Closing/Title Services – For Sale by Owner
The main incentive for homeowners to sell their property on their own, for sale by owner (FSBO), is to save the broker’s commission. A broker’s main job is to find buyers for properties that will pay a fair price for your home. Brokers should also advise buyers on all aspects of the purchase – but their main job is to find a good buyer for your home. Good buyers are people who will pay the price that is comparable to or better than other similar homes. Good buyers are also people who have the finances necessary to buy the home or to obtain a mortgage.
Brokers generally receive a commission for obtaining a buyer and helping the buyer. The broker’s commission is normally six percent of the sales price. If a home is sold for $200,000, then the broker’s commission, based on six percent commission, is $12,000. Sellers try to sell homes on their own to save the broker’s commission.
What a seller does in an FSBO real estate sale
When a seller sells their home on their own, they are doing the work the broker would normally do and are paying the expenses the broker often pays. Some of these duties include:
- Determining the listing price
- Advertising so prospective buyers can know the home is for sale
- Reviewing what the comparable prices are for similar homes
- Analyzing if the home should be sold “as is” or whether the seller is willing to bring the home up to local building code requirements
- Deciding whether to make repairs to the home, clean the home, and do other things to enhance its value
- Showing the home to prospective buyers
- Negotiating the sales price
- Preparing the agreement of sale for the real estate
Home owners, such as new buyers, want to make as certain as possible that there won’t be any legal complaints when they move into their new home. Buyers want to know they are getting clear title to the home and that the home is free from any liens or encumbrances. In more common terms, the seller wants protection against claims by taxing authorities, prior owners, spouses and heirs of current owners, and others. Buyers also want protection against any claims by creditors of the seller. Additionally, buyers want to know when utilities can and cannot enter their property.
Title insurance protections
The standard way for buyers to get this protection is through the purchase of title insurance. In Florida, generally, the seller pays for the title insurance. This means that the seller, whether for sale by owner or by broker, also normally chooses the title company. While the buyer gets protection, the seller also gets some peace of mind in knowing all the creditors and claimants against the property will be paid in full at settlement.
Title insurance companies will normally check court records and other records to determine what claims and liens there are against the seller and the property. The most common claim is the balance due on the seller’s mortgage. The title insurance clerks will obtain these payoff statements and account for them (see that the creditors and lienholders get the amount that is due).
Buyers will want title insurance whether the sale is through a broker or through a for sale by owner sale. The title insurance directly protects the buyer and indirectly helps the seller avoid lawsuits.
The closing – buyer protections
It’s natural to assume that the purpose of the real estate closing is for the buyer. After all, all the seller really wants, on the surface, is the proceeds of the settlement check. It is the buyer who has to sign the mortgage papers. The buyer is the one who wants to have a pre-closing inspection. The buyer of the home benefits most from the title insurance. They buyer often must sign papers that are required by federal and Florida regulations such as Truth in Lending Act documents.
The closing – papers that must be signed
Sellers do generally need to be at the closing. For starters, the seller must sign the deed transferring the interest in the property. The seller must also sign the settlement sheet. The settlement should is an accounting of the financial transactions. Generally, neither the seller or the buyer can renegotiate the settlement sheet.
The closing – seller protections
Many times the seller needs legal protection at the closing too. Sellers who sell a home for sale by owner should also hire an attorney to handle their closing/settlement. Often, a buyer will complain that certain necessary repairs weren’t completed. The buyer and the seller will then normally have to negotiate how much should be set aside in escrow to handle the cost of the repairs. Buyers who request repairs should have estimates, which the seller and seller’s lawyer will review.
The seller will often owe a mortgage company. There may be other creditors. There might even be outstanding claims. The title company will need for the seller and the for sale by owner’s Florida lawyer to review and respond to any outstanding legal claims. While some claims can be resolved, with the help of legal counsel, before the closing, there are times when the claims need to be resolved on the date of settlement. This means the seller, whether for sale by owner or for sale by broker, must be at the settlement.