Buying a house For Sale By Owner can yield savings if you are able to negotiate a lower price because the seller isn’t paying any commission. However, additional due diligence is required because the seller has not already been vetted by a listing agent. You’ll also need the assistance of a real estate lawyer to guide you through contracts and due diligence.
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If you want to buy a house For Sale By Owner, you’ll need to specifically look for For Sale By Owner (FSBO) listings on public real estate search websites.
Remember that not all real estate sites will have FSBO listings, and you won’t be able to search for FSBO listings on the MLS either.
Zillow offers a friendly way of filtering your search criteria by For Sale By Owner properties only.
You could also try local websites such as the New York Times which allow you to search for NYC FSBO listings.
Some local sites like StreetEasy won’t allow you to filter by only FSBO listings; however, you can somewhat effectively create a filter for FSBO listings by setting a filter for the words “FSBO” or “For Sale By Owner” or just “by owner” in the listing description.
Pro Tip: You can’t rely on your buyer’s agent to find you FSBO listings. Read our guide on is there an advantage to not having a buyer’s agent in NYC to learn why.
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You should verify the ownership of the property and do some basic due diligence before proceeding any further with a For Sale By Owner (FSBO) property. Many FSBO properties are spam listings put up by real estate agents in disguise, looking to catch direct buyers who inquire on their listings as leads.
Furthermore, because it’s so frictionless for an owner to put up a FSBO listing with little to no paperwork involved, many sellers either aren’t serious about selling or aren’t even the rightful owners. For example, the daughter of an elderly couple who own their home might be curious what her parent’s home is worth. As a result, the daughter puts up a FSBO listing without consulting her parents.
A home could also have multiple owners, for example in an estate sale where there are multiple heirs. Often times, there could be disagreement as to whether the property should be sold, which means one of the heirs could unilaterally list the property For Sale By Owner without permission from the rest of the heirs.
Questions of ownership are typically verified by listing agents and resolved well in advance of an Exclusive Right to Sell Listing Agreement being signed. However, in the case of FSBO listings where an impulsive seller could upload a listing within an hour, ownership isn’t always certain.
You can verify ownership by taking a look in public record databases such as ACRIS or even a home’s property tax bills on the NYC Department of Finance website. Many public real estate websites such as PropertyShark and StreetEasy also pull public records directly onto their sites in an easy to use manner.
Pro Tip: At the showing, you’ll want to make sure the seller isn’t actually a listing agent who will take you to see another listing. This is a common bait and switch practice more commonly seen in the residential rental market. However, since spam FSBO listings by agents are quite common, it’s well advised that you confirm the identity of the person you are meeting, and that you are firm about only seeing the apartment that you made an appointment for.
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It’s important to confirm with the seller what he or she would like to see from you in terms of documentation before submitting an offer. FSBO sellers may not abide by the standards or norms commonly used by real estate professionals.
For example, it’s quite common for offer submissions to be emailed, with a mortgage pre-approval letter and a REBNY Financial Statement attached.
The offer email typically contains the offer price, the anticipated amount of down payment, any contract contingencies, preferred closing date, any inclusions or exclusions, the buyer’s attorney information and a short biography.
It’s best to also include somewhere that the offer isn’t binding until contracts have been executed.
Even though the fact that offers aren’t binding until contracts are signed is widely known amongst real estate professionals, a FSBO seller may not be aware of this fact.
As a result, it may be a good idea to include this basic disclaimer so you don’t have any issues should you attempt to negotiate after inspection.
Read our guide on how to make an offer on a house in NYC to learn more.
Pro Tip: Skip the buyer’s agent if you’ve made it this far. Sellers don’t have an obligation to co-broke and pay commission to anyone, so involving a buyer’s agent would only complicate matters at this point. Furthermore, the 3% commission that you’d essentially be asking the seller to pay to your buyer’s agent could be negotiated as savings instead.
You’ll want to conduct a home inspection if you’re buying direct from an owner. This is especially true if you are purchasing free-standing property such as a single family or multi-family house.
Remember that in some states like New York, sellers can easily get around having to provide a seller property disclosure form by simply agreeing to credit the buyer $500 at closing.
Furthermore, selling property as is in New York and many other states is actually the norm. This means the principle of caveat emptor, Latin for buyer beware, applies and buyers are solely responsible for their own due diligence.
Remember that deals are not binding until contracts have been signed, which is why it’s a good idea to get your home inspection done before signing a contract. This way, if something major is discovered, you will have a good reason to go back to the negotiating table.
Pro Tip: Should you get an inspection before buying a co-op in NYC? Read our article to learn more about why it’s less common to get a home inspection if you’re buying a co-op or condo apartment.
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You’ll need the assistance of a lawyer to guide you through contract negotiation and diligence, especially in a state like New York where the purchase contracts can be quite long and customizable.
Even if you are buying in a state where contracts are more standardized such as California, where Realtors typically help customers fill out the purchase agreements, it will still be cheaper to hire a transaction attorney for a flat fee to guide you through this.
It’s important to have an attorney involved if you are attempting to buy a For Sale By Owner property and there are no real estate professionals involved.
In some states like New York, this is actually a legal requirement as it’s illegal for anyone else except lawyers to draft, edit and negotiate real estate contracts.
Pro Tip: Try to negotiate a reduction in the price since you are going direct, which means the seller can save around 6% in traditional broker fees. While you can negotiate at any point until contracts have been signed, it’s better to pop this question before you’ve made an offer. Read our guide on how to buy a house without a Realtor to learn more.
You’ll need to be thorough when buying a house or apartment For Sale By Owner. Your lawyer will come in handy by ordering and reviewing a title search and report on your behalf. If you’re buying a house, your lawyer may order a survey report for you as well.
Your lawyer will review the title report and other sources to ensure that there are no outstanding liens, judgments or city violations on the property.
Unlike a traditional listing, there won’t be a listing agent who has already pre-vetted the seller and made sure that the property can actually be sold.
If you are buying a condo or co-op apartment in a city like New York, then your lawyer will also review the building’s annual financial statements, the original coop or condo offering plan, any amendments to the offering plan, the building’s operating budget and the co-op or condo board meeting minutes.
This is a lot of material to cover, and you’ll be glad you hired a competent lawyer to review all of this for you.
Pro Tip: Is the seller advertising some sort of tax exemption or abatement that’s currently in effect? Learn more about the 421a tax abatement and the 421g tax abatement and how you can verify these city tax breaks for yourself.
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It’s time to sign the contract and hand over your earnest money check once you and your lawyer have completed your legal and financial due diligence. The good faith deposit is typically 10% of the contract price, and is delivered along with the signed contract to the seller’s attorney for counter-signature.
Once the seller has counter-signed the contract, the contract deposit is put into escrow by the seller’s attorney, and the fully executed purchase contract is sent back to the buyer’s attorney. At this point, a listing is typically considered to be “in-contract.”
Pro Tip: Read our guide on the condominium contract and the contract rider to learn how purchase contracts are typically structured in NYC.
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Work with your mortgage broker or bank to finalize the mortgage underwriting process as soon as possible. After you’ve provided all of the required documentation and received a sign-off from the bank underwriter, you should receive a mortgage commitment letter.
A mortgage commitment letter is as close to a promise from a lender that they will actually show up and fund your loan on closing day. Note that there are many contingencies and outs for the lender, such as the ability to cancel your loan if you lose your job or other source of steady income before closing.
Pro Tip: You may wish to order and pay for the appraisal only after you have a signed contract. This way, you don’t end up spending hundreds of dollars on something for a deal that never gets in contract. Remember that the appraisal is required by your mortgage lender, but you have to pay for it. Also, remember that the appraiser will have to contact the seller to schedule a visit vs the listing agent.
Congratulations. You’ve learned everything there is to know about how to buy a house For Sale By Owner, and now it’s time to close your deal.
Your lawyer will arrange a closing date, time and place on your behalf by coordinating with the seller’s attorney. Closings traditionally happen at the seller attorney’s office, except for co-op apartment sales where closings usually happen at the managing agent’s office.
You can expect to see a few familiar faces at the closing table. The seller, the buyer, the seller’s attorney, the buyer’s attorney, the bank’s attorney and the title company representative will all be present.
Notably absent will be any brokers since you’ve learned how to buy a house For Sale By Owner.
Your lawyer will give you a closing statement in advance of closing so you can see the exact flow of funds, and so you’ll know how much money to take out in certified checks. You can get an idea of what your closing costs will be much earlier in the process by checking out our handy Buyer Closing Cost Calculator.
At closing, your lawyer will guide you through all the documents you’ll need to sign, and he or she will also monitor the flow of funds to make sure all checks have been properly distributed. After everything is signed and done, you’ll get a congratulatory handshake or even a photograph with everyone and the keys to your new home.
Congratulations on learning how to buy a house For Sale By Owner!
Pro Tip: If you happen to purchasing a co-op, keep in mind that co-op boards will have their own set of coop financial requirements which can often be stricter than that of banks. Read our article on what is a co-op post-closing cash flow statement to learn more about what financial condition you’ll need to maintain post-closing.
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Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.
