I want to buy a house that’s for sale by owner. What do I need to know?

The first thing you should do is contact your realtor so that they can do up a proper offer. A lot of times, an owner will hand you an Agreement of Purchase and Sale (the offer) which they’ve completed for you and ask you to sign it. That’s a mistake!

It’s not just a matter of putting in a price and closing date. There are conditions that should apply in almost all cases: financing and home inspection are two but they can vary depending on all kinds of factors. Is there a pool? What if it’s winter – how would you know if it’s working? Is there a septic system? A well? Depending on the age of the house, there may be aluminum wiring or asbestos concerns that could affect your financing or your insurability. Your offer should have clauses that protect you in all kinds of contingencies.

Realtors deal with offers daily; we know what clauses to put in to protect you. Real estate lawyers review offers but rarely are asked to draft them. I can’t tell you how many times I’ve had a lawyer contact me and ask me my advice – so contact your realtor for help on this one!

Your realtor will first check with the seller to make sure they are “cooperating” i.e. that they are willing to work with your realtor’s brokerage and pay a commission. If the seller is willing to cooperate, the seller pays all commission fees so there is no cost to you. If not, then your only options are to pay your realtor’s commission yourself (whatever you can agree to) or  work with your lawyer on preparing an offer, but be prepared to pay for their time. You can’t expect this kind of work to be done for free.

Lawyers are busy people as well: it may take them some time to prepare the offer and review it with you, whereas a realtor can have it ready quickly to go over it with you, usually in a matter of hours.

If the seller agrees to pay the commission, your realtor can take charge. They will likely make arrangements to view the property with you in person first so they know what they are dealing with. They will let you know if they see any issues with the condition of the property or other issues that might affect value.

They will make note of various things that need to be reflected in the offer and confirmed with the seller.  These can be things you might think are obvious: Are appliances included?  Is there an automatic garage door opener? Is there a community mailbox?  Is anything under warranty?

These are a few examples of things we want to mention in the offer so that you don’t move in and discover the seller took the fridge with them, or removed the dining room chandalier without your knowledge, or left you with a garage you can’t open, or without any way to access your mail.

In a sale by owner, we have to verify pretty much everything as we can’t rely on what the owner tells us. I recall seeing one property where the owner told me on the phone that the furnace was brand new. When I got there with my buyer and took a look, it was easily twenty years old. New to that owner, maybe, who was elderly, but definitely not new! It’s not uncommon for sellers to think their properties are wider or deeper than they actually are, or misremember taxes, or other information.

Your realtor will look up the legal description, lot size, sales history on that property, MPAC assessment for taxes, and verify that the owner really is the owner. I had one situation where the person we were dealing with in a sale by owner turned out not to have any interest in the property at all. He  had no authority to enter into negotiations, so that one’s important! If it’s an estate sale, your realtor may ask the seller for a copy of the probate; if it’s a corporate owner, they may ask for signing authority to be confirmed as well.

Your realtor will check comparables in the neighbourhood. They will let you know what the sellers paid for the property and when, and if it’s been listed before and how long it’s been on the market. They’ll advise you on price. Most private sellers over-estimate the value of their properties, in my experience, so you need to have that kind of input. The price should at least be in the range of what’s fair and your realtor is in the very best position to let you know what’s reasonable.

If you still want to put in an offer once you have that input, your realtor will draft up the paperwork that makes it clear to the seller they are representing your interests and not those of the seller. They will prepare documentation to confirm the commission that will be paid by the seller, and then prepare the actual offer itself.

Most times, the seller will want to review all of this with their lawyer before responding with a counter-offer or acceptance. This is absolutely fair, but that also means the negotiations are likely to take longer than usual, as normally it’s the seller’s realtor who reviews the offer with their client and they are more readily available on weeknights and most weekends than most lawyers.

The problem this poses in a hot market with that kind of delay is that another offer could come in in the meantime. Be aware that the seller is not bound by the same ethical considerations as realtors. There is nothing to require them to tell you if they have other offers, or how many; they might tell you they have received offers when they haven’t, and they can even tell  another buyer what you offered to pay: we can’t.

If you do reach a deal with the seller, your realtor will stickhandle the deposit. We prefer that these be payable to our brokerage rather the seller’s lawyer, as if the deal falls apart, the seller can instruct their lawyer not to return the deposit to you, and then you’re in a bit of a pickle. (We have a bit more control if the deposit is being held on our end. If the deal doesn’t go ahead, we will do up the mutual release and termination documents.)

We will arrange for a home inspection, if that was a term of the deal (as it should be most times), and will send the documentation off to your financial institution or mortgage broker, and from there on, things will proceed pretty well as normal. We will be there with you for the home inspection, negotiate any necessary amendments if anything shows up in the inspection that’s a problem, remove the conditions as appropriate and get the deal firmed up or advise you if it looks like this is one to walk away from.

One thing to be aware of is that in a private sale, the bank or whoever you are using for financing will insist on an appraisal, even where the property has been listed on MLS as a “mere posting.” I’ve seen sales by owner where the frontage or lot depth was incorrect; where condo fees were wrong, and even one where a semi-detached home was described as detached. (This is why we go to take a look ourselves; we have to verify information in a private sale beyond the steps we’d take in a normal listing.)

A final point: while the law requires a seller to disclose latent defects, i.e. defects that would not be obvious to a buyer or that wouldn’t show up in a home inspection, you can’t assume that they have made full disclosure of anything. A private sale is no time to give up your right to a home inspection ; in fact, it may be the time where you want to exercise your right to have other inspections done by those with specific expertise, like plumbers and electricians.

A private sale is one situation where it really is “buyer beware” so you are best advised to play it smart, and use a realtor, even if the seller has chosen not to.

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