Home Buying in Mission>Question Details

Kenneth Berg…, Other/Just Looking in 94110

What due diligence steps should I take when buying via a private sale transaction?

Asked by Kenneth Berger, 94110 Mon Sep 24, 2007

I'm considering buying the condo I currently rent. The landlady is a realtor, so she offered to sell directly without fees.

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Liz Stevens’ answer
All of the information you can garner to know what you are buying is essential. You will then make an informed decision. Mary is correct, get a general contractor inspection and any other inspections the contractor suggests. Open an escrow with a local escrow and title company so you can get a Preliminary Title report which will tell you that the person who is offering to sell actually owns the property and what the liens are on the property. Then, get one of the wonderful SF agents who answer the Trulia questions to give you some comparable sales data so you can know the reliability of the price offered to you. Of course, a preapproval meeting with a competent mortgage broker is next. Why are the sellers selling? Hmm, interesting question...Did they have the house on the market previously? Hmmm for how long? So many questions to ask, and with each piece of information garnered, more questions will arise. Think about hiring a good Broker that will represent you and you will pay. Best of luck, Liz Stevens, Windermere in Berkeley
2 votes Thank Flag Link Mon Sep 24, 2007
Hi Kenneth,

My first question is why is the Realtor/Owner willing to sell to you at such a discount? Are there several other condos for sale in the complex? There has to be some value to her, otherwise she would not absorb the discount. If she sells as owner, and not through her brokerage, she may be saving by not paying a broker split.

If you do not have a buyer broker, you do have a greater risk of an oversight on the contract and purchase process that could cost you more now, or later. You can ask the Realtor/Seller to pay your buyer broker fee.

Due diligence for you would include, but not be limited to, verification of ownership and any liens against the property (title), verification of current taxes, review of association by-laws commonly called CCR’s in some areas, review of the association financial strength and preparedness to handle upcoming needed capital improvements, building inspections, wood destroying insect inspections, radon inspections if appropriate for the property, post inspection negotiations, carefully choosing the right lender and loan program, and awareness of any pending changes or discovery in the immediate area which could impact property values. I recommend using a buyer broker to assist with the above. Your representative will also research the comps and discuss the details (average DOM, how many sold, list-to-sale ratios, + ) with you to help you determine a fair price to pay for the property.

If you don't hire a buyer broker, do get yourself an attorney to review the docs.

Best of luck!
Deborah
1 vote Thank Flag Link Tue Sep 25, 2007
Deborah Madey, Real Estate Pro in Brick, NJ
MVP'08
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Ask yourself this question: "Why would someone want to "save" money by doing a direct transaction, then turn around and give you a $20,000 discount?" Who knows. But!...

If you have ever purchased a house, or refinanced a home loan, you would know that there is a MOUNTAIN of legal documents that need to be signed. (In CA there are seemingly hundreds of disclosures, agreements and contracts that must be signed.)

"Hey, did you know about the asbestos in the walls? No, well it's right here in Section 6, of paragraph 12, of Form 19, titled "Hazardous Material disclosure".... Side B. Now what? You need more than an attorney, you need Real Estate expert who deals with this everyday.

Due Dilligence Task #1 - Hire an agent.
Due Dilligence Task #2 - Hire an agent who is a Realtor

As a licensed Realtor, my job is to tell you what you NEED to hear, not what you want to hear.
Web Reference: http://www.mlee.golyon.com
1 vote Thank Flag Link Tue Sep 25, 2007
Hi Kenneth:

You are right. One of the short of it is that you don't have a Realtor presentation to make sure your best interest is represented.

Assuming you are very familiar with the up-to-date market in the location and type of property you are purchasing; you are confident you are getting a good dea; you will still need somebody to negotiate on your behalf, both for purchase offer and for later repair/credits, The Realtor will also help you find somebody to do home and termite inspections, order preliminary title report, as well interpretation the reports and negotiate repairs (if any) on your behalf; follow through to make sure all the steps taken are relevant and timely until close of escrow.

The other part is that if the Realtor is representing herself and bypassing her brokerage; anything she presents to you will probably be for her best interest instead of yours; does she have E& O insurance to cover any possible errors and omission from her part in case something goes wrong with the deal?

Sylvia
1 vote Thank Flag Link Mon Sep 24, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
Thanks all, very very helpful! I should have clarified that the main cost saving is on her side...and she's offering me a $20K discount on the price (which is a nice deal vs. market). Sounds the like the short of it is to hire myself an agent to help me out. :-)
1 vote Thank Flag Link Mon Sep 24, 2007
Because you currently live in the condo, I would ask the bank (that you plan to get the loan from) if you can get an appraisal done before you even have a contract with a price. Because you are not using an agent to represent you, I would hire a real estate attorney before you even begin negotiations. Attorneys sometimes have different rates for Realtor transactions vs FSBO transactions. You should probably pay a rate in between the two rates. If you don't know what is going on with the association, start asking around. Is a big assessment being debated? Can they provide you with comps? Ask new and old neighbors for advice.
Good luck,
Ruth
1 vote Thank Flag Link Mon Sep 24, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Kenneth,
She has the advantage. Be sure you use an attorney and that she does the mandatory disclosures. The only fees you are going to save are the fee that a Realtor that represents you would be paid. Proceed with caution when not represented and at least consult and pay for a lawyer to review the documents.
Hopefully she is as honest as the day is long and only wants what is best for you and her, in that order. You need to remember that she has considerably more knowledge that you do and in any negotiation that is an advantage.
If you proceed then have inspections and consult with an attorney at the least. My best advice is to hire an agent that will represent you and that you will pay. This can be done by using a Buyer Broker agreement. If you have any questions call me.

Jed Lane
Web Reference: http://www.jedlane.com
1 vote Thank Flag Link Mon Sep 24, 2007
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Oldie but goodie, and while the answer has probably already been had and the person asking already satisfied himself of the same, there is validity to the issue at hand (albeit, an oldie).

If you're buying directly from a private party, there are numerous points to review and address concerning property condition, financing, compliance with local ordinances, etc. A private person may not be fully aware of the numerous requirements, but in the case of a "Realtor" seller (ideally a practicing one), that person will insure that all requirements are in check. However, as a private buyer, it would be to your interest to have all your paperwork and processes checked by a capable attorney who specializes in real estate, or find yourself an experience Realtor who can do you the service for a small fee -- it is worth your while.
0 votes Thank Flag Link Fri Jun 3, 2011
Hi Kenneth. You would definitely want a property inspection; even if you live in the unit there may be things you haven't noticed. You may also want a structural pest inspection; they can do your unit specifically and any common areas that are surrounding you. Although many of the findings will be the responsibility of the Association, it is good to have a genereal knowledge of the condition of the complex. These inspections are your responsibility; you pay for these up front.

You will also want to make sure you receive and review all of the necessary disclosures. Some are filled out by the seller (your landlord in this case) but others are not. In the purchase contract it lists all of the disclosures required by law. Make sure you read through the contract and recieve all of the documents it lists. Some examples are the 3R report (residential record report) which comes from the building department, the natural hazards disclore report which is ordered from a private company, and a preliminary title report from a title company. All of these and a few others are ordered and paid for by the seller.

As the buyer, you can choose which escrow company you would like to use as you will be paying escrow fees. Also make sure you check with a couple of different lenders before you lock yourself into a loan, and be sure to get a "Good Faith Estimate" from you lender which itemizes the closing costs for you.

Good luck!
Web Reference: http://www.vanfenton.com
0 votes Thank Flag Link Mon Sep 24, 2007
Kenneth, I would totally agree that you need to get a home inspector out to look at the home. Before you do, however, ask the current owner to prepare all of the disclosures on the property, then take a look at them. This way, if the disclosures state that there was a known previous problem, such as a water leak, etc. the inspector knows to look more closely at that area. You should ask the owner to provide you with all of the normal documents she would for any transaction, then keep copies, in case they are needed in the future.

In addition to the home inspection there should be a termite inspection on the property. Sellers typically pay for all "section 1" parts of the termite. As far as the repairs, they are all negotiable. As for what you want as far as repairs, then be prepared to negotiate!
0 votes Thank Flag Link Mon Sep 24, 2007
If you live in the place, you probably have more information on the property than the owner. The only think you may not be afmilair with is any condo assessments coming. That'll tell you the condition of the building.

Also, get a home inspection from a professional
0 votes Thank Flag Link Mon Sep 24, 2007
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