The Art of Selling Privately or Not

The Art of a Nearly Non-Deal

I think this is the one...

Perhaps you found someone looking to sell their house privately, someone who wants to avoid the thousands of dollars of commission a Realtor would make for doing nothing more than getting someone to sign some papers from a Real Estate For Dummies handbook. Perhaps this sounds like a great idea in the short term – maybe it’s family, maybe it’s an acquaintance you've known for years. 

Perhaps you should rethink that idea before everyone gets too excited and starts planning renovations or Mexican holidays.

Now I’m not advocating entirely for one way or the other – there are thousands of private sales that go through without a hitch. There might be a few small hiccups along the way, but as long as everyone is negotiating in good faith, happy is as happy does. Unfortunately there are also thousands of Realtors out there with more than a few that push potential clients into a house that they may not be happy with in order to receive that juicy commission. Like everyone else, when looking for a Realtor, ask for referrals. There are plenty of good Realtors out there and there are bad ones which gives the others a bad name and is why private sales or Do-It-Yourself companies like The Property Guys have become such a popular option in recent years. 

That said, here’s some warning signs that you should be wary of when attempting to purchase privately and trying to shave a few thousand dollars from your mortgage by using a do it yourself kit. If you step back and remind yourself that this is a deal worth perhaps hundreds of thousands of dollars, when and if a delay happens everyone can continue to work diligently to making the deal happen. That said, the most stressful factors in attempting a private sale (from my own personal experience);

#1 Is it Time Sensitive?  

get used to the phrase 'can we get an extension?'

Be aware that a private sale is likely going to take a bit longer than a straight up Realtor-friendly sale.  If someone is looking to sell their house in a week and telling you it’s got to be done by this date or nothing, then from my experience, it’s going to be tough. Extra paperwork will most likely be needed by a lender to qualify the sale, the most obvious being an appraisal. Keep in mind that unlike your current bank which has proof of income, direct deposits, mailing addresses etc if you are going with a new lender they are going to require all that information as well and seeing as how your friendly mortgage broker is that ‘face’ of the lender, there’s going to be more than the usual amount of faxing/emailing involved. Determine if saving $5000 is worth the extra time involved. Plus perhaps the sellers are on their own time-sensitive purchase. Perhaps they are being fed the #1 pressure squeezer of them all  - 'there is a back-up offer already in place'. Don't agree to a time frame that you (or your broker) thinks may be tough. Try to under-promise on dates so if the subjects are removed sooner everyone is all the happier. It rarely works the other way around. 

#2 Have you done an Appraisal? 

Note; not wheelchair accessible.

There’s two big matters of due diligence required by most lenders – one is an appraisal of the property in question. Although buyer and seller may have come to an agreed price, the lender is going to want an independent third party to determine if that agreed upon price is fair market value, who then reports back to the lender. If the appraisal comes in higher you are laughing. If it comes in lower, then the lender will inform you what they are willing to mortgage you for. It will then be up to the buyer to either negotiate a better, more lender-friendly price or make up the difference on top of the down payment, which remember is a minimum of 5% of the asking price. Then there's the other matter; 

#3 Have you had a House Inspection Done? 

I think I see the first problem...

Again, due diligence. A lender is not going to be so keen on that kick-ass deal of a house that you got from a police auction as you are. Remember that for them if you run out on your mortgage the lender becomes owner of that white elephant covered in blood stains. It’s like that wreck of a car that is in the driveway that hasn’t moved in years. You may see the underlying value once you get that transmission fixed but until then it's just a hunk of shit in the driveway. A house inspection, if done right by qualified inspectors (shop around) will let you and your lender know if that house is worth the price. Logical, right? Remember that home inspectors aren't just sitting around a phone waiting to pounce on it the moment it starts ringing. Plan a few extra days to get this completed.

#4 Are you financially organized and ready to have a possibly nameless entity inspect such finances thoroughly? 

It's just easier if you visualize this while your finances undergo an anal probing.

Again, if you go through a broker in order to get the best mortgage possible, he/she should provide you with a list of most lender requirements. Do you have your tax assessments properly filed? Do you have a letter of employment from your employer or statements of disability incomes, child support, a gift letter indicating an pre-inheritance which is being used as a down payment? Do you have a notary/lawyer ready to assist you in closing the deal? Do you have the closing costs ready? If you are missing any part of your financial information you may need to contact (shudder) the federal government who will then snail mail you the appropriate documentation with all the delays that entails? Then the lender will inspect said documents and through complex algorithms and séances will determine if you are who you say you are and will be able to pay your mortgage in a timely manner for years to come.

#5 Who Actually is Buying the House? 

In all fairness, it would look good in Chicago.

These days there have been a lot more parent/child purchases than decades past. Due to the continuing yet near-in-explainable rise in real estate prices a lot of those‘quality’ homes are difficult for the 1^st time home owner to purchase. The idea of a ‘starter home’ has lost it’s appeal due to a myriad of factors, be it poor locations, bad resale value, out of date carpeting and cellophane window panes. Perhaps it’s just the new generations’ sense of entitlement that the first house they purchase be simply amazing and better than their parents' first house. Whatever the case, a lot of houses are being purchased based on the buyers' 'long-term investment' strategies of either hoping that real estate prices keep rising or grand-kids start appearing to fill up those other four bedrooms. Whatever the case more and more young adults are needing their parents to help co-sign on the mortgage, effectively making them become partial owners. 

Now the lender's paperwork requirements have doubled, for not only do they need the standard proofs of income, credit, identification from you so too will they need it for anyone else on title. A parent needs to be prepared to provide said documentation and a mortgage broker can provide a good starter list of requirements. There is also a possibility that your parents are not up to date on recent mortgage laws and stipulations so may need to be educated on just what they are agreeing to (which is usually they will pay the mortgage/take ownership if you fail to do so, be it from unemployment, poor sense of responsibilities or injury/death).

#6 How is your relationship with your parents (if involved)?

Just how much should your parents influence you?

Perhaps you have parents that are hands-off, just want you out of their basement and decided to help you buy that little house across the way or across town. Perhaps your parents don’t even live in the same town as you but yet you found yourself crawling back to them on bended knee because you've decided to become a grown up and you are tired of your roommates scamming your weed. You've been informed, usually through a mortgage application denial that you need their help in purchasing your dream house you just saw on Sunday. Is your relationship with them going to suffer one way or the other if you ask their help? Will your parents want a say in that indoor Jacuzzi you are planning on installing in the master bedroom? Will they be thinking of putting in an in-law suite or want a bank statement every month showing you've paid the mortgage? Things to think about. Determine if you value that out of your price range house more than the relationship with your parents. Houses come and go, family is forever.

Buying a house is perhaps one of the most stressful purchases you will ever make, outside of that video of you smoking crack that you are being blackmailed with. If you approach it methodically and intelligently, weighing the pros and cons of all the questions put forth here, it should go by a bit easier. There are very few dream houses out there but plenty of good enough dream houses to choose from. The housing market won't disappear overnight and if you think the potential downside of trying to purchase privately isn't worth it, shop around for realtors with good reputations that will look after your interests and won't rush you into a house that you may not be able to afford next year. They may also recommend a mortgage broker that they have good experiences with that will work diligently to make the deal as easy and paper-free as possible.

If you decide to still buy or sell privately, do your homework, be prepared for the unexpected and try to maintain civilities between each other. Remember this isn't a used car you are negotiating, it's perhaps the largest purchase you may ever make with cash that isn't yours. There's going to be issues that come up, maintain a proper paper trail of subjects requested and removed. But above all, enjoy the hunt.