Question:
In for sale by owner sales, what contracts and disclosures do you usually see go through escrow? I have a past client that has been approached by his neighbor who does NOT want to pay Realtor commissions so he’s offering my client the home in this manner at a “discounted price”. The idea of drawing up their own contract and not using the CAR RPA was mentioned to me. I’m sure you see property being transferred and/or sold between people without a Realtor involved so maybe you could enlighten me? Would title insure?
Answer:
It is perfectly legal for a buyer and seller to transact the sale and purchase of a home without a realtor, without an escrow company, and even without a title company, but it is VERY unadvisable.
I occasionally do a “for sale by owner” transaction (FSBO), just not too many. Sometimes the parties bring in a CAR form that they managed to get ahold of, maybe from a friend, and sometimes another preprinted form (they can be found on the internet ), and sometimes just a piece of paper with the terms.
A title company would have no trouble issuing title insurance on a FSBO, as long as the documents are properly drawn. With very few exceptions, most of the FSBO’s I have handled have included title insurance. As an Escrow Officer, I really try to avoid doing an uninsured transaction. A real estate transaction without title insurance is sort of like handing someone a pile of cash for a car without checking DMV records, not getting proper title documents, and not having a mechanic check it out.
I have also seen agents do the minimum (purchase agreement and disclosures) but nothing else, for a very reduced rate. This is normally for a very close friend or relative. I have to wonder about that, because a broker allowing that takes on a lot of liability, without getting adequately compensated.
Certainly buyers and sellers can do transactions without an agent; a person can also get a divorce, do a will or sue someone without proper legal advice, but would you want to? More often than not, there comes a time in the FSBO transaction where one or both of the parties wish they had used an agent.
When I handle a FSBO transaction, I make it very clear to the parties on a FSBO that I do NOT replace a realtor, I am the neutral third party, and that I DO NOT give them advice, or help them meet the disclosure laws.
You should let your client know about the potential pitfalls of doing a FSBO transaction. Perhaps you can run comps on the house, to help your past client really analyze if they are in fact getting the best price. Sometimes buyers and sellers have a difficult time analyzing comps, and your buyer may not be getting quite the deal he thinks he is.
If a buyer in a FSBO does get a great “deal”, but due to their lack of knowledge about a seller’s duty to disclose, the prudence of a home inspection and termite inspection, etc., they may regret their purchase, and find that it is NOT such a great deal, down the road.
By the same token, a seller’s ignorance of their own duty to disclose could result in big potential liability in the future, if defects are discovered after closing.
Cynthia Moller
661.362.0400
cmoller@glenoaksescrow.com
