Buying from a friend (without a realtor)?

[TheGadfly]

Hi all,

If this has been covered, please point me to it.

My wife and I are planning to buy a house in Providence, RI owned by a long-time family friend. They are going to give us a very reasonable price, which we can't pass up.

We've been through the home buying process once before but I expect this to be quite different. Can someone walk me through the steps and highlight any pitfalls I should be aware of?

Context (if it's helpful):

• The house has a "Zestimate" of ~$450k but likely needs substantial work. We are planning to pay $400k for it; however, that number could be lower depending on what I find during the inspection. The sellers were clear that they don't intend to make a profit from the sale of the home so I don't anticipate quibbling over the sale price too much.
• We need to sell our current house for the downpayment on the new one. We expect to have $55-60k in proceeds from the sale. We have cash to get us to 20% down; however, I would consider having the new house appraised to get a "gift of equity". I'm not super educated on how this works but I've read a bit about it.
• We are not working with a realtor but will likely hire a real estate lawyer to facilitate the transaction
• The sellers are comfortable with us moving in a couple weeks before closing because they don't currently live there
• The sellers' house has been vacant for the last 5 years. Friends of theirs occasionally stop by the house to make sure there aren't any leaks or catastrophic issues.

Any and all tips and tricks are welcome!

[boarder42]

no real need for the "lawyer" just talk to your local title company and get the paperwork from them its standard in most states and the lawyer fees are unecssary.  Closing will be handled by your title company and your mortgage lender.

[beekayworld]

Are you financing this through your friends?
If not, and you are using a bank for the mortgage, the bank is going to want to hire the appraiser and you will pay for it.

My experience is that a bank appraiser will come up with a number close to what the house is selling for (bank is lending 80% of house cost. Your downpayment is the other 20%), even after I hired my own appraiser who came up with a higher number. Banks are conservative.

[sailinlight]

Make sure your offer includes a clause that if it appraises for less, they will either refund your earnest money, or will lower the price to the appraised price. This could be your chance to get it for a lot less if you have inside knowledge of how much it will take to get it to market value.

[boarder42]

Make sure your offer includes a clause that if it appraises for less, they will either refund your earnest money, or will lower the price to the appraised price. This could be your chance to get it for a lot less if you have inside knowledge of how much it will take to get it to market value.

It's not necessary to put in the offer bc any offer that has a loan the bank will kill it for you if it doesn't appraise. It's also highly improbable it doesn't appraise. Appraisers jobs are to put it at the price of the contract and they typically do that. Also op claimed it's a good deal. The out clause in the contract is the inspection. Bc you can just opt out after inspection.

[Car Jack]

There are some things here that aren't correct for New England.

In Rhode Island (as in the rest of New England) title companies are not commonly used like they are out west.  Your best and cheapest way to go is to hire your mortgage company's (or bank's or credit union's) attorney to also represent you.  I've done this several times and it's a couple hundred dollars.  Since the attorney will search the title for the bank, they do literally no extra work representing you.  They can also handle closing.  I've had this done several times.

Do NOT, NOT, NOT rely on some internet value on the house.  Case in point:  My wife's aunt went into a nursing home and as POA, she got the sale of the house going.  It was built in 1890 and was in need of a ton of repair.  I joked that the knob and tube wiring was holding the house together and a coating of asbestos and lead paint dressed it up.  But seriously, it had all that.  Zillow estimated the house to be worth $295k.  It sold for the top bid of $135k, which impressed me as I had predicted that it would never go over $80k.  Thinking it is worth $450 and a bargain at $400 isn't doing your due diligence.  You want an appraiser to go over it and give you a realistic number.  The example I used above was on Vernon Hill in Worcester, so less than 100 miles from anywhere in Rhode Island and with the same accent, dropping "R"s from words (horse = haas) and using them in words that don't have "R"s (idear).  :D

[Fishindude]

If your friends are giving you a deal, I don't think it would be wise to get an inspection and then ask for any more concessions.
Get with your banker beforehand to work out how best to do the down payment, structure the loan, etc.    If you have the 20% as stated, just put it towards the purchase, then keep whatever equity you get from your present home sale to replace your savings.
No lawyers needed, work with the local title company.
I would not move in until the deal is done and money has changed hands.  Would also be a great time to do any painting, flooring or renovations, prior to moving yourself in.

[rocketpj]

I avoid real estate deals with friends and family for the simple reason that I want them to get the maximum they can for their sale, and I want to pay as little as possible for my purchase.

My FIL recently asked if I'd be interested in buying some of his commercial property at a bargain, and I said much the same to him.  If he wants to sell then great, make as much as he can.  I'll go find a bargain somewhere else.

[Fishindude]

I avoid real estate deals with friends and family for the simple reason that I want them to get the maximum they can for their sale, and I want to pay as little as possible for my purchase.

My FIL recently asked if I'd be interested in buying some of his commercial property at a bargain, and I said much the same to him.  If he wants to sell then great, make as much as he can.  I'll go find a bargain somewhere else.

Every real estate transaction does not have to wind up with one party winning and another party losing.
There is nearly always some middle ground that can satisfy both parties.