and transfers the title to the new owner.

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