Finding the right home to buy can be a challenging prospect, but knowing what to expect can make the process easier. You can (1) buy through agents representing the seller and/or use a buyer’s broker, (2) buy directly from an owner, or (3) shop the auctions and foreclosure sales. Once you find the house you want, you must make an offer, check for clear title to the property, and arrange for a home inspection. And after the closing, you can finally move into your new home. You can read Buying a Home – Part 1 here.

Buying from the owner

In a “for sale by owner” (FSBO, pronounced “fizzbo”) situation, the owner offers the home for sale without the involvement of an agent, and thus avoids paying brokerage fees and commissions. You deal with the seller directly, rather than through the seller’s agent. You should be even more thorough when inspecting the property in the case of a FSBO. That is because a seller generally has no requirement to volunteer information about the condition of the property, whereas a broker must generally disclose all material information that he or she possesses.

Without the involvement of real estate brokers, the parties typically require assistance to complete the necessary paperwork to finalize the transaction. Before you make an offer to purchase FSBO property, seek the advice of your attorney. A written offer to purchase real estate becomes binding when it is accepted by the seller, so you should make sure you have adequately protected yourself against problems that may subsequently arise.

At a minimum, your offer to purchase should be contingent upon satisfactory inspections (e.g., structure, termites) and the ability to obtain financing. If a purchase and sale agreement (also known as a P&S) is to be executed, your attorney should review that as well.

Buying at an auction or foreclosure sale

Property secured by a loan on which the debtor has defaulted is known as distressed property, and is often subject to foreclosure proceedings. You may be able to purchase a home at below-market prices during any of the following three phases of these proceedings:

  • If the owner of the home is in default but foreclosure proceedings haven’t yet been initiated, you can still buy the property directly from the owner. However, you may have difficulty getting clear title to the property (see below). In addition to buying the property from the owner, you may have to pay off various other lienholders.
  • Properties that have been foreclosed upon are offered at auction or foreclosure sale. If you are the highest bidder, you may purchase a home at a price covering the remaining defaulted mortgage balance and attendant costs. Some junior liens are eliminated before the foreclosure sale, thus clearing the title, but you will still be responsible for paying any outstanding property taxes.
  • Properties that were offered at auction but did not sell revert to the lender, and you may then purchase such property directly from the lender. You may get a bargain on a home this way, and you should get clear title, but you will still be responsible for paying any back property taxes.

Buying property at an auction may require a substantial cash outlay. Find out before the auction how much of a cash deposit you will need, whether the deposit is refundable, and whether financing will be available, or even accepted. In contrast, when you buy directly from a lender, you generally get good financing terms as well as a reasonable purchase price.

Because of the possibility of physical damage to distressed property or creditor liens against its title, there is a great amount of risk involved with purchasing it, so you’ll want to do some thorough research before you do so. Start out by:

  • Enlisting the aid of a professional home inspector to inspect the property thoroughly. Add the cost of any necessary repairs to the price of the house to get a better idea of what it will actually cost to buy the house. If you can’t inspect the property in advance of the sale, make your offer to purchase contingent on a satisfactory home inspection.
  • Investigating the property’s title for any junior liens or other title defects. Factor into the total cost of purchasing the house the money you’ll spend to find and correct title problems. Your attorney should include a guarantee-of-clear-title clause in your offer to purchase.
  • Having the property appraised. It’s important to know how much a home is actually worth before you can determine if the selling price is reasonable.