THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, September 10, 1994 TAG: 9409080371
SECTION: REAL ESTATE WEEKLY PAGE: 06 EDITION: FINAL
COLUMN: About the Outer Banks
SOURCE: Chris Kidder
LENGTH: Long : 107 lines
Of the 4.2 million existing homes sold nationwide last year, most were handled by licensed real estate professionals who are members of a local board of Realtors. But nearly 20 percent of all transactions were ``For Sale by Owner'' (FSBO's, called ``fizzbows'' by the real estate industry).
A lot of buyers and sellers want to go the FSBO route until they find out that how much work it can be. With few exceptions, those who make it through transaction have earned every cent of profit they make.
The reason sellers chose FSBO is usually money: the real estate agent's 6 or 7 percent commission. If a house sells for $125,000, the seller will pay $7,500 or more at closing to the agents and brokers involved in the sale.
But extra profit from a FSBO transaction is often illusion.
Buyers understand that do-it-yourself sellers aren't paying a sales commission. They expect a bargain. Studies done by the real estate industry show that properties sold by real estate agents bring higher prices than comparable FSBO properties.
Sellers who go the FSBO route need to invest time and money upfront - services that real estate agents provide on speculation.
Good real estate agents pre-qualify prospective buyers before showing properties. Private sellers will have a harder time weeding out the lookers from the serious shoppers.
The cost of signs, advertising, long distance calls with prospective buyers and copies of restrictive covenants or other documents buyers want to inspect come out of the sellers' pocket.
Without real estate agents to manage the transaction and get paperwork in order, inexperienced sellers may find themselves running up larger tabs with their attorneys.
Even so, some sellers just won't sell any other way and that fact was the crux of a call I received last weekend.
A Suffolk man had found a ``For Sale by Owner'' house he wanted to buy in Kill Devil Hills. He needed answers for the questions buyers usually ask their real estate agents.
He had to shop for a lender by telephone. Where should he start? Most Outer Banks lenders offer mortgages for vacation homes and investment properties. Each offers varying combinations of rates, points, pay-back plans and debt-to-income ratios based on down payments and other factors.
Second home buyers can find financing for as little as 10 percent down. A general rule of thumb for qualifying is that primary housing debt not exceed 28 percent of gross income. Primary housing plus all other monthly debt shouldn't exceed 36 percent.
For investment properties where rents are necessary to qualify for the loan, lenders will expect 30 percent down.
Do-it-yourself sellers often have appraisals of their property to substantiate their asking price. But lenders will require their own appraisals or, at least, a recent appraisal in the borrower's name, before approving loans. Borrowers pay for these.
Does buyers need attorneys? Technically, no. In North Carolina, buyers and sellers can agree to draw up and record their own paperwork. Lenders will require title examinations and deeds drawn by lawyers. Smart buyers will want professional legal advice as well.
The buyer's attorney usually handles the sale closing. He or she may also represent the lenders and provide limited services for sellers in the same transaction.
The buyer's attorney is responsible for discovering any liens filed against a property or other title defects.
When it comes to liens, buyers should be aware of North Carolina's mechanics' lien law. It allows laborers, building material suppliers, architects and surveyors up to 120 days to file liens to recover the cost of construction or repairs to real estate. Sellers should be asked to provide proof that all bills for recent work on a house have been paid.
Buyers should also expect their attorneys to point out any unusual deed restrictions, rights-of-way or easements or other pertinent information detailed in their legal documents.
When buyers purchase rental or investment property, existing leases should be inspected. Under North Carolina law, leases for three years or less must be honored by new owners unless they specifically terminate when property is sold.
Buyers should visit town or county planning departments. Ask about future public works projects that might affect the property. Even if existing rights-of-way for streets, sidewalks, beach access parking and other public uses aren't presently needed, take the impact of future public use into account before buying.
Ask about zoning. If property is not zoned strictly for residential use, consider the effect of other development on long-range plans.
If buying unimproved property, ask about set-backs and other building restrictions. Check with the North Carolina Division of Coastal Management to see whether wetlands or other environmental protection regulations apply. If central sewage service is not available, sellers should provide county health department percolation test results needed for septic tank installation.
Buyers anticipating remodeling or additions to an existing house should ask about set-backs, septic tank requirements and other restrictions that might make further building impossible.
FSBO transactions offers more advantages to sellers than buyers. Inexperienced buyers can end up paying more than they need to pay because they don't know the ropes. Or, they can end up with a property that has serious liabilities because they didn't know enough to ask the right people the right questions.
As with any do-it-yourself project, FSBO buyers - and sellers - need to prepare themselves for the task at hand.
Sometimes hiring an experienced professional turns out to be the best way to get the job done right. MEMO: Chris Kidder covers Outer Banks real estate for Hampton Roads Real
Estate Weekly. Send comments and questions to her at P.O. Box 10, Nags
Head, N.C. 27959. by CNB