First Purchase: Off Market FSBO. Where do I go from here?

Question

Hey BP, I need your help again... I've found a great deal on an off-market property. The owner and I have come to a verbal agreement on the price, and he wants "a couple of months" to clear his things out of the garage & attic. (It's a rental, currently vacant but the owner was storing some building materials there.)  I'm happy to wait, but then I want this to be a sure thing in writing.

How should I move forward with this transaction? I have been working with an agent to look at other properties (only one so far), but is it a good idea to involve him in this deal or save the commission by doing this with no agents? What contracts need to be signed (just a standard Purchase Agreement or more?) and where do I get those? I still want to do an inspection and I will be buying this house with a 20% down mortgage (pre-approved). Should I go to a title company and have them guide me through this? Lots of questions... I don't want to miss something I should be doing, nor do I want the seller to feel like I'm taking advantage of them in any way. (I worry that if I approach this with a buyer's agent, he'll feel the need to get himself a selling agent, and then a simple handshake deal just turned into a bunch of commission costs.)

Any advice is appreciated! This property is in California. Owner owns it free and clear. (He says... That's another thing I want to confirm.) Thank you!

Jessica Sorensen · Answer

Thanks for all of the advice! @Andrew Davis was kind enough to provide me with a sample Purchase Agreement. Another investor I've been working with hooked me up with a referral to a title company. After talking with an escrow officer there, she assured me that the contract I had would work out just fine, and once it's signed we can open up escrow with an earnest money deposit and go from there. It sounds like the title company can handle just about everything along with my mortgage lender, so at this point I have not met with a real estate lawyer and don't think that I need to? (My investor friend gave his attorney a call on my behalf, and he said "go talk to a title company".)

I'm a bit concerned about all of the fees involved though. The escrow officer rattled off quite a list of "seller usually pays this, buyer usually pays that". Things like title transfer fees, recording fees, closing costs, transfer taxes? Given that I approached him to sell, I expect to cover most of these myself, but I don't want to offer to pay for something that I really don't have to... Any suggestions from investors out there about how to split these costs up when YOU approach an off-market deal? We're getting a great price but I wouldn't exactly call this seller "motivated". (More like "Eh, sure, hadn't thought about selling, but why not? Give me a couple months to clear out the basement.") I don't want to scare him off with an unreasonable expectation of fee payments.

I'm meeting with the seller tomorrow to do another walk through of the house and hopefully get this agreement signed. Fingers crossed! I'll try to keep everyone posted as this unfolds.

Gordon Cuffe · Answer

@Jessica SorensenI did the tag correctly this time. congrats on the purchase. I am sure it will end up being all right. You might have some stresses along the way with unexpected costs in the rehab. The market is still strong so it might have been easier doing it your way compared to making offers on a bunch of mls properties that didn't get accepted.

Jessica Sorensen · Answer

I thought I would post an update for anyone still following this...

I met with the seller shortly after my last post (in June!) for another walk through of the property. Got a lot of info and a some great stories about the neighborhood... but no contract. He still didn't have a plan for moving his stuff out and wouldn't sign/agree to a closing date until he had that figured out. I left that meeting feeling pretty let down. I had already been after this deal for a month!

But we stayed on it. I called every week just to leave a "Hey, how's it going? Any updates on the basement?" message. My husband stopped by to chat with the owner's son when we saw him working on the landscape. We got the son's email and sent him a letter about how eager we were to buy the house (and even offering to help him move). After about four weeks and yet another voicemail, I finally got a call back from his wife! She said to pop on over and slip the unsigned contract under their door. She would make sure her husband looked it over and got it done. (Lesson: If you're dealing with a procrastinating seller, call the wife!)  NOW things were moving!

They asked that we push our proposed closing date back by another month, and I added in a clause that said they were welcome to leave any unwanted items in the basement at closing to make things a little easier. (There's some cool stuff down there! I might be able to use it.)  This morning I took the two-page, signed agreement down to the title company, plunked down our earnest money deposit, and we are officially in escrow!

We're set to close in mid-October, which leaves plenty of time for thorough inspections and walkthroughs with my contractors. I'm so excited! And nervous. But mostly excited. I think. So here we are... more than a month and a half after my first post, almost THREE months since my first call with the seller, with another two months of escrow on the horizon. My advice to other newbies: You'll never know if you don't ask. The worst that happens is you get a "no" and you just end up right back where you started. Who knows, you might get a "yes" and a deal! And if you know you have a deal, don't give up on it! No matter how long it takes.

Chris Vail · Answer

@Jessica Sorensen I would echo what @Andrew Davis has said above, all of the fees will be in the area of 4-5k more than likely, you could ask the seller if he had thought about those fees or you could just eat the cost of it as a cost of doing business.  But you will need to factor these into your overall cash need to close the deal as well as part of the return on your invested money.  Your Mortgage company should be able to give you a good faith estimate of what you will be looking at in fees.

Andrew Davis · Answer

@Jessica Sorensen, now that you mention it, I am pretty kind... ha!

I'm glad it worked out for you.  Generally, when I do a direct with seller deal, I pay all the standard closing costs.  You're getting a conventional loan on this yes?  If so, your costs will be a bit higher as there is much more to be recorded.

If you're getting a great price, I wouldn't haggle over 1 or 2k.  You'll make it back in spades in the long run.

Thanks for the update!

John Thedford · Answer

If the property appears to be a deal, tie it up before the seller changes their mind or talks to other potential buyers. Be sure and use an inspection clause (I usually tell buyers 10 days is adequate). Put down enough earnest money to prove you are serious. During the inspection phase, if issues appear you have the legal right to notify the seller it doesn't meet your criteria and ask for a refund of earnest money. If you are prequalified for a loan, you can also have a financing contingency stating that if you cannot get financing that you can cancel the contract. I certainly would go to a RE attorney to guide you. If it is truly a deal, don't procrastinate.

Pat McGrath · Answer

& call up title do a prelum to make sure title is clear. Start talking to mlo if not already, conventional takes 30 days at least. Lots of hoops. Like others suggest if he needs that long do an option agmt (but the agmt needs to be pretty clear about every part of the agmt anyway). I did hear that title can have an escrow open for up to a year, but they dont always like to. Use first tuesday forms, totally legal in cali. Also anything crossed off or hand written takes priority over pre-printed. Conventional will want an appraisal & usually inspection too, but your mlo orders the appraisal. You could pay $400-500 for a 1 yr home warranty too if you wanted

Pat McGrath · Answer

try first tuesday

Chris Vail · Answer

@Jessica Sorensen Nice job locating a FSBO keep us posted on the progress.

Derek Jones · Answer

It's probably too late at this point to involve an agent.  I'd recommend finding a RE attorney and have them draft up a contract for you.  Once you have a contract then take it to a title company and have the open up escrow and start their process.

Depending on they type of deal you are doing you can look into either doing a short escrow period with a leaseback or just a long escrow period.

First Purchase: Off Market FSBO. Where do I go from here?

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