Jeremy came to me feeling quite frustrated, as he was trying to land his first real estate investment deal. He had zeroed in on local “for sale by owner,” or FSBO properties, but he couldn’t manage to push the transaction through to a satisfactory closing. To Jeremy—like many other new investors—it seems logical that FSBOs could result in a good deal. Buying a New Jersey investment property directly from the homeowner could potentially cut out some significant expenses associated with hiring a real estate agent. Subsequently, Jeremy just couldn’t understand what was holding him back from landing a property that was in line with his professional business plan. I explained to him that while the market is indeed ripening for more FSBOs to come online, you can expect to sustain a few bumps and bruises as you pursue this type of property.
FSBO Deals in New Jersey
FSBO properties are generally not listed in the Multiple Listing Service (MLS), but that doesn’t necessarily mean that they’re hard to find. Just a quick Google search can lead you to multiple websites that include listings for properties that are for sale by owner. In fact, you can discover everything from multi-million dollar luxury estates to fixer-uppers for sale.
Compared to buying an investment property from a public auction like the Hudson County Sheriff’s sale, purchasing from a homeowner directly can feel far more accessible. And, we can expect more FSBOs to become available within the next year as a result of current New Jersey real estate market trends and the impending property tax hikes, which are likely to make ownership impractical for a number of residents.
However, if you are looking at FSBOs to find an investment property, you’ll want to be well aware of the pros and cons associated with this kind of transaction. Let’s take a brief look at what’s involved in buying a home that’s for sale by owner.
FSBO Advantages for Real Estate Investors
- First-hand knowledge. A FSBO property is often still occupied by the owner who is positioned to tell you the condition of the all of the appliances and systems. Of course, you should still get a home inspection report, as not every homeowner is honest or well-informed. A pre-purchase home inspection places you in a position where you can avoid buying a property that turns out to be a money pit.
- No agent commissions. When you buy an investment property directly from the seller, you don’t necessarily need a real estate agent. That could save you thousands of dollars. Of course, you still retain the option of hiring a buyer’s agent if you want to spend the extra money on commission—but the seller is unlikely to help foot the cost.
- No middleman. With no third parties involved in the deal, you don’t have to worry about whether your position is accurately communicated to the seller. You will be able to talk face-to-face. What’s more, you’ll have a greater chance of arriving at a win-win deal.
Disadvantages of FSBOs
- Testing the waters. Some sellers put their property on the market as a FSBO just to see if anyone bites. There is a far greater chance that you could encounter a homeowner who is not serious about selling. So you could be wasting your time and effort.
- Above-market price. FSBO owners have been known to price their property according to potentially unreliable information, such as figures that are found on websites such as Zillow. As a result, the seller may not be wholly informed about what constitutes a fair price. Many homeowners are less inclined to negotiate, as they don’t have a licensed real estate professional on-hand to say, “This is a fair offer and it’s probably the best offer that you’ll receive with the current market conditions.”
- Price sticklers. Some FSBOs are priced at what the seller needs out of the house, not what it is actually worth. They need to squeeze every penny out of the deal and that’s why they didn’t hire a real estate agent. In this situation, you can expect that the seller will be far less willing to accept a lower offer.
- Emotional investment. Often, the individual who sells their home as a FSBO has some very powerful emotions at stake in the deal. Perhaps they raised a family in the home or are otherwise reluctant to leave, but the financials or circumstances are forcing the sale. If this type of situation arises, you’ll need to tread carefully when communicating with the homeowner.
- Lack of disclosure. Whether by intent or lack of understanding, some FSBO homeowners do not fully disclose property deficiencies as required by law. Subsequently, you’ll need to be extra careful. It’s crucial that you perform due diligence to discover issues such as lead paint or high radon levels on your own.
Finding Serious FSBO Sellers
The bottom-line is that if you are exploring FSBOs as an investment option, it can be hard to close the deal at a price that allows for a good profit margin. You may end up spending a significant amount of time hunting down the prospects and managing the details of the transaction only to find that the deal falls apart. That’s why Jeremy became a HomeVestors® franchisee; homeowners now call him when they are serious about selling. Often, they have an ugly house or an ugly situation that has prompted them to take action.
As Jeremy’s dedicated Development Agent, I’ve been able to walk him through the process of evaluating the costs for rehabbing a potential investment property with the proprietary HomeVestors ValueChek™ software and pinpointing the after repair value. This insight helped Jeremy make a confident offer at a price that was fair and acceptable to the seller. All new independently-owned and operated franchisees are paired with a Development Agent like myself. HomeVestors believes that franchisees should be equipped with the best tools for real estate investing, including our proprietary property valuation software. Jeremy’s investment business is now off to a strong start. Yours could be too—get in touch with HomeVestors to learn more.
Each franchise office is independently owned and operated.
Prior to joining HomeVestors, I spent 20+ years as a senior corporate executive. The money was good but I just no longer enjoyed what I was doing. I had been looking at HomeVestors for a couple of years but they were not offering franchises in N.J at that time. I had zero experience in real estate investing and was impressed with the training and support HomeVestors offered. HomeVestors opened up the NJ market in February 2007 and I started in July. Best decision I ever made. We got off to a fast start and have purchased a couple hundred properties since. We could not have done this without the training, systems, marketing and support HomeVestors provides. We haven’t looked back since. We became Development Agents in 2010 and really enjoy working with new franchisees when they come on-board and helping them build a successful business.