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

14 Replies

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!

Hey @Jessica Sorensen , congratulations on locking down a killer FSBO deal!

If you shoot me a PM with your e-mail, I will send you the contract I use when dealing directly with sellers.

You certainly can involve your realtor, but you don't have to.  You can write the contract and get it signed, then take it to a title company and they will handle that side of it.  You can write an inspection clause into the contract (stating that you have ____ days for an inspection, and can back out for any reason in that time period), and a financing clause (saying that the offer is contingent on the property being financeable).

The title company will do a title search to see if he does in fact own the property free and clear.  You can also include in the additional terms of the contract that any outstanding debts against the property are to be paid by the seller.

Feel free to reach out with any other questions and I'll do my best to help.

@Jessica Sorensen , your first purchase, and not using an agent, will be quite educational for you. I would recommend a real estate attorney, which in the past, has run me about $400. 

Since you found the deal and negotiated it all by yourself, I see no reason to involve an agent, unless you chose to reimburse them yourself. The seller negotiated the deal based on you not having an agent.

@Andrew Davis has some good advice.

I think you should definitely have an inspection with a qualified home inspector, but know that they will just give you their opinion on the major mechanicals in the home. They can tell you approximately how old the furnace is, but not if it is going to break tomorrow. They can tell you approximately how much life is left in the roof. More to let you know what you could be getting in to, rather than a guarantee of the house and its condition.

I would also recommend purchasing an owners title insurance policy. The lender will require you to get a lenders policy, but that doesn't cover you at all in case of title dispute.

Make sure you get a good attorney, who can answer all your questions. Good luck. Keep us posted. Following to see what happens.

  One thing you can do is to contact a title company that you would like to work with and set up an appointment to talk to them in person.  They will have a lot of valuable information and it won't cost you a dime.  I'm not sure about this information , but I think you can go to SAR's (Sacramento Association of Realtors) 2003 Howe Ave. and they have contract kits or packets that you can purchase.  I would give them a call first so you don't waste your time and gas.  Good Luck.


As far as forms to have the deal in writing, definitely do a CA approved Purchase and Sale Agreement (PSA) that has the inspection and financing contingencies in it, then open escrow.   I also like Option Agreements.   They have the advantage of being recordable and giving you the exclusive right to buy at a certain price for a certain amount of time.  You can outline diligence contingencies in it as well.  Definitely get something in writing with earnest money or consideration @Jessica Sorensen !   Oh- the agent gets commission on the next deal, not this one IMO.

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.

& 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

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.

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.

@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!

@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. 

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. 

@Jessica Sorensen I 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.

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