Home Selling Advice for “For Sale By Owner” Sellers
Are You Selling a Home By Yourself?
Avoid Common FSBO Mistakes
For Sale By Owner - FSBO for Short
You've decided to be a “for sale by owner” seller, so you've done your market analysis and you've determined a good asking price for the house. You've worked on your curb appeal, spiffed up the home's interior and handled minor repairs. So now you're ready to let buyers take a look... or are you?
There are a few more things you should prepare for before you run your first for sale by owner ad.
Does your state law require that you give potential buyers one or more property disclosures when you sell a home? Disclosures typically deal with the condition of the property or facts about its location, such as:
- The age of the home and its components
- Whether problems exist with any component
- Whether you (or a neighbor) have built something (fence, shed, road, pool) that extends past property boundaries
- If the house is in an airport flight path
- If the house is in a flood zone
- If the house is on earthquake fault
- Other issues important to your specific location
Don't assume that disclosures are only necessary for homes listed with real estate agents, because most for sale by owner sellers must usually furnish them, too. Even if a formal disclosure isn't mandatory, you are probably required by federal law to tell your buyers about known problems, often referred to as material facts.
Example: If your home was built prior to 1978 and you do not disclose lead based paint as required by federal law, the buyer can sue at any time, even after the sale for their money back plus damages.
Learn your obligations by contacting the agency that oversees real estate sales in your state. Many offer disclosure forms online in PDF format.
Lead Paint Disclosures
If your house was built prior to 1978, federal law requires that you disclose that the home could contain lead based paint and give buyers details about past tests for lead paints. You must also offer buyers the opportunity to do their own lead paint testing. Most people don't perform the tests, but you must furnish them with a lead paint pamphlet, which is available free online from the EPA.
Fair Housing Laws
Individual sellers aren't subject to as many fair housing guidelines as agents are, but it's smart to follow the guidelines, just to make sure you don't encounter legal problems later.
Showing the House
Showing the house isn't difficult, but you should plan to follow a few basic showing guidelines.
Can the Buyer Really Buy?
A good real estate agent verifies a buyer's pre-approval status before he shows them property. When you sell by owner you'll deal with many people, including those who are qualified to buy a home and those who don't have a chance of getting a home financed.
People who know they cannot buy sometimes think that for sale by owner homes offer a better opportunity, because they're hoping to find a seller who will finance the transaction.
Ask these questions to get a better feel for someone's buying power:
- Have you been pre-approved by a lender for an amount in this price range? (Then require that proof of pre-approval be submitted with their offer.)
- Can you buy a house now, or do you have to sell your current home first? (Then decide if you are willing to tie up your house until they sell.)
Who will provide the contract forms that will be used for an offer to purchase your house, you or the buyer? You can write a contract yourself on a piece of paper, but it probably wouldn't offer much protection for either your or your buyer. The forms you use should be valid for your state's real estate laws and cover issues that are important for your location.
If you aren't contract savvy, have a real estate attorney review any offer before you sign it. Don't cut corners here, neglecting to get advice from an attorney or other knowledgeable person will cost you money, not save it.
The Buyer's Deposit
The contract should spell out what happens to the buyer's deposit money, called earnest money, if the deal falls through:
- Under what conditions would the buyer get it back? (unable to get financing, repair issues, etc.)
- Under what conditions would you expect to keep it? (buyer backs out with no cause)
The deposit money is NOT yours until the house sells or the buyer breaks the contract in such a way that it becomes yours by prior agreement. It must be credited to the buyer's funds on closing day and ideally should be held in someone's trust account until then.
Real estate laws and customs differ in nearly every state in the US, so it's essential that you do some research on a local level to be sure you are complying with all laws associated with the sale of your home. Realtors don’t just help market your home, they comply with all the legal aspects and protect you from potential lawsuits. The money you might save in commissions could be small compared to the money you might lose in a lawsuit. $20,000 to $30,000 is not uncommon and approx. 80% of all real estate lawsuits are initiated by the buyers!