Buying a Home in a Private Sale, No RE, Potential Savings and Anything to Watch out for?

SkMed on 17/02/2021 - 12:35

Hi All,

I'm in the process of finding and buying my first home (1 bed, older stand alone unit, approx 400k budget, inner north of Melb).

I went about finding a place a little differently. Nothing currently on the market lately interested/suited me, however I noticed there are plenty of empty rentals that do, some of which I know have been up for rent for several months, even after dropping their rents pretty significantly.

I went to inspect one of these as a potential tenant before deciding to buy, so I reached out directly to the the property owner asking if they'd be interested in selling, and turns out they are. Really i'm not surprised as its been on the market empty for about 3 months, and they've dropped the rent and changed agents already (and rents continue to drop).

So now we are moving towards a private sale without the RE being involved at all, and trying to negotiate on the price.

My questions are:

  1. What pitfalls and potential issues should I be aware of when buying my first home privately without RE involvement.
  2. What savings can the seller expect by having me reach out to purchase privately? (as this will factor into my offer).

The savings I have calculated for them are potentially 10-15k on selling their home without the RE. I've read RE charge between 1-3 percent of the sold value, and then sometimes advertisement fees ranging from 1-8k, So my estimate is that they'll save about 10-15k on their end potentially, or is this way off the mark?

Thanks!

Financial

Comments

  • SF3 on 17/02/2021 - 12:37
    +10

    Engage a solicitor as you would when you buy a property.

    The seller/vendor should have one too.

  • p1 ama on 17/02/2021 - 12:46
    +1

    You should engage a solicitor and they should as well. Negotiation is done in the usual way with them presenting you with a contract of sale, you writing in an offer, signing it and returning it to them, which they will accept if they sign. Verbal offers are meaningless (unlike other areas of contract law).

    Their savings will probably be around $10k, I'd find it hard to imagine it would be more than 10k. Your estimates are largely on the higher end.

    • pndl on 17/02/2021 - 13:22
      +3

      Arguably buying from a vendor represented by a Real Estate agent doesn't provide much added protection. It's not like the RE provides any extra warranty. Maybe the only advantage is the deposit goes into a Real Estate Trust Account so in a sense if the sale is fraudulent or the vendor pulls out you get your deposit back. In your case I suggest that you pay the deposit into a Solicitor's Trust Account and not the vendor directly.

    • SkMed on 17/02/2021 - 13:30

      To make things official we would definitely engage a solicitor. But at the moment we are in direct contact and discussing. I already said I would be happy to pay what I'd offered assuming there is nothing major wrong after I've had a building and pest inspector through, possibly a few K more if nothing was wrong at all and she seems happy with that approach.

      My FYI, my fees and calculations were based partly on this article:
      https://www.realestate.com.au/advice/how-much-does-it-cost-t…

      • JimmyF on 17/02/2021 - 13:59
        +1

        It is just like you would do if using a REA.

        You offer a price and terms ie building and pest inspection, if they accept the price and terms then everyone's solicitors work together and draw up the paperwork, you sign, they sign, you pay a deposit into a holding account and then wait then wait for settlement.

        Honestly the REA job is next to nothing when you step back. Arranging some photos, put the listing online, and then stand at the door during inspections and wait for offers. Feed those offers to the vendor, and once its accepted, they basically disappear.

        I wouldn't worry about the 'savings I have calculated' for them, they'll either accept the price you are offering or not.

        Tip - Banks are SLOW at the moment, so 45 days is about the quickest you can settle if you need a bank loan etc.

        • jjjaar on 17/02/2021 - 15:00

          Tip - Banks are SLOW at the moment, so 45 days is about the quickest you can settle if you need a bank loan etc.

          I was thinking the same, but a friend just settled on his purchase in 30 days

          • JimmyF on 17/02/2021 - 15:23

            @jjjaar: It will depend on who your is bank and what arrangements you already have in place with them.

            If you have a bank pre approved loan all ready to go etc, a solicitor lined up etc, then you might be able to do 30 days. But if you haven't got a loan or solicitor lined up, then you'll be pushing uphill to get one approved and settlement ready in time.

            I'm hearing people struggling to get pre approval done in 30 days. Anyhow just a tip, up to the OP. But if they miss settlement, they can be up for fees etc. So don't get too excited in trying to settle early unless you know you can do it.

            • jjjaar on 17/02/2021 - 15:41

              @JimmyF: Oh yeah all of the above is totally correct.

              I’ve heard of horror stories and people not being ready by like 1-2 days which has resulted in expensive fees. Basically, give yourself more time than you think you need. Better to settle on time than late with fees.

            • SkMed on 17/02/2021 - 15:48

              @JimmyF: I have pre-approval already for almost triple on what im planning on borrowing, and have a deposit of almost 50 percent for this particular property assuming the accept my offer, so I dont think getting the approval should be an issue…

              I do need to find a solicitor/conveyancer still though, but I'll be looking into that asap.

  • Porker on 17/02/2021 - 12:49

    I bought my last house without a realtor. I and the seller engaged individual solicitors/conveyancers to do all the paperwork.

    I guess the seller saved on the 2-3% commission that real estate agencies take.

    In my situation, I still had a real estate agent involved but that's only because I needed a market appraisal of the property. This can be done by a market appraiser , but I just used my realtor that already manages the rest of my properties so they were happy to help (or keep my as a customer).

    In my experience, house prices are only as much as what someone is willing to pay. Even if you were able to justify offering $10-15k less, then of what value is that coming from? That 'value' is the unknown. Eg. I bought a house quite cheap which brought the street average price down - other owners asked how I got it so cheap? I bought it from a friend so the sale price that others were applying to similar properties was artificial.

    • SkMed on 17/02/2021 - 13:11

      I didnt say I would offer 10-15k less, but it would factor into my offer. I'd obviously meet somewhere in the middle. Maybe $5k less which is an advantage to us both..

  • tsunamisurfer on 17/02/2021 - 12:51
    +1

    I have sold 2 properties by myself, once on Gumtree.

    The buyer side would be even easier, engage a conveyancer / settlement agent of course.

    Be aware of what you are signing up for, understand what you are agreeing to and where to stipulate it.

    The Seller will hopefully have the standard RE Contract of Sale documentation.

    Just because the seller is saving $15k does not mean he is willing to share half or any with you.

    Your negotiating position remains the same not $15k better.

    • SkMed on 17/02/2021 - 13:12
      +1

      As above, I didn't say I would offer 15k less, just that it would factor into my offer. I'd meet somewhere in the middle, even $5k less.

  • netjock on 17/02/2021 - 12:54
    +2

    What pitfalls and potential issues should I be aware of when buying my first home privately without RE involvement.

    None. But get solicitors to draw up proper contracts.

    What savings can the seller expect by having me reach out to purchase privately? (as this will factor into my offer).

    Saving RE fees but why would they give it to you? Why would they sell at below market. Only reason why it would drop is if they are a motivated seller (loss of income to service the debt).

    • SkMed on 17/02/2021 - 13:15

      I don't believe my offer is below market, It's right on the money from my research so far. Just trying to understand how much exactly the seller will save by going private and avoiding the RE in case they come back with counter offers. Would be good to have some accurate info etc.

      • TheMindsetTraveller on 17/02/2021 - 15:07
        +1

        The seller saves on agent's commission (say 2%), marketing costs (say $5-7k), if going to auction - auctioneers fee ($1k) and possibly any voluntary furniture styling fee hire (say $5k) to spruce up the property. On a $400k property, a vendor could easily spend $20k just for the sales process.

        • SkMed on 17/02/2021 - 15:41

          Yeah, I think 10-15k saved on the sellers end is about right. But some people seem to think otherwise…

  • Muzeeb on 17/02/2021 - 13:11
    +2

    As others above have said…..

    Get engaged to your solicitor. They probably make more money than you. Let them buy the house.

  • cloudy on 17/02/2021 - 15:19
    +1

    It’s funny how you ask what the pitfalls are, when in reality I see it as only a benefit. No sales person who’s happy to agree to everything and probably deliver on less than that.

    I bought my place with a security system, agent promised he would ask the vender for the passcode. He never got back to me after I signed the paper work. The system never influenced my decision, but I’m sure if I dealt with the owner directly it’s a simple case of its XXX. I’d consider talking to an agent a bit like talking to a nodding parrot.

  • Seraphin7 on 17/02/2021 - 16:22

    My questions are:

    What pitfalls and potential issues should I be aware of when buying my first home privately without RE involvement.
    What savings can the seller expect by having me reach out to purchase privately? (as this will factor into my offer).

    RE involvement or not does nothing to assist you as a buyer. Have the other party draw up a contract of sale and then engage a solicitor to work through that as you would any other purchase.

    A sale transaction of ~$400k will likely have a agent fee of 2 - 2.5% (so $8 - $10k). Other marketing costs, etc. are additional that likely add up to about half that amount again.

    If you believe the "fair value" of the place in a "normal transaction" is $400k, look to offer around $370k and negotiate up to around $385k. You want to push that you are making this a "hassle free" transaction for them, but don't want to make them feel that you are trying to sneak a lowball offer through.

    Note, that from the vendor's perspective, if they also believe the "fair value" is $400k, they will likely expect costs per above (if they are truly informed). Obviously they will be still be seeking to extract the full $400k. This is where the negotiation comes in. If you both believe the place would sell for $400k in a "normal transaction", you should both be happy anywhere between $385k and $400k and so that's the negotiation range. Obviously if you have different views on value, you will/may get very different outcomes.

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