How to Buy a Privately Owned Home & Save Money
Despite what you may have been told, it is very possible to find a great deal with a privately owned home. There are, however, certain things you should do, in order to make this a reality. Here you will learn how to buy a privately owned home and save money.
First of all, what is a privately owned home? A privately owned home is any home that is currently owned by someone that is current on his or her mortgage payments, or has paid his or her home off in full. Privately owned homes are also called retail properties, or market properties.
The owner should be up to date with any tax payments, and any Home Owners Association fees, etc. In other words, it is a home that is not in default, or foreclosure, and is not in process of a short sale.
I also like to preclude homes that are involved with Probate, in the definition of a privately owned home. A For Sale By Owner or FSBO home is also technically a privately owned home, but it involves a different approach, so I won’t include it here.
For sale privately owned homes are included in the Multiple Listing Service, or MLS. They are also posted on many different real estate websites, which anyone with a computer and internet access can find and use. The problem with using internet websites other than the MLS, is they are often not up to date.
If you are on Zillow, or Realtor, com, or any of the others, you may be looking at a listing that is expired, cancelled, or sold. I have seen homes on these websites that have been off the market for months, yet are still included with their listings. Even the MLS from time to time, isn’t updated right away by the listing agent, but normally for no more than a day or two.
Hire a Buyer’s Real Estate Agent
The single most important thing you can do when in the market for a home, no matter if you are looking for a foreclosure, or for a privately owned home, or both, is to find and hire a good buyer’s real estate agent. There are many reasons why this is the case.
It does not cost you a penny more to have your own buyer’s agent. The real estate commission is paid by the seller of the property, not by you, the buyer. So, in effect, you are getting many great professional real estate services for free!
Why would anyone not take advantage of that? If you don’t use a buyer’s agent, and simply use the seller’s agent of the property you are interested in, you are making a big mistake. The seller’s or listing agent has been hired by the seller to represent them.
Many times it is a close friend, or a family member that has the seller’s best interest at heart. This means that they may not provide you with any negative information about the home that they don’t have to.
They may not give you the best information regarding how to negotiate, which is vital. Also, the seller’s agent won’t provide you with information from competing homes, unless they have that listing also, and you may well miss out on a better home, and a better deal.
A buyer’s agent, on the other hand, will find out from you exactly what you are looking for in the way of a home. How many bedrooms, baths, square footage, etc. Where you would like to live, and of course, your price range.
You may have other criteria such as age of the home, school district location, etc. Your buyer’s agent will email you pictures, and details of what you like, and leave it up to you to pick your favorites.
At this point, they will set up showings for these homes, and while at the showing, point out features of the home that you may not be aware of.
A buyer’s agent can also perform a comparable or comp search of sold properties for you. These comps will tell you what similar homes in the area have recently sold for, and give you an idea of how much a home you are interested in is worth.
Some homeowners have an unrealistic expectation of what their home is worth, caused by an emotional attachment, what they originally paid for it, or changing market conditions.
Sometimes seller’s agents, in order to appease the seller, or out of their own greed, will price homes well above market value in hopes they will come across an uninformed buyer. Without a buyer’s agent to advocate for you, it is possible to fall into this overpriced trap.
In order to secure the services of a loyal, invaluable buyer’s agent, you have to sign a Buyer’s Agency agreement. This agreement states that you will use this buyer’s agent exclusively in your search, and in return, the agent will represent you, and advocate for you in a forthright, and professional manner.
There are normally no additional fees, unless added on as a stipulation of the contract by the agent. The only fee a buyer’s agent may charge you, is if you decide to buy a FSBO, For Sale By Owner home, that he wouldn’t get paid for, and if so, you may be able to negotiate that the FSBO owner pay the fee.
The time period that this agreement stays in place is negotiable. The usual time period for a Buyer’s Agency agreement is 3-6 months. If you don’t purchase a home within this preset time frame, you are free to use the services of another agent, or sign a new agreement with the same agent, if you so choose.
The Early Bird Gets the Worm, but The Second Mouse Gets the Cheese
The key to finding a great deal in the retail real estate market is patience. If you are desperate to find a home, or if you find a home that you really like, it may be difficult to keep from making a full offer.
If, however, you are not desperate, and you are willing to pass on a home you really like if it is priced too high, or the seller is not willing to accept
your lower offer, you will have a greater chance of finding a deal.
You also give yourself a chance to find a great deal if you are willing to do some work on a home. Many homeowners for whatever reason, do not upgrade, or update, repair, or sometimes even clean up their homes and property before they put it on the market to sell.
As most buyers are looking for updated, and move in ready, or very close to move in ready, you can find some deals if you are willing to look past what is needed in a home, and do some or all of the work yourself, or hire contractors to do the work for you.
Many homes only need cosmetic upgrades such as carpet, paint, new wallpaper, hardwoods to be refinished, old paneling removed, bushes and trees trimmed or removed, decks repaired, etc. But, because the needed upgrades make the home look so unappealing, a lot of buyers will disregard it, and it can present an opportunity for a savvy buyer.
Another key to landing that great deal is to offer correctly. You have to be a little careful not to offer too low, as you don’t want to insult the seller. I have seen sellers that simply refuse to deal with a buyer that made them a low ball offer. Yet, you want to offer low enough to ensure you will see some built in equity in the home when you take ownership of it.
You can also make up some difference in price, if you ask the owner to make some of the needed repairs and upgrades himself, by writing it in the contract offer. You can also ask for the seller to pay some or all of your closing costs to compensate for price.
It is also important to be flexible. If you can live with a school district that is not your favorite, or an unfinished basement instead of a walk out finished basement, or a 2 story instead of a ranch, or other amenities, and locations, you will open yourself up to a wider choice of properties, and increase your chances of finding that great deal.
Have a Professional Home Inspection Performed
Most real estate sales contracts contain a statement that allows the buyer 10 days from date of accepted contract to have an inspection performed on the property, and that the purchase is contingent on the inspection.
You may want to write in to the contract that you want 15 days for the inspection, just to give yourself a little more time. and that the offer is contingent on the inspection just to cover yourself.
If the inspection reveals issues that were not provided by the sellers disclosure, or by the seller over and above the sellers disclosure, you will then have the ability to adjust your offer price, ask for the seller to have the needed repairs done for you, or back out of the deal completely.
At the very least, the inspection will let you know the condition of the major systems of the home, so you will know what you can expect to have to repair or replace, and when, and allow you to set aside the needed funds.
A typical home inspection costs approximately $500, at least in the midwest in 2016, but it is too important to skip. It is money well spent, and provides an escape clause for you, should it reveal more than you are willing to take on.
Let’s review. In order to give yourself the best chance to find a great deal with a privately owned home you must: Find and hire a good buyer’s real estate agent. Sign a buyer’s agency agreement with your new buyer’s agent.
Tell your buyer’s agent exactly what you are looking for in a home in regard to amenities, location, and price. Be as flexible as possible with your home preferences. Be patient.
Don’t over offer on homes that you may be able to pick up at a lower price. Don’t worry if you can’t strike a deal on a home you like. There will be others as long as you are flexible and patient.
Be willing to look past needed upgrades and repairs, as this can mean discounts on selling prices and terms. Make offers low, but not too low, and write in contract that offer is contingent on an inspection.
If you follow these guidelines, your next privately owned home purchase will be successful. Good luck!