Mr. Teitle very graciously agreed to write a very informative article to help FSBO Sellers with an overview of what they can expect, and what they need to anticipate. Please note that this article does not eliminate the need for an attorney, and does not provide guarantees implied or express.
You’re finally ready for the big move. You have spent years of effort, time and money investing in your house. It is the biggest purchase you will make in your lifetime. But are you ready to protect all of your equity? Simply put, having a solid plan for the sale of your property makes a difference of thousands, and often tens of thousands of dollars to your bank account. For decades homeowners saw the FSBO process for real estate as somewhere between overwhelming and impossible. In recent times, however, the transparency of the online world has demystified the process of selling a home on your own, allowing homeowners a tremendous opportunity to save.
There are some practical considerations which will help protect your interests at the outset. One is to closely examine the terms of any agreement for the online listing of your property. Make sure you understand the not just the upfront fees, but the total cost you will pay when closing is over, as this can vary considerably from one company to the next. Also be certain you understand how much is owed if your listing does not result in a sale and you choose to remove your property from the website. Additionally, recognize that for a seller, appraisals and home inspections add cost, are not necessarily always advantageous, and are not legally required, so don’t assume you will need them.
When it comes to handling legal matters, resist the temptation to think you can take care of everything by just downloading a package of canned documents from the internet. Not only does this approach fail to cover all the legal help you will need in the course of a real estate sale, but in many instances that I have seen, the documents in question are either inadequate, incorrect, or both. As a result, the seller ends up in an expensive legal battle and can be exposed to financial liability, or can lose rights which should have been preserved. Online forums are much the same these days. If I believed they were safe for you to rely on, I would come out and say so. Unfortunately they tend to feature misinformation and incomplete solutions. A capable lawyer will guide you through the transaction and provide the support you need to get things done efficiently, while answering the questions you will inevitably have along the way.
Before you move forward on listing, consider the things you need in place to make the buyer feel he or she is dealing with someone organized and professional. This is not only about the obvious things like deep cleaning and decluttering, but also about legal preparedness, and being ready to anticipate the various aspects needed to protect your interests.
The first, most important step for a seller is to complete the disclosure statements required by state and federal law. Disclosure statements must be provided to and acknowledged by a buyer before a purchase agreement can be signed. Accompanying the disclosure statements are informational pamphlets regarding topics including lead based paint and radon. If the home is subject to restrictive covenants, buyers must also be given access to those documents. In certain situations a seller may be exempt from providing disclosures, but this is the exception rather than the rule.
Some sellers worry that making a certain disclosure will drive buyers away. In my experience, the reality is that being honest and forthcoming on your disclosure form makes buyers more confident they are dealing with the type of person they want to buy from. Additionally, properly completing disclosures in accordance with applicable laws helps protect sellers from liability in the event something goes wrong with a property after closing is over. A real estate attorney should be able to provide you with the necessary forms and review them in order to offer advice and answer your questions. If this topic doesn’t come up in your initial conversation, you may want to look for a different attorney.
Iowa law requires any home with a private septic system to pass a certified inspection prior to transfer. This is typically the one inspection done at seller’s expense, and you can find a list of DNR certified inspectors online, click here. Because of the time such inspections take, it is often good to schedule them either prior to listing, or as soon as you have a signed purchase agreement.
Another topic sellers don’t often think about is the title history of their home. Legal issues affecting your title can come up as a result of events such as divorce, death, judgments, liens, easements and other matters. Ensuring you will be able to pass clear title is critical to every seller’s closing. In Iowa, the written title history of your property is contained in a document called an abstract, which your attorney will assist in having updated prior to a closing. In Illinois, arrangements for title insurance will be made, and a title search will be performed. If you can alert your attorney to past issues which may impact title, there is a greater opportunity to solve those issues and avoid a delay in closing, or worse yet, not closing at all.
Additionally, take time to recall the history of all of the features of your home, paying particular attention to the upgrades and improvements you have made over time. Including these details in your listing will not only help answer questions accurately, but should impress buyers that you have taken care of the property and contributed to the extra value you are seeking in your asking price. If you are aren’t sure about a detail, refer back to paperwork from the time you bought the home originally.
Finally, before you go to list your house for sale online, do your market research. After years of watching clients sell their homes, I can say without question that the top reason for a property moving slowly or failing to generate interest is exactly what you think – it’s price, price and price. Spend time looking at comparable sales on the Scott County Assessor’s page (Iowa), or use other online tools, and in the end, just be reasonable. Legally speaking, you can always agree to concessions in a number of ways, but only if you are able to get the buyer’s attention.
Another item important to sellers is closing costs. Typically, the seller’s closing costs are made up of their transfer taxes ($1.60 per $1,000.00 in Iowa, with first $500.00 in value exempt, and $1.50 per $1,000.00 in Illinois), abstracting or title insurance, attorney fees and property taxes accruing through the date of closing. We estimate the total seller closing costs not counting property taxes to generally run somewhere in a range of about $1,750.00 – $2,250.00, including the above items. Individual cases may vary up or down somewhat.
Special note – although you may be current in your property tax payments, they are always billed in arrears. Hence, the taxes you are paying this year are actually for the prior year’s ownership. We advise clients to be conservative and assume they may have to address about a year’s worth of property taxes at closing, depending on which month of the year they are closing. If you are currently escrowing your property taxes with a lender as part of your mortgage payment, then upon closing and payoff of your loan, you will receive a refund of any amounts left in your escrow account for taxes and insurance which the lender will no longer be paying on your behalf. Other than the above closing costs, sellers may incur a small overnight or wire fee in connection with the loan payoff. Buyers should be paying their own inspection fees, application and loan fees, attorney fees and other closing costs, unless you agree to contribute to those items.
Once you have officially listed your property, be ready to engage potential buyers about what needs to happen in order to make a deal. In particular, if a buyer expresses serious interest in the house, or mentions the possibility of making an offer, ask to see a letter of pre-approval of financing. Initially a general letter of pre-approval from a buyer may simply refer to the creditworthiness of the buyer, which is at least a helpful indicator that a credit check was done. It is also advisable to tell the buyer that when making a written offer, you would like to see a pre-approval letter specific to the address of your house and the purchase price the buyer is offering. This still does not a guarantee a loan will be approved, as final loan commitments are not given until very close to the time of closing, after full lender underwriting and title work are complete. However, it is as much assurance as you can get at this stage of the process. For a cash buyer, request a letter specifying the buyer has sufficient funds available in a specific amount for the purchase price.
For the Second Blog Post which will continue this topic, please click here.
Justin A. Teitle
Attorney at Law
Teitle Law Offices, P.C.
This article is not intended as legal advice, and cannot be relied upon in that manner. In order to get representation specific to your needs, contact a licensed real estate attorney for more information.
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