The Ultimate Guide to Buying a Privately Listed Home
We’ve gathered the most up to date and relevant information for Australians when it comes to buying a privately listed home. We asked the experts and got the top tips for buyers.
Naturally, real estate comes with a seemingly endless string of important decisions, including cost, location, house size, amenities, just to name a few. One of the decisions you may need to make is whether to purchase a privately listed home (a home being sold by a seller that is selling it themselves rather than using a real estate broker).
Buying a Privately Listed Home
Buying property directly from the seller has certain benefits, such as the potential of paying a lower price. However, transactional pitfalls and legal trouble are real risks if you don’t know what to watch out for. This is because a private seller doesn’t have the help of a real estate agent nor the team of real estate professionals with whom an agent usually works.
Still, buying a privately listed home can be a rewarding choice; you just have to know what you’re doing. If you have your own real estate agent, they can aid you tremendously with their experience, insight, and knowledge of the location and home buying process. They can give you many tips and help you navigate the process to a successful end.
Whether you have your own real estate agent or not, you will need to pay close attention to a number of things, from property details to hiring a lawyer to getting lender pre-approval and more. Luckily, since home buying procedures are well defined and standardised, the process is not much different than buying from a seller who does use an agent.
Getting Loan Pre-Approval from the Lender
Obtaining financing pre-approval is the first thing you should do, before you even start looking for a house. Getting pre-approval first will show you how much of a loan you can qualify for, which in turn will help you narrow down your house choices to ones that are within your approved price range.
Applying for financing as far as six months (or more) ahead of the date you’d like to complete the home purchase will make the rest of the home buying process go much more quickly and smoothly.
The best way to start is by talking to the bank where you have one or more bank accounts. Face to face is the best way to do this, but online forms and phone conversations are usually also options.
Tell the adviser or loan officer what your intentions are and why you need the loan. Be sure to tell them whether or not you will be using a real estate broker or conducting the property search yourself. Include information about timing and which geographical areas you’re interested in.
When you get your pre-approval letter, it will include certain information such as the amount of money the bank is willing to lend you, the period of time for which the approval is valid, and any other specifications that are relevant, such as neighbourhood specifications or private mortgage insurance.
Finding Your Ideal Home to Buy
As soon as you’re pre-approved, you can start looking for the right home. Gumtree is a great place to find privately listed properties. Bookmark properties you find interesting and contact the sellers, either with the site’s messaging system or through their preferred method of contact.
You’ll want to set up times to visit each prospective property. This way you can talk to the seller in person and gain a better understanding of information like property worth, sale timing, and the seller’s conditions. This initial visit can also help you determine whether this is a neighbourhood – and a house – that you can see yourself living in.
Contacting the Private Home Seller
When you first contact the seller, do so by phone unless email is the only option available. Either way, communicate with a sense of professionalism. Decorum and respect will go a long way toward establishing a partnership and trust between you and the seller. This will be extremely important, especially later on when the time comes to negotiate the cost of the home and the closing conditions.
When you first speak with a property seller, there are some key questions you should be prepared to ask.
Questions to Ask the Seller of a Privately Listed Home
|Home Value||What is the value of the house currently?|
|Price Flexibility||Is the asking price negotiable? How negotiable?|
|House Problems||Does the house have any problems?|
|Why Sell||Why is the owner selling the property?|
|Property Problems||Is the house located in a flood plain?|
|House Systems||Does the owner have all the paperwork for the house’s mechanical systems?|
Hire a Professional Property Appraiser, Lawyer and Home Inspector
You’ve found your dream property, you’re comfortable with the seller, and you’re ready to make an offer. But hold on – there are a couple of important steps to complete first. Because buying a house is a significant business transaction you’ve got to be sure to mitigate your economic and other risks in any way you can.
Seek the assistance of a professional home appraiser. The more your prospective property costs, the more important this becomes. You can also double-check home values on various websites, but these are just estimates; don’t forego the professional appraiser, as he or she will have the proper knowledge and will get the home values on comparable local homes.
You will also want to hire a real estate lawyer. Unless you are a licensed attorney or have years of experience, don’t try to draw up contracts yourself. A property transaction involves too much money to risk, and the fee you’ll pay a real estate lawyer now is much lower than what you stand to lose should you take legal matters into your own hands and things go wrong.
Your real estate lawyer will be able to help you through many aspects of the purchasing process, such as drawing up contracts, negotiating conditions, and even litigating fraud cases.
Another thing you’ll want to do is get a home inspection done by a professional home inspector. Choose a reputable home inspector to complete the inspection (ask for credentials). If any major problems are found during the inspection, you have a few options:
- Ask the seller to fix the problem (keep in mind that the seller has no obligation to do quality work or hire the best contractor)
- Ask the seller to credit you an appropriate amount of money so that you can hire your own contractor to complete the repairs after closing
- Ask for a lower sale price
If you have your own real estate agent, the agent will likely have a list of preferred property appraisers, lawyers, and home inspectors they are used to working with. You may choose to use their choices, as they likely are familiar with the agent, the area, and all the necessary procedures. However, if you prefer, you can choose to select ones of your own liking.
Making an Offer on a House
Once you have decided on a house, spoken with the owner and agreed on a price or price range, consult with your real estate lawyer about making your offer. Discuss your thoughts on the house, your willingness to go forward with the transaction, and any factors that would make you not complete a deal for the house.
Your lawyer will then draft an offer to submit to the seller. During this process, you’ll want to negotiate as much as possible with the seller, always checking with your lawyer.
If you have your own real estate agent, consult with them instead and discuss the items mentioned above. They then will draft the offer for you or have their lawyer do it. Again, this is the time to negotiate with the buyer, checking with your agent to make sure any requests you have are sensible and good business.
The Home Sale Agreement
Once you and the seller have agreed on all the terms and conditions and the seller has accepted your offer, it’s time to have your lawyer or your real estate agent finalise the sale agreement. This agreement will be signed by you and the seller and your mutual consent is the last step needed before loan approval and transaction closing.
At long last, you’ll submit the sale agreement to your mortgage lender. They will process your application and disburse the funds.
Special Considerations when Buying a Privately Listed Home
There are a few special items to consider as you proceed through the process of buying from a private seller.
Special Considerations When Buying a Home from a Private Seller
|Contingencies||Write all contingencies into the agreement. Make sure you have a way out if you find problems with the house that the seller won’t fix, your loan is not approved, or other unexpected issues arise.|
|Price Negotiation||Offer less than the asking price. You can’t offer less the second time around, so don’t start too high. The only caveat is that you don’t want your offer to be so low that it offends the seller.|
|Deposit Escrow||Make sure that your earnest money deposit goes to an escrow company, not to the seller. The earnest money deposit is a portion of the down payment paid along with the purchase agreement. This money is held in a trust account when the seller signs the purchase agreement and returns it to the buyer.|
|Fee Negotiation||Negotiate with the buyer about who will pay title fees, transfer taxes, and so forth.|
|Prorations||Use prorations to your advantage. For example, if property taxes have been paid in advance, the unused money may be credited back to the seller, so in that case the best choice would be to ask for no prorations. On the other hand, if the taxes are paid in arrears, requesting prorations would be the better choice.|
|Sale Close||Specify at exactly what point you will receive the keys and take possession of the property.|
We asked My Private Sale what the 6 most overlooked principles of buying a privately listed property are.
- Self Serve - Know your rights – and your obligations! They will vary from State to State and from Territory to Territory. Don’t assume, whether buying privately or through a real estate agent, that your best interests are being served. Remember, the agent represents the seller not the buyer. Agent or no agent, you’re well advised to talk to a licensed property conveyancer or solicitor to ensure that your intended purchase will be handled with due diligence – and that it’s legal. Do this before making any offer so if your offer is accepted, you’re ready to drive the purchase!
- Get Real - The vendor chose to sell privately because she believes she‘ll save thousands of dollars in agent’s commissions. She’s right! It ought to make room to negotiate on price, don’t you think? Well, do your research first. Know the value of similar properties in the area. That way, you’ll know if the asking price is fair in the prevailing market. It’s a fact that more good private buying opportunities are lost due to unrealistic offers being rejected outright. Really want that privately listed home? Be realistic! Equally, beware bargains which seem too good to be true. They will be.
- Timing Is Everything - It follows that in being realistic, you’ll be ready to buy even before, no especially before, you make an offer. Once your offer is accepted, time is of the essence. Who knows what other offers are coming in, so have your finances and conveyancer already in place. Private sellers are usually well informed on the procedures which need to be followed. Having your price accepted by the vendor is great. Well done. Now cement the deal with real estate’s best known building material, money. But remember, in some circumstances you can be penalised for failing to settle in full by the due date.
- Be A Pest - Savvy private vendors know the worth of making their properties well presented, which includes, of course, passing muster on the pest and building front. A private seller may have already obtained a very recent pest and building report, so ask to see it. Keep in mind, that while you should know the condition of the property before making an offer and that you should be independently satisfied, a pest and building report is an investment usually made by you, the buyer. It is a reasonable request that your own inspector be given access to the property before you make a firm offer. Better safe than sorry. Especially if you’re making a commitment, say online, to a “sight unseen” property.
- Be A Scout - Be prepared. Be professional. Use common sense. Ensure you have everything in place to make your purchase a smooth experience. You’ll make better decisions when organised than when not. Remember, the only real difference between a private listing and an agent’s listing is that the private seller pays no agent’s commission. That’s great for the seller, who has become her own agent, if you think about it. Which you should. She wants a successful private sale, the best price in the quickest time, just like you. Try thinking like her. You’re not out to showcase your unbeatable high pressure buying skills. A win-win is the only good place to be, so find middle ground.
- Show Some Respect - Don’t be a brick kicker! The internet has opened a vista of opportunity to buyers who can browse unprecedented numbers of privately listed properties in short time, making research easy. Use the opportunity respectfully, which means placing high value not only on your own time and effort but that of sellers’, too. Clear, polite communication regarding just those properties you are genuinely interested in will yield the best outcome for your least expenditure, effort and angst!
We also got some excellent tips from PropertyNow:
Price your property as accurately as you can and then allow the market to educate you as to its ultimate price. This doesn’t mean conducting a fire sale it just means being accurate and with a little bit of negotiation money built in (not so much that the price is significantly higher though).
Something that is immensely valuable and which almost nobody does, is to employ a Valuer to do an actual Valuation (as opposed to an agents Market Appraisal).
Agents will tell you whatever they think they need to tell you, to win an exclusive listing, and as such they often overprice at an appraisal. Likewise they can also under-price through incompetence, lack of proper research or to grab a fast sale. A valuation however will be totally independent. Once you have a valuation you can simply use that as a guide and can still list above it, if you feel the market will agree with your price. You’ll soon find out as the market will tell you.
How to Buy a Privately Listed Home on Gumtree
If you want to view the largest selection of homes for sale on Gumtree, simply click on the “Real Estate” category at the top of the homepage, then click on “Property for Sale”. If you prefer to see only the privately listed homes for sale, on that page you would simply type “private sale” into the search box at the top.
You can hone your choices further by selecting houses for sale in a specific location, for example homes for sale in Sydney. After you have clicked on “Property for Sale” as above, you can either type the locality in the location box that is just right of the search box, or you can click on the area under the “Places” category in the left-hand navigation.
You can tailor your listings even more to your specific needs and desires using other categories in the left navigation as well, such as the dwelling type, number of bedrooms and bathrooms, size, and other criteria.
Buying a privately listed home can present a few unique challenges but as long as you act carefully and hire a professional property appraiser, home inspector, and lawyer, it doesn’t have to be any more difficult than buying a home from a seller who has a real estate agent.
Buying a house from a seller that does not use a real estate agent often means a better deal for both the buyer and the seller. Just understand that you are sacrificing the expertise of real estate professionals, and be sure to do plenty of research so that you don’t overlook anything important. If you have your own real estate agent but the seller does not, your agent’s expertise may save you more money on the purchase than you pay them in agent fees.
Knowing what to expect and being prepared to learn as you find and purchase your new home can make the entire process go more smoothly. Before you know it, you’ll be renting a moving truck, having your mail forwarded, and getting ready to begin life in your new home.