A Buyers Guide to Purchasing Real Estate by Owner

Getting Started

Before you begin the process of buying a property you need to consider the following:

  1. Determine Your Buying Objectives. A desire to stop paying rent, downsizing, needing more space, an investment are but a few.
  2. Determine Your Needs. Prioritize what is most important to you in a home (style of home, size of home, neighborhood, schools, cost, etc.) Keep in mind, there is a difference between what you need and what you want.
  3. Become Informed. Research the market by searching the internet to see what homes are for sale in the areas you desire. As well as looking at classified ads and home for sale magazines. Drive by neighborhoods that interest you.
  4. Get Your Financing in Order.

What's the difference between Pre-Qualification and Pre-Approval?

Pre-Qualification is a "guesstimate" of what a buyer might qualify for prior to actually submitting a mortgage application. Based on the unverified financial information you provide, the lender uses a quick calculation to arrive at a loan amount. Pre-Approval means that the lender has verified your financial information and has actually committed money in your name for a specific loan type and amount.

Searching for a Home

OK, this is where the fun begins!

If you choose to buy a property directly from a "For Sale By Owner", the home seller may reduce the price by the 2-3% which would have been paid to a buyer's agent. At least there should not be a grossed up asking price to cover the realtor’s commission

It's a very good idea to protect yourself with a real estate attorney. Choose your attorney before you start shopping for a home, because it may be too late for legal advice after you've already signed a contract.

Click here to find a real estate attorney in our area.

Beginning your home search

Become familiar with the area where you're considering buying in order to determine if it meets your needs. Drive around. Attend open houses. Talk to friends and colleagues. You may want to select two or three neighborhoods to broaden your options. On FSBOMichigan.com you can set up properties to watch or exclude based on your criteria.

You may also want to create a profile of the home you're looking for in your next home.

  • Goals - why are you buying a home?
  • Features - what you need vs. what you want?
  • Location –neighborhood, school district, distance to work?
  • Style - what type of home fits your needs, lifestyle, single family, town home, or condo?
  • Lot - what is the size? What does it feature (wooded, fenced in, etc.)?
  • General condition - is it in good shape, age of structure?
  • Neighbors - try to get an idea of what kind of neighbors you will have.
  • Taxes - verify taxes and any current assessments on the home you're considering buying.

Where to find homes?

FSBOMichigan.com. Start you search at FSBOMichigan.com for homes and properties that are being sold by owner.

Yard Signs. Hit the pavement and drive around neighborhoods that interest you.

Classified Ads and Homes Magazines. Start reviewing your local newspaper and pick up a free homes magazine at your local grocery store.

Internet. More than 70% of home buyers today begin their home search on the Internet. Real estate companies in our community post their homes on their own websites or on aggregator real estate sites like Realtor.com, or Yahoo! RealEstate. What you will not see on the aggregators or realtors web sites are all the homes being offered by owner. FSBO’s are properties that do not come with the built in real estate commission.

Open Houses. Check out the local newspaper and local real estate websites to identify open houses you would like to attend. Come back to FSBOMichigan.com and see who is having open houses.

Making an Offer

Congratulations! You've found a property you want to purchase. Before you make a formal offer, you need to make sure the home is priced correctly. You don't want to overpay. An appraisal by an approved appraiser can give you piece of mine and will let you know if there may be issues with qualifying for a loan based on the property’s price.

Earnest money proves to house sellers that you're serious. After all, they're going to take their home off the market on your behalf. Earnest money is typically between 1-5% of the purchase price, but less is possible. The money should be held by an attorney or title company in escrow.

Once your offer is accepted, it becomes a binding contract, so be sure to include the necessary contingencies. Contingencies are clauses that, if not met, will render the contract null and void. Common contingencies are the sale being subject to approved financing, the sale of an existing home and/or a satisfactory home inspection.

Home Inspections

You've made your offer. Now you need to have an expert inspect the property. A formal inspection determines if anything needs to be repaired or replaced. Make sure the contract indicates who pays for the inspection and whether you or the seller is responsible for any necessary work. The contract should also include a contingency in case the inspection reveals any repairs that cannot be resolved with the seller.

Licensed home inspectors inspect homes to determine what, if anything needs repairing or replacing. Typical inspections may include...

  • Termites - signs of termites in the home or foundation.
  • Plumbing - checks for leaks, dripping faucets, toilet tank leaks, etc...
  • Electrical - up to code? Checks that all light switches and wall sockets are working properly
  • Exterior - settling cracks, paint peeling
  • Interior - signs of leaks in walls or ceilings, structure and general condition
  • The Roof - checks for leaks or damage
  • Windows- good condition and sealed
  • Insulation - up to code?
  • Appliances - checks that they work along with heating and air conditioning units
  • Radon Gas - an odorless and colorless gas that is sometimes found in the earth's rock and soil
  • Lead-Based Paint - some older homes may still have lead-based paint that can be hazardous if ingested
  • Asbestos - homes built in the early 1970s and before often had asbestos tile floors and asbestos ceiling tiles. This substance poses a health risk and must be removed

The home inspector will write up an inspection report with all minor and major defects itemized. Good inspectors will find minor flaws in nearly any home. It's up to you to decide how important they are. It is also helpful to be present during the inspection. Inspectors often provide you tips on the maintenance and upkeep of the home and its systems. Find a local home inspector.

Understanding Title Insurance, Appraisal and Homeowner's Insurance

Some people can get confused about this area of the real estate transaction, but with a little knowledge and guidance, it's easy to understand. We'll break down the basics for you.

Title Insurance

When you buy a home, a title company examines the chain of titles (previous owners) to insure that there are no problems with obtaining clear title to the property. Parties other than the current owner of the home may have rights to it for things such as mortgages, liens due to unpaid taxes, lien claims to those who the owner owes money, etc. As a new owner, you may know nothing about these risks, but you are still vulnerable to such claims on your property. A deed is not sufficient protection. That's why title insurance is necessary.

It is very common for title companies to also handle the escrow portion of the transaction, meaning they serve as a neutral party to exchange funds and make sure both parties adhere to the agreed upon terms of the contract. Find a local title company.

Home Appraisal

Lenders require appraisals to confirm that the home for which they're providing you a loan is in fact worth the amount you're paying. Appraisers are independent agents normally hired by the lender. The fees appraisers charge vary and are typically built into your loan costs. Your lender may also require a Location Survey that certifies the house is within the boundaries of the lot. The lender often selects the surveyor, but again, you may have a choice. The lender usually pays for the cost of an appraisal. Then it's factored into the buyer's closing cost. Find a local home appraiser.

Homeowner's Insurance

Title normally will not be transferred until you can prove you have the home covered by insurance. This protects you for things such as fire, flood, tornados, or any other damage to the home. You may also consider additional levels of insurance based on your circumstances.

Escrow and Closing

The escrow agent conducts the closing and is often affiliated with the title insurance company. Their job is to ensure the buyer obtains a clean title, the lender obtains a good mortgage, that the costs of the transaction are paid, that the seller's mortgage is paid off, and that the seller receives their proceeds.

The escrow agent prepares a closing statement that outlines what the required funds are, who's paying and where the funds are going toward They will not disburse funds until they can guarantee that the above noted items have been taken care of.

Odds and Ends

Utilities - Water, gas and electric meters will be read on the day of closing and the seller will owe for the utility usage up until that day. You may also need to make deposits with both the water and electric companies.

Service Contracts - If you are taking over any service contracts from the home seller, you may owe the seller for the unused portion of those contracts that have been pre-paid. These could include pest control, pool and/or lawn services, home maintenance contracts, etc.

The Check - The title/escrow company you are using will tell you how much you need to bring to closing. Personal checks are not accepted, so bring a cashier's check or arrange for a wire transfer.

Home Warranty - It's highly recommended that you purchase a home warranty. This will cover the repair or replacement costs in case items such as appliances break down after you purchase the home. The peace of mind can be worth the expense.

Conclusion:

Purchasing real estate is not difficult and purchasing directly from the owner can save you considerable money. This is written as a helpful guide to purchasing real estate. It may not include all the steps required based on your specific situation. We are solely an advertising forum for FSBO sellers and buyers. All information posted by sellers on FSBOMichigan.com should be independently verified. If you have any questions regarding the purchasing of real estate in Michigan you may want to contact a real estate attorney.

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