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I’m Selling My House without a Broker (FSBO)– Now What?

April 4, 2020 General

These days it seems easier and easier to find what you need without the “middle-man”– i.e., without having to visit a retail shop, distributor, or some other intermediary. That goes for folks who are buying and selling real estate, too: with so many options for “For Sale by Owner” (or “FSBO” transactions), many buyers and sellers are finding each other without ever consulting a real estate agent.

Exactly how these folks find each other is a topic that FSBO websites cover in ample detail. But after that connection has been made, the real work begins. That’s when both buyers and sellers begin to ask each other: “Who draws up the paperwork? How does money exchange hands? Can’t I just use Legal Zoom?” 

Without getting into the merits of Legal Zoom, let’s address some of the most basic questions that buyers/ sellers might have. For starters, how does the process even begin? E.g., now that we know the price, the closing date, and other basic terms, what next?

Anatomy of the Real Estate Transaction

Real estate transactions can vary from the fairly simple to the blindingly complex. But for our purposes, let’s get to the bare bones of how a real estate transaction progresses. To start, the parties first sign the “purchase and sale agreement”– this is the document that memorializes the terms of the transaction that the buyer and seller have agreed upon, like the price, the condition of the home, and other issues. A purchase and sale agreement can take a variety of forms, but in the end it can be one of the most important documents you ever sign.

The next step in the transaction is sometimes called “escrow” or “due diligence.” It typically begins when you deposit the purchase and sale agreement with the title company– who, in turn, handles the “earnest money” that a buyer customarily commits to at the beginning of the transaction. (A title company also usually offers ‘title insurance’ to the buyer and the buyer’s lender, which we’ll cover below). 

“Escrow” describes the process that occurs between the time of signing the purchase and sale agreement and the closing. It is a key part of the overall real estate transaction. It’s the time when the buyer will usually conduct physical inspections of the home and property, often employing the services of surveyors, home inspectors, and the like. It’s also the time when the title company will hand off the “title report” to the buyer. The title report tells the buyer what the title company will and won’t cover as a part of the title insurance policy– and more critically, what types of “encumbrances” are associated with the property.

Encumbrances, in turn, are best thought of as the “baggage” that property carries with it, often for the property’s lifetime. This sort of baggage can range from easements, monetary liens (like mortgages or court judgments), rights of the public, homeowners’ association bylaws and restrictions, and more. This is the stuff that buyers really need to pay attention to, because it will come with the property after the sale closes; that is, unless you take action. Knowing when it’s appropriate to take action (and what, exactly, that action should entail) is something that legal and other professionals are best equipped to handle.

There are other items that often take place during escrow, but for simplicity’s sake we’ll move on to the final stage of the transaction: closing. This is when the title company plops down a 2-inch thick stack of documents on the table and expects you to read it and sign it within 5 minutes– or at least, that’s what it feels like. In truth the title company will give you all the time you need, but it’s always a good idea to have an attorney review this material in advance so that you know what you’re signing. That’s because this material will include all sorts of critically important paperwork, like affidavits, vital tax documents, “settlement statements” (division of costs between buyer and seller), and more.

Easy enough, right? And that’s just the basics… the more complicated transactions involve much more than can be mentioned here, but in the end it can’t be recommended enough to get help from professionals who know the lay of the land. The good news is that– in many cases– these professionals don’t have to break the bank. In fact, a lawyer, for example, is often a fraction of the cost of a real estate broker. When you’re in an FSBO transaction, you simply need to reach out to these professionals to help guide you through the process.

And considering that a piece of real estate is usually one of the biggest investments you’ll ever make, it’s worth it to get the right help.