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How do for-sale-by-owner real estate transactions work?

by | Oct 23, 2020 | Real Estate

Selling your home without the help of a real estate agent allows you to keep more of your profit than you otherwise would. Yet, despite this fact, many people enlist an agent’s help because of the complexities involved in real estate transactions. As keen as you are on listing your home by owner, you may find the process confusing. By understanding how it works, you can ensure your transaction goes off as smooth as possible.

Gathering documents

Before putting your home on the market, you will want to make sure you have all the relevant documents for it in your possession and accessible. These will include:

  • Your home’s deed
  • Your home’s title report
  • Information about your mortgage
  • Information about your property taxes
  • The purchase and sale agreement from when you bought your home
  • Records of any renovations and repairs you made to your home
  • Land survey reports
  • Homeowner’s association information

You must also fill out a seller’s disclosure statement when listing your home. This statement will inform potential buyers of any issues your home may have, as well as any hazards that its location presents. If your home was built before 1978, you will need to provide a lead disclosure as well. Many older homes used lead-based paint, and whether yours did or not, you must inform the buyer of the possible risks.

Reviewing offers

After figuring out a fair price for your home, listing it, preparing it for showings and holding showings, you will likely have received a few offers. With each offer, you have the option of accepting it, rejecting it or making a counteroffer. As you review these, you will want to make sure you have mortgage pre-approval letters for each prospective buyer.

Once you accept an offer or reach an agreement on a counteroffer, you must write up and sign a purchase and sale agreement, outlining the terms of the transaction. You will also need the buyer to provide you an earnest money deposit. This deposit represents their commitment to purchasing your home.

Conducting inspections and title searches

As part of your purchase and sale agreement, you must allow the buyer to perform inspections on your home. Even though you will document your home’s issues on the seller’s disclosure, it is part of the buyer’s due diligence to make sure it has no unknown problems. You will also want to order a title search on your property. With the buyer, you must reach an agreement in selecting a title company to perform it. The title company will then review public records to make sure there are no encumbrances on the title that could prevent your home’s sale. In case they find such defects, you will want to purchase homeowner’s title insurance as a protective measure. The buyer must purchase lender’s title insurance, which protects their mortgage lender if the title needs fixing.

Closing the sale

To conduct your closing, you will want to retain the services of the title company that performed your title search. The title company will gather all the necessary paperwork for the closing and will hold any related funds – like earnest money – in escrow. Before closing, they will also prepare a settlement statement. This statement outlines the transfer of money from the buyer to you, and you will both want to review its terms in advance.

At the closing, you and the buyer will satisfy closing costs and sign the final paperwork for your transaction. You will transfer the signed deed to the buyer, as well as the keys to your home. The buyer will provide you with payment for your sale.

Unlike some states, Michigan does not require an attorney at real estate closings. Yet, you will want the guidance of one throughout your transaction, since they can make sure that you are taking the proper steps and that your sale is binding.