Friday, May 2, 2008

Caveat Emptor: Beware of FSBOs

People who sell their homes by owner (FSBOs) should likely not be stereotyped as being greedy or dishonest any more than real estate professionals should. There are some cautions about dealing with a FSBO that home buyers should be aware of though. There are also a few differences between the two that make dealing with a FSBO through a buyer's agent much less risky than dealing with a FSBO alone.

Unlike agents, FSBOs have neither a strict set of laws and a regulatory agency overseeing their actions, nor a code of ethics. There certainly are laws that affect their conduct, but most of them relate to civil remedies available to an injured buyer that are far less certain to result in timely recompense if ruled in the buyer's favor.

Caveat #1

FSBOs are motivated by one consideration, avoiding paying a broker's commission. Some will pass this on to a buyer, or at least offer to do so, but most will draw the line there. That's not a bad deal for a buyer, but it's not a good deal either. There is no guarantee that the seller has priced the property according to its value—or even knows what that value may be.

On the other hand, you may find one of that small percentage of FSBOs who so undervalued their home that they they contributed to the lion's share of the statistical finding that FSBOs net less on the average than they would if they listed with a broker. Don't count on it though.

Caveat #2

Many FSBOs are investors. Some may be savvy investors, while others may not. A savvy investor will often cut the best deal, though not necessarily the best deal you could have gotten. Amateur investors will usually make the hardest bargains.

Caveat #3

Some FSBOs have contract forms ready for you to fill out, and will refer you to a lender who will process your loan. Do not let the seller fill in the form. For that matter, don't use the form until you have it checked out by your attorney, and go out and shop for your own financing. The FSBO may have had their attorney write up the form in a way that serves their interests best, and they almost certainly did not go to any great trouble to find the best financing for you.

Caveat #4

Most FSBOs do not even know about the requirement for the property condition and led-based paint addenda for most transactions today. Ask them for a copy of the property condition addendum before you even look at the property. If they have one, use it as a guide to do your own close inspection of the property—and note whether they appear to have been honest. If they do not provide you with one, ask them to do so before you go any further. The led-based paint addendum is necessary only for houses built before 1976.

BTW—This will create the impression that you know what you are doing.

Caveat #5

Some FSBOs will question you in an attempt to get some information that may give them an advantage in the negotiations, including haggling verbally with you over terms. Excuse yourself for not engaging in business before you have made a decision, and avoid talking about the property at all until you are ready to make an offer. Then make your offer in writing, and insist that the seller respond with a written counter offer if they try to engage you in spoken argument about the merits of your offer.

Caveat #6

There are many other matters you should be aware of that are general to buying any home. Buyer agents know these and can inform you about a property's value before you make an offer and guide you through the process. They are not only obliged to do so, but they want your referral.

Caveat Vendor

Moreover, most FSBOs will deal with a buyer's agent and pay a satisfactory commission. The advantage to a buyer in this is that the agent will represent them, not the seller. That fact is also the seller's disadvantage.

If you discount expertise, motive, more than anything else, is the only real difference between FSBOs and agents that should matter to a buyer. As long as an agent treats all parties to a transaction fairly and honestly, a buyer's interests will be best served by having buyer representation. The FSBO should however beware. Buyers who are guided by their agents are not prevented from taking fair advantage of a seller.

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