For Sale by Owner News and Articles
By Robert Irwin
One of the big benefits, as well as drawbacks, to selling your home "by owner" is the money handling. On the plus side, you don't have to worry about someone else "losing" the deposit. On the other hand, you as the seller are responsible for it. Let's take an example.
You place your home up for sale "by owner" and after a few weeks, a couple comes by who seems interested. You enter into negotiations and after awhile find that you're in agreement on price and terms. All that remains to be decided is the earnest money deposit. How much and who's to get it?
You ask for $7,500 up front from the buyer to show his earnestness in going through with the deal. The buyer thinks about it for a bit, and then says okay. But, the buyer want assurances that he will actually get the house . He wants you to pull the home off the market - he doesn't want any competitive bids coming in. So you agree to this.
Now, you say to yourself. This is a solid deal. You've got a written sales agreement. And you've got a nice check for $7,500 in your pocket. So, you put the money in your bank account. And, since you have your own bills to pay, you begin spending the money.
Thus far, there's nothing wrong with this scenario. The deposit is, indeed, the seller's money. And the seller can do with it as he wishes.
The trouble is that in modern real estate, no deal is "solid" until all the contingencies are removed. Contingencies are such things as the seller getting financing and approving your disclosures and a professional inspection report. Until these are done, the deal remains "iffy."
Two weeks into the escrow, a problem arises. The inspection report says there's a roof leak. Okay, you knew there was some water coming into the attic, but it's minor. You say you'll get a roofer up there to fix it. But the buyer is suspicious and hires his own roofer, who says the house needs a whole new roof. The cost is $15,000.
You refuse. The buyer refuses to approve the inspection report and demands his $7,500 back. He points out that according to the inspection contingency you signed, unless he approves the inspection report within 2 weeks, there's no deal. You counter by saying you agreed to fix the leak... that should be enough. Who's right?
The buyer! If the contract specifies that if there's no approval of the inspection report the deal's off, you owe the money back. But, you think to yourself, it's in my bank account; I've already spent some of it. Just let the buyer just try to get it! And before you know, you're in litigation.
Handling money can cause trouble. Savvy buyers are aware of this very problem. And it's one of the reasons they are shy of dealing directly with owners. (Agents have fiduciary accounts to handle deposits.) In fact, you may very well lose a makeable deal UNLESS you can convince a buyer that he will get his money back if the deal falls through and he's entitled to it.
One way to reassure a buyer about the deposit is to have the deposit check made out not to you, but to an escrow company. The escrow holds the money and won't release it either to you or to the buyer unless both of you agree. It's actually the way that many agents operate.
Robert Irwin is the most prolific real estate writer in America having produced over 100 published books in the field. His TIPS & TRAPS McGraw-Hill series has sold well over a million copies and his FOR SALE BY OWNER KIT and FIND IT, BUY IT, FIX IT and other books have been strong sellers for Dearborn.
In addition Irwin writes a regular real estate column for The Wall Street Journal online and is introducing a new weekly column forOwners.com.
Irwin has sold his own property "by owner" and during over 30 years in the business has been a broker and consultant to lenders, agents, buyers and sellers.
He can be reached through his website RobertIrwin.com.