For Sale by Owner: What FSBO Means for Home Buyers in Denver

for sale by owner

Real estate is always a hot commodity but in some markets it’s sizzling! Denver is one of those markets. Great news for people hoping to buy a home in the Mile High City!

With all the buying and selling frenzy going on in Denver, consider exploring the option of buying a for sale by owner home.

What makes Denver so desirable?  According to a recent study, Denver ranks 13 out of 40 as a city where you can enjoy a healthy work-life balance. Denver also has a mention in “Best Places to Live 2019.”

If you’ve spent time perusing the Denver real estate market you’ve likely seen this acronym—FSBO. Sounds intriguing, doesn’t it? Try saying it—fizbo—how fun is that?

FSBO isn’t mysterious at all, in fact,  means for sale by owner and it’s an excellent way to buy a home. Stay with us and we’ll take you through the process.

Defining for Sale by Owner

The mystery ends here! FSBO simply means an owner isn’t retaining a traditional real estate agent to manage the home sale.

Why would any sane person choose to navigate the complex world of selling a home without assistance? The primary reason is money. There’s nothing crazy about saving money, and if a seller decides to DIY, they may 3-6%.

They save because they don’t pay a real estate agent’s commission.

Normally, the seller pays the full commission even though it’s split between the seller’s and buyer’s agents. If the sale price of a home is $450,000, a seller pays between $13,500 and $27,000 in commission fees.

As a buyer, you hope to save money and buying directly from the seller can help you do that.

What’s All the Fuss About FSBO?

With so many extra fees involved when buying or selling a home, everyone involved in the transaction wants to come out a winner. As if buying your dream home isn’t enough, right? Any money you save goes towards furnishing that dream home!

So, here’s what the fuss is about—saving money. If you buy a FSBO, you can save around 6% of the listing price. Keep in mind that’s only if both buyer and seller choose not to use a real estate agent.

If you’re thinking, “the buyer doesn’t pay the commission, so how does that save me anything?”

A seller usually factors the real estate agent’s commission into the list price of the home. Are you a good negotiator? Combine those skills with your ability to make a good connection with the seller and you can likely negotiate a lower purchase price.

How to Find a FSBO

You’ve already window shopped the online real estate websites. Have you noticed the listings all have real estate agent contact information? That’s because most real estate companies pay to list homes through the Multiple Listing Service (MLS).

The MLS is a one-stop-shop for real estate. Most sellers who don’t use a realtor cannot use the MLS either. That presents a slight challenge to the buyer looking for this type of home.

Even without a listing on the MLS, most FSBO sellers understand the importance of an online presence. They may list on a site specifically designed for FSBO properties. They may also use a virtual real estate brokerage that offers MLS service.

If you don’t see anything you’re interested in online, take a drive through a few neighborhoods. Word of mouth is also a great search tool. Somebody always knows somebody else who’s selling a home.

Before you get too deep into contacting sellers and viewing homes, secure your financing.

The Key to Buying Any Home in Denver

When a buyer works with a real estate agent, the agent does a lot of screening. This is for the buyer and the seller’s benefit.

If you fall in love with a home in Denver, expect the seller to do some screening of their own. They may ask for your ID before they let you in and make a note of your name and address.

A seller might even show you where to put your shoes. Hint: That means they prefer you not to tromp through their home with shoes on. Even if your pedicure is several weeks old, indulge the seller and take off your shoes.

Knowing who you are, and protecting their floors is one line of defense for a person selling their home on their own.

The other is asking you for a pre-qualification, or even better, a pre-approval letter from a bank or mortgage company. No seller wants to waste time showing to someone who isn’t a serious buyer.

If you can, get pre-approved before looking at FSBOs. A buyer with a pre-approval is almost as good as a cash buyer. Speaking of cash, if you plan on paying cash for a home, you’ll need a verification of funds letter from your bank.

If you can’t pay cash or obtain financing, that doesn’t mean you can’t play the game.

What About Seller Financing?

Sometimes a buyer’s credit isn’t high enough to qualify for a traditional home loan. Don’t discount inquiring about seller financing. Seller financing means the seller plays the role of the bank or mortgage company.

If you find a seller willing, it doesn’t mean you won’t need to qualify. It does mean the qualifications may not be as strict.

A seller may request a higher down payment than a bank. You’ll also be expected to show bank statements or check stubs as proof of income.

The seller sets the interest rate—usually around 7%, but sometimes it’s higher. A seller also could require a balloon payment at the end of the loan period.

Sometimes the seller mentions financing in their listing. Don’t be afraid to ask because if you present an attractive offer and reasonable financing terms, the seller may consider it.

Make Your Offer with Confidence

Don’t be that buyer who seizes an opportunity to lowball a seller because they don’t have a real estate agent acting as a buffer. Instead, do your research and put together your offer based on facts such as:

  • Recent purchase prices for comparable homes.
  • Property tax history of homes in the neighborhood.
  • Potential major repairs.

Using your research, write your offer and take it to the seller. Present your offer in person, not over the phone, or by email.

Be positive and confident. Explain how you came up with your offer and provide documentation that backs up your research. Include your pre-approval letter.

Also, when we say don’t lowball, that doesn’t mean you can’t offer less than the listing price. Offering less opens a window for negotiation.

The Importance of Being Earnest

Congratulations! The seller accepted your offer, now what? Even though they’re not working with an agent, most sellers expect earnest money. Buyers provide earnest money as a sign of good faith that they’re serious about buying a home.

Normally, the seller’s agent receives the earnest money deposit and places it in an escrow account. When working with a for sale by owner transaction, give your earnest money to a third party, never the seller.

In this case, the third party is the title or escrow company you and the seller agree to use.

The reason you should never give a seller your earnest money deposit is that you want to protect your deposit. What if your sale falls through? The third-party acts as the trustee for your deposit and they’re legally required to get it back to you promptly.

Now that you’ve shown you’re serious about buying the home, it’s time to schedule an inspection.

Don’t Forget That Inspection

Scheduling inspections is another task usually handled by a real estate agent. If you’re working with one, great, but if not, it’s up to you to find a reliable property inspector.

The state of Colorado doesn’t require licensing for home inspectors. That means it’s on you to find someone you trust to evaluate the condition of the home you’re buying.

It’s tempting to forgo an inspection, especially if you’ve developed a warm relationship with the seller. Always get an inspection! Inspections can result in negotiating a lower price, or they can save you from purchasing a home with serious hidden defects.

I Want My Lawyer

There’s not one thing illegal about leaving out at least one of the middlemen when buying a home. That said, you might consider letting your attorney in on the deal.

For one thing, there’s a huge amount of paperwork involved in buying a home. Unless you understand the nuances of contracts, and the average home buyer doesn’t, let an attorney help.

A real estate attorney reviews your paperwork and contracts before you sign on the dotted line. Your attorney can save you from making expensive mistakes. An attorney can also write your offer, purchase contract, and other documents.

The Title of This Home Belongs to You

Once you and the seller agree on a title company, you’re getting close.

The title company does their own behind the scenes research to ensure the home you’re buying has a clear title, doesn’t have liens, and belongs to the seller.

Title companies also offer title insurance, something all lenders require.

Remember your earnest money? The title company still has it and they’ll combine it with the rest of your funds. The title company representative brings all documents and funds to the closing.

It’s been a long process and you’re ready to get your keys and go home!

Have More Questions About FSBO?

Thanks for sticking around and learning a few things about buying a home directly from a seller.

As we’ve shown you, some of the processes for buying a for sale by owner home are different than those used when working with an agent.

One thing that isn’t different? No matter how you buy a home, you get the keys!

If you’re ready to buy or sell a home in the Denver area, give us a call. We know Denver and would love to help you find your Colorado dream home.

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