Need some help on a direct buy from seller

Buying & Selling Real Estate
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Need some help on a direct buy from seller

Matt Mayotte
Flipper · Minneapolis, MN · Member since 2017 · 12 posts · 8 votes

Ok, I might have a deal tomorrow with a seller who has inherited property from a relative and sounds pretty eager to sell.  There are other buyers interested so I will need to move fast but I want to make sure I do the offer correctly so I don't get screwed.  She is asking 110K for a property that has a partially finished second floor addition.  Looking by price per sq. ft. estimations on zillow I figure its worth 260K after its done.  I have about 15K liquid funds immediately available.  I'm in the middle of a cash out refi on a duplex that I own and will have funds from that in another 2 weeks.  If that falls through I have retirement funds that I can tap but I'll get hit with the 10% penalty and I really don't want to do that unless absolutely necessary.  So assuming I like the property (I have a showing tomorrow afternoon), should I ask her to write up a PA and give her 2K personal check for earnest money?  How do I know she won't run with my money?  I have never met this person so I have no idea how honest she is or isn't.  She mentioned that she had one offer but it was contingent on the sale of that person's home which they hadn't sold.  So she may be legally bound to sell it to that other party, I'm not sure.  She had it advertised at a lower price and then when I called her she mentioned it was now going for 110K...that also sounds kinda shady.  I noticed there are special assessments on the property for 1500$ for unpaid citations also so that's indicative of someone who is flat broke.  Any help on how to protect myself in this deal would be appreciated.

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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y

@Matt Mayotte , you don't have the seller write up the contract, the buyer writes it up. Typically the agent will write it up, but it sounds like this is off market and you'd like to keep agents out of the picture.

There isn't anything wrong with that, but you should both have representation. I'd have an attorney help you write the contract and @Toby D.  is right, have a title company hold the earnest money - never the seller. Making a mistake on the documents and title could cause some big problems down the road. Avoid those by having your documents double checked by a neutral third party who is well versed in the real estate laws of your state.

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  • Toby D.
    Real Estate Investor · Metairie, LA · Member since 2016 · 23 posts · 18 votes
    9y

    meet at a title company and have the title company hold your check and the signed contract..

    3Reply
  • Matt Mayotte
    OP
    Flipper · Minneapolis, MN · Member since 2017 · 12 posts · 8 votes
    9y

    Ok thanks @Toby D.  I can have them handle the title search and closing also.

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  • Toby D.
    Real Estate Investor · Metairie, LA · Member since 2016 · 23 posts · 18 votes
    9y

    yep you sure can...I've done that several times...also ask the seller if they have a copy of the title insurance on the property and the title company can save you some money by just "re-issuing" the title insurance to you at closing...this usually saves a few hundred dollars...

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Matt Mayotte , you don't have the seller write up the contract, the buyer writes it up. Typically the agent will write it up, but it sounds like this is off market and you'd like to keep agents out of the picture.

    There isn't anything wrong with that, but you should both have representation. I'd have an attorney help you write the contract and @Toby D.  is right, have a title company hold the earnest money - never the seller. Making a mistake on the documents and title could cause some big problems down the road. Avoid those by having your documents double checked by a neutral third party who is well versed in the real estate laws of your state.

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  • Matt Mayotte
    OP
    Flipper · Minneapolis, MN · Member since 2017 · 12 posts · 8 votes
    9y

    Thanks @Mindy Jensen.  Every time I've dealt with attorneys they have been extremely expensive.  What are your thoughts about just filling out a generic PA from office max and having the title company hold that along with the earnest money?

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    Hi @Matt Mayotte . I completely understand the expensive comment. 

    I'm an agent, and have sold FSBO before I was licensed. As an agent, I take an 8-hour class to help me figure out the best way to fill out the contracts in my state, which are 17 pages long. IDK how long they are in MN, but some words in English mean very different things in legalese.

    You sound like you've done this before - maybe a couple of times? I do not advocate going it alone unless you're super experienced. There's just too much at stake. What if you don't dot an "I" or cross a "T" and years later when you go to sell, there's something really wrong? It can cost thousands to uncloud a title...

    Again, I get the attorney cost thing, but my experience with attorney-closing states has been a relatively inexpensive charge ~ $400-$600? 

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  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    All real estate contracts have to be in writing.  This could be on the back of a notepad but obviously you won't have covered all the items to help a title company close the loan.  Agreeing on price is a start, after that you need to detail out who is going to pay the assessments, pro rations, etc.

    If you agree to terms verbally, you will need to present an offer with your earnest money check.  If they accept you can setup closing at a title company or an attorney.

    If you are not confident in preparing an offer with all required disclosures (wells, mold, lead, etc) you should pay someone to do this for you.  It will only save you money down the road.  

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  • Alan Grobmeier
    Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes
    9y

    @Matt Mayotte  Attorneys are kind of like muffler guys, 'you can pay me now or pay me later'.  Get a real estate attorney.  It will cost you much less to do it now vs ending up in some dispute.  

    1Reply
  • Matt Mayotte
    OP
    Flipper · Minneapolis, MN · Member since 2017 · 12 posts · 8 votes
    9y

    Ok ok ok you guys are right!  I'll get a lawyer if I decide to move forward.  Here is the deal...the house is a complete dump!  There was a second floor addition partially done that was partially ripped out by a tenant who had some drug issues.  It needs a new kitchen, a new upstairs bath, stucco siding major issues, and an entire second floor finishing.  It is structurally sound but every room in the house needs something.  She advertised the house as being 1800 Sq. Ft, but when I measured it, I got 994 Sq. Ft!  I asked her about the discrepency and she said that if I were to finish the basement it would be close to 1800 Sq. Ft.  There are 500 Sq. Ft. on the first floor and second floors, so at best I would get another 300 Sq. Ft. out of the basement of usable space.  This is still 500 short of the advertised size  This one is not a good deal.  I might offer her 70K but even at that it's a lot of work for a very slim profit.  There are 2 good things in that its in a pretty good neighborhood and its zoned commercial.  Still thinking about this but it might be a bit too much work for too little profit.

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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    9y
    Trec has a 1-4 family sales contract on their website. It is Texas but it can give you an idea of the stuff you need to address. Good luck. My brother likes to say some of his most profitable jobs were bids he didn't get. :-) or something like that.
    0Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Matt Mayotte watch out on the commercial zoning...  The city may not let you pull permits and put it back to a non-permitted use (residential).  I would definitely call the city and make sure you can improve the property to the use you want.  Where I live we have houses fall into the commercial designation after vacant for so long and they become very difficult to sell the prices drop VERY low.  For example my brother picked up a house for $17k and two others sold for in the $40k-$50k range when they otherwise would have sold for $120k+.

    Sounds like an off MLS deal, even MLS deals have bad advertising which is why it says buyer to verify so I wouldn't get caught up in that.

    The zoning would make me run away unless you are sure that you can fix it.  In my city it is not a fine but a Misdemeanor to use a property for an unpermitted use.

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  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    And also - I hope you aren't planning on conventional financing if it needs that much work....  It won't pass muster.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    9y

    I buy solo all the time and just use the standard PSA for my state that realtors use.

    Here's one for MN:

    https://www.mnbar.org/docs/default-source/sections/minnesota-standard-residential-purchase-agreement-(rpf-01).pdf?sfvrsn=0

    Fill it out and put N/A where the selling and listing agent info goes.  Title co's will be most familiar with the standard form.

    I also have good luck with Letters of Intent.  A personable letter saying you like this and that and offers 3 different scenarios.  When they respond with the scenario they like, fill out the formal PSA.

    As mentioned, make your EM check payable to the title co, then open escrow.  Easy-peasy.  Good luck @Matt Mayotte!

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Matt Mayotte, "...a lot of work for a very slim profit..." means move onto the next one. "A lot of work" hides problems and "very slim profit" is eaten quickly by those discovered problems.

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