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How to buy a FSBO home

It's every buyer's dream: Get your dream house for less than the going rate.

Some buyers target properties that are "for sale by owner" (also known as FSBOs, and pronounced FIZ-bows), thinking that owners will pass along their savings from avoiding an agent's commission -- usually about 6 percent to 7 percent of the asking price.

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Myth-busting time: Unless the market is really slow, hope to split that "commission." If the market's really hot, forget even that.

And remember, there's no such thing as free money. If you want to buy a home without an agent, you will have to do the agent's work yourself. There may be a few instances when you want to hire a buyer's agent to do all or part of the heavy lifting for you.

The trade offs
First sacrifice: selection. If you're looking to move quickly, a broker often makes it easier to shop the widest selection of properties in an area.

"It's OK if you happen to find exactly the kind of house you're looking for in exactly the right place," says Jack Guttentag, author of "The Mortgage Encyclopedia" and professor emeritus of finance at the Wharton School at the University of Pennsylvania. "But what you're giving up is access to the market."

An agent can give you a good picture of local trends and even financing options, says William Poorvu, professor emeritus of real estate at Harvard Business School and co-author of "The Real Estate Game." The question to ask: Do you need this assistance or can you handle it yourself?

On your own, you have to be more diligent about patrolling the areas you like and keeping an eye out for new "for sale" signs. You can also contact neighborhood associations to ask if anyone is selling. And some FSBO networks will give you access to the Multiple Listing Service, a digest of available houses that agents use.

Second sacrifice: accurate pricing information. Buyers are just as likely to be offering too much as too little. Your job is to get an idea of what the place is really worth before you start talking money. Talk to real estate professionals in the area. Look at newspaper listings for homes sold in the past six months. What did they bring? What are agented sellers asking now?

Third sacrifice: someone to negotiate for you. If there's a big discrepancy between what you think a house is worth and the asking price, tread carefully. If you sit down to negotiate, keep the conversation as neutral as you can. Show the sellers copies of your research. Don't criticize the house, its condition or that ugly dining room wallpaper.

And if you don't want to handle this yourself, consider hiring an agent for a flat fee or hourly wage to negotiate for you, says Bill Carey, co-author of "How to Sell Your Home Without a Broker." "Some people feel better to have negotiating done by someone else," he says.

Poorvu agrees. "We all think we're fabulous negotiators, but sometimes it's good to have an intermediary," he says. "It takes the personalities out of it. When you're buying a house, it can be a very emotional experience."

What you don't see
Where a real estate professional has an advantage: picking up the clues to a home's true condition. "There are material facts about a house that a trained broker or sales associate will see," says Ron Phipps, broker with Phipps Realty and Relocation in Warwick, RI.

Most states require that the seller fill out a disclosure statement. If you're serious about the house, ask to see it. This should clue you in to any problems or potential problems you might be facing.

-- Posted: May 16, 2005
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'05 Real Estate Guide
30 yr fixed mtg 3.94%
15 yr fixed mtg 3.02%
5/1 jumbo ARM 3.66%
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