How To Decide to be a FSBO


When real estate commissions are too high sellers look for ways around them. One way is to try and sell yourself as  a For Sale by Owner (FSBO).  With the right information and with you doing the real estate agents work, you may save some money.  There are even ways you can get some of the real estate agents tools and services at a drastically reduced cost.  This article and its more detailed attachments will provide you with the ability to decide if you want to be a FSBO and if you do, how to be a successful FSBO.  This info is provided by a real estate broker with over 3 decades of experience selling real estate and from a broker who has built 3 different successful  real estate clientele's by working with the FSBO.  There is no hype or false promises here,  just the best information culled from 30+ years of successful FSBO experience.   If you decide you just want to save money and are not up to the task, consider  using a discount broker. If your property is in Colorado Springs or Metro Denver, contact me at 719-574-4663 (Colo. Spgs.) or 303-778-0505 (Denver Metro).  There is a whole page on choosing a discount broker under the Discount Commission Tab.


If your decision to sell as a FSBO is due to having NO OR LOW EQUITY,  be very careful.  Time is very valuable here and if you may need to do a SHORT SALE, you do not want to waste any time.  This is a tricky situation and if you may have to do a short sale, you want to start talking to your lender immediately as they may be willing to consider a slight discount on the loan.  THERE IS NO HARM IN TALKING, AND BEING PREPARED IS A HUGE ADVANTAGE!  You also want to talk to an agent who is SHORT SALE CERTIFIED (ABC is SFR certified)  and you can find others at  http://realtorsfr.org/.  A short sale is going to leave you with a deficiency balance and will probably impact  your credit rating, which may affect your employment, now and in the future.  This is a situation where you do not want to go it alone.  If you are in this situation, please get help. Many Realtor® Associations and many counties have help. Please contact them immediately if this is your circumstances.


Once you have made the decision to sell the house AND have also decided to do it on your own,  here is  the process outline.  The explanation of each step follows this outline

1. Get the home evaluated by several real estate agents. The process is called Competitive Market Analysis or CMA

2. Get home in showing condition; everything repaired, everything de-cluttered, everything spotlessly clean

3. Develop your team, legal advice, real estate advice and other information sources (see below)

4. Develop buyers, start networking in neighborhood, at work, the gym, kids schools, every area you frequent where there are people that know you.  This starts immediate and repeat  constantly until the home is sold.  This is the hardest part of being a FSBO, is replacing the Realtors® source of buyers

5. Now put home on market (consider a discount broker)

6. How to present home to buyers (showings, feature signs)

7. Buyers with real estate agents

8. They show interest!  BE CAREFUL! Negotiation, inclusions, dates, etc.

9. Under Contract, writing the contract 

10. Appraisals and inspections

11. Closing 


1. Competitive Market Analysis (CMA). Realtors® know the real estate market best.  You are going to want to establish rapport with them.  Be up front, you want to try being a FSBO but your are interviewing Realtors®  in case you need a Realtor®.  Realtors® know what property has sold for but more importantly, they know how fast and why real estate is selling  today. They know what  the inventory is like. Realtors® know how much competition there is, how long does it take to sell a home and they should be able to tell you whether it is a buyers, sellers or neutral market.  Most of the time it is a buyers or neutral (average of 30 days' supply of homes) market.  You can use these CMA's to help support the price when buyers come through. Real estate agents provide this information as a service.  We are in a competitive business and each of us provides the CMA as a way to present our services to the seller 


2. Condition  It goes without saying, buyers are not going to fix or clean the home they buy without  getting a major discount. The only buyers I know that will seriously look at a home that is not sparkling are buyers who are desperate due to market or personal conditions or a home that is well under the market and the buyer is in a position to correct the issues.  If it is a seller's market, you might get it sold but you still would have sold it for more if it was sharp. Agents will list poorly conditioned homes as the sign, brochure and internet exposure will bring them buyers for other properties.  IT WILL NOT SELL IN MOST MARKETS AND YOU SHOULD BE WILLING TO ACCEPT LESS THAN YOUR LISTED PRICE!  THE MARKET IS NEVER WRONG!


3a Legal Team. You will need a contract that is much more detailed than just a boiler plate one bought on the internet or your local Staples store and you will need to know how to complete it. Some states (mostly Eastern states) require an attorney but some states (Western states) allow a licensed real estate broker to fill out a contract if they are paid a commission.  Most employing brokers (who the agent works for) will not allow their agents to only do the  contract.  The liability of the contract is much higher and they may not been involved in the conversation and know the details you and the buyer have discussed, in other words,  they do not know what is going on. It is better to hire a real estate attorney. The closing agent (title company, abstract company, escrow company or law office) is going to want a contract signed by all parties that covers all of the details of the sale (price, inclusions, dates, seller contributions, who pays for what, how things are prorated, ways the contract can be amended or cancelled, and many other considerations) that are typical of your area.  IF YOU WANT LEGAL ADVICE YOU WILL PAY FOR IT AS MOST PEOPLE CANNOT LEGALLY PRACTICE LAW. You also want all of the disclosures required by the state and Federal government. The seller has continued liability after closing.  Most closing companies are prohibited from doing the paper work unless they have a lawyer on staff.  They still may avoid it due to future liability.  THIS IS AN AREA WHERE YOU SHOULD NOT BE CHEAP.  


3b Team - Real Estate Information.  The best source of information is a real estate agent. One of the agents that provided the CMA maybe willing to provide the information or answer  your questions. Again, they may do this in hopes you will eventually choose them as your agent.  They may be willing to give your practical information.  They will be very careful about creating any liability for themselves or their broker and of course they can not provide any information of a legal nature unless they are paid a commission and the state regulations allow the agent to provide information.  Other information sources maybe a mortgage broker or a builder but they are going to be cautious or even hesitant as there are state laws that restrict them from giving legal advice.  They may not want the liability either.  Be very careful where you get your advice and how you use it. Again, an experienced real estate agent is your best source but question why they are giving it to you. One that is working for you and being paid some kind of fee is best. Their fee makes them responsible and FEES ARE NEGOTIABLE!


4. Develop buyers.  You should use the same process that  Realtors®  use, "networking."  Realtors® are always staying in touch with their "Spheres of Influence".  They contact all of their relatives, former co-workers, neighbors, members of civic associations, school mates, parents whose kids attend the same school,  members of their church, members of their gym or club. n And of course, they stay in touch with the previous clients.  Realtors® leave no rock un-turned looking for buyers. You must do the same thing. YOU WANT TO FIND FRESH BUYERS THAT COME TO YOU AS A REFERRAL.  These are warm buyers!   They are the very best buyers!  Buying real estate is a big transaction and buyers want to trust whom they do business with. A referral from someone they trust is a big step in getting a strong buyer.  This type of buyer makes the situation easier.  You must start networking as soon as you decide to sell your home, you do it by phone, in person, Facebook, Twitter or any other way you have of getting in touch with your sphere of influence.  YOUR BEST CHANCE OF BEING A SUCCESSFUL FSBO IS TO FIND THE WARM BUYER!  


There are other sources of buyers I call cold buyers.  These are buyers that do not know you, the type of buyers most FSBO's think they want. These buyers do not know you and most cold buyers will not allow you to sell for a good price. The only good source of cold buyers is open houses.  Open houses attract buyers who know the neighborhood they want to live in (these buyers are close to buying), who drive the area frequently and you can get them by holding open houses. Don't be discouraged. Most of the people are "Looky Lou's" but it only takes one to fall in love with your home to be the buyer.  Go to the section PRESENTING YOUR HOME AND OPEN HOUSES.  I do not recommend any of the FSBO web sites or other advertising.  They generate bargain hunters and this a  way of not selling or selling for less than you should and not being paid for your efforts.


5. Now put your home on market (consider a discount broker)  Avoid the  FSBO image.  It looks cheap and only attracts bargain hunters.  The FSBO image scares away many of buyers you want. You want the buyers who are just looking for their new home.  These type of buyers avoid FSBO's as they feel that once they are in the house it will be difficult to leave. They feel the FSBO is desperate as FSBO's do not get the traffic that is generated by Realtors®.  The best way to give the right impression starts with the sign.  Spend some bucks, go to a professional sign shop and buy something that resembles a Realtors®  sign. It cannot say Realtor® or agent or in any way suggest it is being handled by an agent. But you can make the sign resemble a Realtor's sign.   Don't use by owner anywhere on the sign! Take it from me, I look for real estate appearing signs when I am showing property, I do not pay attention to the details.  I do know how a FSBO sign attracts me. A FSBO signs jump out at me. Of course I am looking for more listings and I know FSBO's and their problems.  The buyers are going to have the same approach. They will be looking for a phone number or a professional "Open House" sign (not from Lowe's or Home Depot).  The sign should be a minimum of 18" X 24" professionally painted and designed. You can use stick on numbers that are professionally appearing, (straight and clean).  You will have to spend some money. You probably be able to sell the sign afterwards. Some discount brokers will allow you to sell yourself and not pay the co-op (saving approximately 3%) commission.  My program is designed this way.  If your broker represents you with "AN EXCLUSIVE RIGHT TO SELL",  you will pay the co-op commission regardless of whom sells.  If you can get an "EXCLUSIVE AGENCY" agreement, you have the right to find your own buyer and not pay the co-op commission.  Since working with both buyer and seller has more work and liability, your broker may charge more than the listing fee.   REMEMBER, FEES ARE NEGOTIABLE!


6. Present home to buyers (showings) YOU DO NOT WANT TO PRESENT YOUR HOME.  My biggest source of FSBO listings comes from sellers who are priced well, have great condition homes,  have good turnout but couldn't get anyone interested.  The reason they couldn't get someone interested is the seller HOVERED!"   When the buyer wanted to view the home the seller  took control of the situation and started pointing out all of the features of the home.  The buyer did not have the opportunity to get emotionally attached and only wanted to leave. The buyer wants to enjoy the home, they are interested in the things that excite them, they need to discover them on their own.  See the comments about how buyers form an attachment to your home in PRESENTING YOUR HOME AND OPEN HOUSES below and how to point out the features in FEATURE SIGNS below that.


7. Buyers with real estate agents  If a buyer says they have real estate agent and you don't,  don't be discouraged.  You are interested  in the "net figure" you receive and everything is negotiable.  Hopefully the real estate agent is a Realtor® and is interested in his clients best interest.  Don't be discouraging to the situation, approach it with a positive attitude.  If the buyers are excited about your home it is because they like it more than any other home.  It is very possible you will be able to arrive at an agreeable contract. Remember,  the real estate agent represents the buyer and in many states will ask you to sign disclosures acknowledging this.  The contracts are so detailed it would be wise to have your attorney negotiate with the real estate agent.  Most states and the Realtors® Code of Ethics require the real estate agent to use "honest and ethical dealing" but that is a subjective term and the real estate agent may have a contract with the buyer that requires the agent to be an "advocate" for the buyer.  Your legal cost is insurance and is money well spent.    REMEMBER, FEES ARE NEGOTIABLE!  It doesn't  hurt to ask, but be flexible.  Don't lose the sale over the commission!


8.They show interest BE CAREFUL! The seller has limited rights in the contract while the buyer may have many ways to void the contract. Before you sign or even suggest the home is sold be sure of the following.  First, they must be per-qualified.  The buyer should be able to provide you a letter or form from with contact information, preferably local where you can call and verify they are per-qualified, what has been verified about them and what are the conditions of the per-qualification.  Cash buyers can show you copies of recent (no more than 60 days old) bank or investment accounts with the account numbers deleted.  The account MUST be in their name or they should provide proof they have authority to sign.  Again, an attorney is valuable here. Secondly, You do not want  them to have to sell a house.  If the home is sold, but waiting to close, that makes it better.  However, if they sold FSBO, I would pass on them as you have no way of knowing how strong the deal is.  With real estate agents you can get some assurance of the deal. If they do have a house to sell, they should have a short time to do so, with you keeping the option of selling it to someone else with a 48 hour notice, called a "first right of refusal.   A "first right of refusal"  gives them time (very short as you cannot sell to anyone else) to either remove the contingency, making the deposit forfeitable regarding the sale of their house.  Actually, When the second buyer forces the first buyers hand I like making the contract a complete option contract at this step, where the deposit is forfeitable regardless of any contingency (there maybe 5 or 6 contingencies depending  upon your state).  An option contract means "we want to buy  your house and here is some nonrefundable money to prove our intentions".  The deposit  should be large, paid to you directly and you should deposit the funds.  You will be responsible for returning it only if they close. If they ask for extensions on the option contract, collect more money that will be not be applied to the price but reflects your holding cost while you wait.  Third, get them to admit at least 3 times they are not represented by a real estate agent.  Getting it in writing is best!


9a. Under Contract (contract)  The closing agent and the buyers mortgage company are going to require a detailed real estate contract which has many provisions you may not have considered. The contract will have other issues which may cause some  concern.  In Colorado, the state approved "Purchase of Residential Real Estate" form has 5 major ways the buyer can void the contract. They are "a clear and equitable title, loan approval, appraisal, inspection and insurance."  Inspection means not just the physical inspection of the house but satisfaction of the buyer with anything.  Your Home Owners Association (HOA) will probably figure into the inspection with the Conditions, Covenants, and Restrictions (CC&R's).  The contract gives the buyer many outs and you HAVE NO GUARANTEES UNTIL CLOSING!  There can not be any "side agreements".  If there are "side agreements" and a new loan, both you and the buyer are committing fraud.  That changes the process from civil to criminal.  Don't do it.


9b. Under Contract (disclosure)  The Federal government requires certain  disclosures.  There are other disclosures required when a house is sold that deal with a home being dangerous or habitable.  There are flood plain disclosures or lead based paint disclosures.  There are other disclosures when a new loan (expect private loans-see below) is being made.  Some disclosures are for the buyer only and some involve both buyer and seller.  The lender has several disclosures when the new loan is FHA or VA.  Disclosures may only concern you at the closing.  Most of them deal when the new loan is insured by FHA or guaranteed by VA.  Many disclosures deal with fraud and make you sign forms that say "nothing is outside of the contract."  Some states are now requiring their own disclosures.  Many disclosures start in California and contain California's over  protective view.  The Sellers Property Disclosure is a case in point.  It has to be filled out by the seller and is "True to the best of the sellers actual knowledge".  In addition ;there maybe disclosures regarding water and sewer, wells and septic, sources of power and communication, HOA or sub development,  flood, mine subsidence, traffic, easements or almost anything that might affect the enjoyment of owning your home.


10. Appraisals and inspections  These are the two areas that concern most sellers, as many sales fall apart over these areas.  The appraisal will be required by the buyers mortgage company and the  appraisal must comply with FNMA requirements.  The appraisers function is to "support the value of the house for loan purposes". The basic information required is information from 3 recent sales within the last 6 months within a reasonable distance and similar to your home.  The appraiser will make an inspection of your home which will include photos, measuring and description.  Appraisers can  use info you provide but get most of their info comes from the MLS or county records.  They can make adjustments up  and down for items your home may or may not have.  We used to have some influence with appraisers but with the new regulations, we only give them information and let them evaluate it.   The inspection is very opened ended and is another opportunity for the buyer to negotiate.  I've had inspections so tough the seller finally said no!.  I had one (down wind from a forest fire with smoke damage discovered at time of inspection) where the total costs were going to be over $12,000.  The smoke damage (less deductable) was covered by the home owners insurance but the uninsured inspection items were extensive and the seller finally, after 60 days, said no.  This is one place your real estate source of information would be helpful.  They know what is acceptable in the market and may know of some economical ways of fixing the repair requests.  One danger is if the buyer wants something special.  You might spend money that the will not be recovered if this buyer falls by the wayside.  Your solution is to have the buyer put the cost  up as forfeitable deposit if they do not close.   The new mortgage laws are more strict on setting aside the money in an escrow account but a few lenders will still consider doing this.  The escrow account is set up at the closing and is disbursed shortly after closing when the work is completed.  The escrow amount is usually considerably larger than the estimate.


11a. Closing.  Closings vary by local custom and laws.  Some areas have sit down closings or table funding closings. Some have escrow closing.  Most of the time closings can be accomplished by mail out (Federal Express usually) as at this time original signatures are required.  Many of the documents need to be notarized and mail outs will require that party (buyer or seller) to arrange for a Notary Public.  This is something you will want to research as the start and always give the closing agent as much notice as possible.  It is amazing the help I get from my closing person.


11b. Closing (fees)  The closing agent prepares a settlement sheet and if there is a loan that information will be transferred to the approved loan settlement sheet.  There are buyers closing fees, sellers closing fees, and joint fees.  They vary from area to area so contact your closing agent for any special ones.  Here is a  list of most of the major fees.  Who traditionally pays the fees is show but remember everything is negotiable.  Always check with your closing agent.

1. Taxes, city, county, state- prorated between buyer and seller, seller pays to closing date

2. Assessments, HOA, sub development,  Transfer fee, capital contribution, membership and dues.  -The dues are generally prorated, the others are negotiated 

3. title policy and assignment, both buyer and seller (seller pays insurance fee, buyer pay assignment to lender (if any)

4. Filing fees,  county; seller pays to release mortgage, buyer pays to record deed and new mortgage

5. loan fees, origination fee,  appraisal, credit report, survey, daily interest on new loan, mortgage insurance premium (MIP) 

6. Commission, generally sellers cost

7. Loan closing fee paid by seller

8. Escrow setup, required by lender,  buyers cost with credit for sellers taxes.

9. Real estate closing fee to closing agent, generally split between buyer and seller. Real estate broker pays the "Scribner fee" which is the fee for preparing the deed.

10. Property taxes, generally paid in arrears (last years or this year to date) and sellers charge as a credit to buyer.  Buyer will generally pay this credit to lender for escrow account.

11. New home owners insurance policy, paid by  buyer with a 2 month reserve into escrow account.






Summation

Being a FSBO has advantages and rewards. You may save money and as most home owners, you know your home better than anyone.  There  is the satisfaction  of knowing who is going to be the new owners.  To be the successful FSBO you should understand the real estate market. Buyers are looking for a home. They have a location they like that is influenced by schools, employment, relatives, friends or recreation.  In other words, most buyers have already determined the location.  Buyers also know how much they want to spend, how many baths and bedrooms and other features they want, basically they have already decided most of the details that has directed them to your home. Your problem is how to find them. I encourage you to avoid the FSBO image.  It is my experience the FSBO image attracts bargain hunters and bargain hunters want the same thing you want, they want to save the commission, the whole commission!  To sell to them, you may have done all of your marketing work for nothing.  If you are an exclusive FSBO (without a discount broker and MLS exposure) you are at a disadvantage as these buyers maybe the only ones you have.  These buyers operate with a take it or leave it attitude.


It is this reason I recommend a full service, DISCOUNT Realtor®.  This Realtor®  should provide full service but be able to save you money by knowing where and how to cut expenses. The major cost of running a real estate office are as follows.  Commission are usually the major expense.  Advertising is a very close second, followed by rent (rent, utilities, etc) and then staff.   Most basic economic classes say that close to 50% of the Gross National Product is spent on marketing, which includes all cost of selling which is primarily  commissions and advertising .  When I  worked for the biggest real estate broker in Denver, they raised the commission rate to 7% if pay for advertising.  Discount brokers biggest savings is by not advertising.  They  rely on the MLS and other free web sites to sell your home.  It has been years since I've listed a home that did not sell and all I use is the MLS and the web sites that buy the data from the MLS.


There are TWO commissions the typical seller pays, one to the listing (sellers) agent and one to the buyer's agent called the co-op commission.  They two together generally total 6% of the sales price of the home.  I recommend you pay the sellers agent the same co-op  they would be paid by the other sellers in your area (SEE BELOW), but the commission or fee  you pay your own agent is open to negotiation.  Most buyers agents have contracts with the buyers and if  you do not pay the commission they buyer has agreed to, the buyer pays it out of pocket. If the buyer has to pay the commission that puts your home at a competitive disadvantage.  Most buyers want to use their cash for moving expenses.  Some ways paying the commission out of pocket can hurt the buyer.  The extra out of pocket expense may have cost them a better interest rate on their loan as they may get a lower interest rate with a larger down payment or they may "buy down" the interest rate.  Buyers may need cash to make changes to the property.  If you do not pay the commission the buyer has agreed to pay his agent, you may lose this buyer.   It is easier to raise the price, thereby raising the mortgage and the monthly payment than have the buyer pay out of pocket. 


When using a discount or flat fee broker,  the may not have the experience to really understand how much they can cut their fees and still remain in business.  Also, most discount brokers also discount the service.  You want someone that offers full service, is knowledgeable, available and cares about you as a client.  They hope to represent you when  you buy and with the savings they achieved when you sold, you will be a stronger buyer!  Some of them may have programs (ABC has buyer rebate programs) to legally and non-taxable refund you some of the buying commission. 


I recommend Realtors® as they subscribe to the Realtors® Code of Ethics and are also licensed by the state they are practicing in. In many locations the local MLS is only available to Realtors®.  


PRESENTING YOUR HOME AND OPEN HOUSES

To effectively present your home, after it is in "Apple Pie, Eat Off the Floor Clean", you want to understand the home buying process from the buyers perspective.  Buying a home is a lot like falling in love. There is the awareness of the boy/girl/home from a distance, there is the first date/showing, there is the infatuation/attraction/more showings, there is the commitment/engagement/ contract, there is the  courtship/wedding planning process, inspection, and there is the wedding/ closing.  Your job is to constantly provide the atmosphere where the love/attraction has the opportunity to blossom. The home must present itself as warm, inviting (staged, conditioned, lights, and aroma).  You must be the greeter.  Your function is to open the door and step aside.  YOUR ARE NOT TO PRESENT THE HOME YOURSELF.   The buyers must have the opportunity to start falling in love with your home. You are not to follow them or lead them around.  What you can do is use FEATURE SIGNS (see below)


FEATURE SIGNS


No one knows your home better than you do but when you attempt to show the features to a prospective buyer you run the chance of interfering with their emotional attachment to the home. I have actually shown buyers a FSBO and have my clients take me aside and ask me to get them out of this environment due to the pressure they felt.  Yet the items the seller wanted to be noticed, needed to be presented.  After all they may increase this persons attachment to  your home and they may then buy it.  The solution is to use feature signs.  Remember your home has changed its purpose, it no longer is a home,  but a product.  Feature signs effectively accomplish the display of features.  Look at Home Depot and see how they use signs.  Feature signs can be nothing more than brightly colored card stock paper  you make them by using a word processing program and a printer.  If you need, you can make them up at home and either email them to a printer or put them on a flash drive and take them to someplace and have them printed.  I use theme paper every where, starting at the front door with one that says "This home uses feature signs to tell about its features".  I attach them to surfaces close to the feature, being careful of the paint. Three M (3M) makes a product that is part small sponge with 2 tacky sides that is supposed to protect paint.  I use as few words as possible, sometimes just a word with an arrow.  I point out obvious features (they may be enamored by a nearby thing and have missed it) as well as hidden ones.  I have sellers who were artists draw some original art for their signs, I had a seller who presented the home from her child's view point. I had a seller who used over 50 signs in a very small bi-level.  I've had hand written ones, ones with many colors, ones done by graphic artists and everyone works.  The only mistake you can make with feature signs is to not use them!  I can't tell you how many times I've had skeptics report back to me; "I didn't believe they would work, but I knew I'd sold the house when I heard the husband yell "Honey, you've got to see this!"".  I have used them on counters as a tent sign, printed by reversing  one half of page, on mirrors, windows, wood work, walls and even appliances.  I just make sure they are visible and not wordy. 


TYPICAL COSTS , WHO PAYS AND WHY

(Everything is negotiable)


1. Real estate commission  The real estate commission is typically paid by the seller.  This is traditional in residential real estate and started with the advent of modern mortgages which made the purchase of homes possible for the middle class.  Home could be bought with only 20% down but to accumulate this amount took many years.  With the other costs and because mortgages increased the ability to buy, this made the price of homes increase,  the real estate commission became more of a sellers expense.  With modern electronic tools the buyers side gets a lot more value from the real estate agent but the fee remains paid by the seller.  Down the road the buyers commission may well be paid by the buyer but for that to happen, mortgage regulations will need to give credit to the buyer for this expense so they can include it in the loan.

2. Title policy or abstract   This be both a buyers and sellers cost. It is a sellers cost to prove equitable title to the buyer. Title insurance provides insurance to the seller.  The title company will ensure the title up to the purchase price.  This gives the seller (and buyer) peace of mind and protects against future problems. The buyer will pay for the assignment to the mortgage company and this is part of the buyers loan cost.

3. Appraisal An expense of getting a loan, typically a buyers loan cost.

4. Survey  There are many types of survey and the costs vary depending upon the type of survey and who pays depends on who is requesting the survey.  A "pinned survey" (or meets and bounds)  requires a great deal of work and is expensive.  It is generally for property where the boundaries are not visible or there may be an encroachment.  An improvement location Certificate (ILC) is less expensive and is generally done in sub developments where there are lot and block legal descriptions.

5. Inspection   The inspector is paid by the buyer, but the repairs required by the buyer as a result of the inspecting are generally the responsibility of the seller.  New loan laws make it difficult to give money to the buyer in lieu of repairs and now the repairs must be accomplished prior to closing.  Some title or escrow companies will hold funds in escrow to pay for the work and some will even allow the work to be done after closing.  This is a risk to the seller as the buyer may have requested some repairs that are detrimental to the property value.

6. Taxes  Generally a annual expense and are prorated.   Some are in arrears and the seller pays the prorated amount which is credited to the buyer at closing

7. Home Owners Association A big area of possible concern. Some HOA's charge exorbitant amounts to transfer from the seller to the buyer.  Many states treat HOA's like tax collecting agencies and they may have the right to lien the residence. There may be capital contributions, heavy transfer fees and of course all delinquent dues must be paid.   Generally, the HOA wants the buyer to be happy (the new resident) and expects the seller to pay (the HOA knows the seller is leaving and will not be able to raise much of an issue).   

8. Insurance  A buyers cost as it is the buyers protection.  The seller should contact their insurance company and advise them of the sellers new sold status.  They can transfer the remaining credit to a new insurance policy or get a refund.

9. Assumption (if any)  It may be called a transfer cost  but it is a fee collected by the existing lender when the buyers is assuming the sellers loan. This is a buyers cost.




LOAN TYPES AND USES


Loans fall into two categories, Federal National Home Association ( AKA Fanny Mae or FNMA) or private.  Private loans are those provided by the seller (Owner will carry or OWC) or some other entity (individual or corporate) who will not be selling the loan on the open market. FNMA further falls into two categories, governments (FHA or VA) and conventional (all others).  Loans used to be simple but now they are so complex that very few mortgage brokers know all of the options.  If your need goes beyond this, I suggest you talk to a loan originator and check their answer on the internet.




GLOSSERY


APR Annual percentage rate, generally shown on Good Faith Estimate (GFE)

CC&R's Conditions, covenants and regulations; the rules established by the sub developer when the create a planned unit development

CMA       Competitive Market Assessment, estimate of value from Realtor® using the MLS data

GFE  Good Faith Estimate, Federal form  required from lender showing all loan costs and interest as annual percentage rate  

FSBO For Sale by Owner, generally selling yourself with minimum or limited real estate agent help

FHA   Federal Housing Association, generally refers to a type of loan with government insurance and a 3% down payment to the maximum loan allowed.

FNMA Federal National Mortgage Association:  the regulator of all mortgages except private.

HOA        Home Owners Association: a group generally elected by neighbors to enforce the CC&R's and manage the association.

HUD  Housing  and Urban Development; the agency that administers FHA, FNMA and housing in general

ILC Improvement location certificate; a type of survey that costs less and is generally done in sub-developments to determine fence location or encroachments.

MIP Mortgage insurance premium; former PMI (private mortgage insurance) A fee charged at inception of a loan with less than 20% down payment and non FHA or VA

VA     Veterans Administration, generally refers to a type of loan that veterans with an honorable discharge from the US Military are allowed to obtain. There is no down payment, the process is strictly regulated and the loan is "guaranteed" by the US Government.