2017 has been an expensive year in the Curious household.
- First, we had a baby! As a high income family, we can expect to spend $372,210 raising our child through age 17. That doesn’t count college, with estimates for a 4-year, private education at $500,000+ when our infant starts college in about 17 years. Yikes!
- Then, we hired a nanny! The celestial alignment of young children and working parents had us scrambling for child care options, and we eventually decided that shelling out $38,000/yr for a nanny was the best option.
- And the icing on the cake, the pièce de résistance: We just bought a new house! That’ll be $485,000, please.
We had a baby ’cause we wanted one, and we hired a nanny ’cause we needed one. Why did we buy a house, then?
We currently live in a home which we own free and clear. This “starter” home of just under 2000 square feet was purchased in 2006 when it was just Dr.-Mrs.-Dr. Curious and me. A few years later we added a dog, then a child a few years after that, and finally a second child this past summer. In the end, size mattered (home-wise), and what used to feel spacious and breezy began to fill up with the stuff of little humans and canines.
While our second child was still gestating, we recognized the eventual desire for more space and began to explore the possibilities.
What is a private home sale?
A private home sale simply means that we were purchasing the home directly from the owners—without the assistance of a real estate agent on either side. Sounds sketchy. Why would one want to do this?
In short: money. A private sale avoids incurring real estate commissions. In Pennsylvania, the real estate agents collect typically collect 6% commission—3% to the buyers agent and 3% to the sellers agent. Who doesn’t like saving thousands of dollars?
It’s a beautiful day in the neighborhood
We love our neighborhood, so we kept our home search hyperlocal—within-a 10-minute walk—encompassing an area containing maybe a few hundred homes. Having lived in the neighborhood for a decade, we covetously ogled a few prize homes and held our ears to the ground for any grumblings of impending moves.
Last fall we noticed one of the homes on our short list got a new roof. We knew an elderly couple lived there, but had not yet met them personally. “Ahh,” we connived, “perhaps they are preparing for a move!”
There was some debate as to how to approach the homeowners. A knock on the door, followed by “sooooo…are you selling your house soon?” seemed a bit unseemly. A cold call also felt a bit too forward. We ultimately chose a handwritten letter in the mail—a choice which has sharply divided opinions among friends and family. Some think it sweet and old-fashioned, others odd and tacky. But the proof is in the pudding: it worked!
Mere days after they received the card, the owners called to ask if we were psychic. You see, they had just been discussing the need to move to a smaller townhouse in a nearby retirement community. Our note was the impetus to get them moving!
Before we threw a suitcase full of cash at the owner, screaming “We’ll take it!” there was one small issue remaining: we had never been inside the house. The owners were happy to oblige, and a tour of the house confirmed it was shockingly close to a perfect home for us.
The owners/sellers had lived there for over 50 years, and needed some serious time and effort to vacate the premises. My wife was early in her pregnancy at this time, and we did not envision moving until at least several months after the baby was born. So we all shook hands and agreed to powwow in 8-10 months for more serious discussions.
This past July, the call finally game: it was time to negotiate.
Our thought process at this point was: now what? The obvious first step was negotiating a mutually agreeable sale price, but where and how do we start?
Cue the internet. Most real estate websites suggested a private sale begin with an appraisal—specifically, that the buyer and seller each get independent appraisals. We did, and for a cool $400 I obtained a 30-page report detailing the relevant comparison homes in my neighborhood, and that elusive starting price point.
The sellers got their own appraisal, and the gantlet was thrown. Ours was $465k, theirs $535k. (We were secretly thrilled with both of these numbers, as the seller had been floating hints in the $600k-700k range.)
So far, so good.
Both the sellers and we begin negotiations via email. This way, we can all take the time to consider offers, and minimize the chance of a reflexive angry or emotional response. Here is how it went:
- Following receipt of our initial appraisals, we used $500k—the midway point between the two appraisals—as a starting point. However, the comparison homes used in the appraisals included a 6% real estate commission, so we needed to account for this. We settled on subtracting 5%, resultng in an initial offer of $475k. Boom, email sent!
- After a few days, we receive a long reply touting the many unique and custom features of the house (the owner was an architect who helped design it) with a counter offer of $500k.
- In a move that would haunt us later, we came back with an offer of $485k, “as is.” We knew the house needed some minor structural work and significant cosmetic updates and, in our minds, “as is” meant that we would not attempt to negotiate a price decrease for these items after inspection. We would come to learn that “as is” means something quite different in real estate parlance.
The sellers replied with a jubilant “YES!” to our offer of $485k “as is.” My wife and I hugged in celebration like The Price Is Right showcase winners, but little did we know it was only the start of a long and stressful few months.
After our handshake agreement on sale price, two key processes simultaneously commenced:
- Mortgage application
- Home sale
Something old, something new, something borrowed
Applying for a mortgage is straightforward but silly. An incomplete list of the necessary documents we had to submit included:
- Prior two years of tax returns
- Prior two years of W2’s
- Two most recent paystubs from each of us
- Two most recent bank statements for all accounts held
- Photocopies of driver’s licenses
- Property tax and homeowner’s insurance information from current residence and new residence
- Numerous letters of explanation from us explaining: how we found the property without a realtor; our relationship to the sellers; our motivation to purchase the property; our intention for the property (i.e. primary residence); and the exact remodeling we plan to perform.
- Cheek swab for DNA profiling*
*only in dystopian future.
Before the mortgage application was sent to underwriting for final approval, they needed a signed sales agreement. For the uninitiated, the sales agreement is a standardized form stipulating the terms of the home sale. Among other things, it specifies the sale price, timing of the sale, and the so-called contingencies—items which, if both parties agree to them, must be addressed for the sale to proceed.
Two important contingencies are the mortgage contingency—i.e. the sale is contingent on our approval for a mortgage—and the property inspection contingency (bold is for foreshadowing).
We got (a) problem(s)
Transactions involving large sums of money are rarely simple. Ours was burdened by an added layer of difficulty and thorniness due to the lack of real estate agents as middle men for our communications. Any problems that arose were addressed directly with the sellers, for better or worse.
Problem #1: “AS IS”
When presented with the sales agreement, the seller balked at our election of a home inspection contingency. In his view, “as is” meant that we had agreed to purchase the property without an inspection. Technically, he was right.
In our naiveté, we took “as is” for its colloquial meaning rather than its real estate meaning. A buyer chooses one of three options regarding the home inspection contingency:
- Full home inspection. This most common options allows a full inspection, with the buyer and seller negotiating repairs and price afterward.
- General inspection. A full inspection is also performed, but there is no option to negotiate. However, the buyer can still completely opt out of the contract based on the findings at inspection.
- As is. Buyers waive the right to any home inspection. We had inadvertently agreed to this. Whoops and shit.
The buyer refused to allow a full inspection. We pinky swore that we would not negotiate price after the inspection, but he was stuck on the “as is” sale, and he would not budge. All are frustrated and a bit angry for a few days.
At this point, we seriously considered backing out of the deal. No inspection, no sale, damn it! Once our tempers cooled, we discussed our dilemma at length with my wife’s architect brother.
His take: the seller’s disclosure was detailed and without red flags and, if a significant structural problem was present, it should be blatantly obvious even to our inexpert eyes. He talked us through a few items to look for, and we walked through the house one more time with the sellers. It looked good to us. Plus, we really loved the house.
After a few days of deliberation and hand-wringing, we decided to purchase without the inspection. Only time will tell if this was a foolish and expensive mistake.
Problem #2: RADON
Two additional contingency items (with which the seller did not take issue) were the radon and pest inspections—standard in my state. The pest inspection was mercifully fine. Radon levels, however, were elevated.
Radon is a radioactive gas implicated as a causative factor in lung cancer. It is ubiquitous in the bedrock in many parts of the world, and can leak through the foundation into homes, especially in basements.
[As an interesting digression, the threshold level above which radon is considered “elevated” is not without controversy. The epidemiological data used to determine this threshold is from underground miners exposed to much higher levels of radon over 5 years. The cumulative dose to which the miners were exposed was then extrapolated to an arbitrary, longer period of time that someone might live in a given home.
Herein lies the controversy: to determine the threshold, the EPA and NRC (National Research Council) assumed a household member would be exposed to radon for 18 hours a day, 365 days a year, for 70 years. That’s a lot of time spent at home! It’s also far from clear that longer, lower levels of radiation exposure pose the same risk as shorter, higher exposures. The threshold level also assumes the individual is a smoker, which further increases lung cancer risk by a factor of 10.]
End digression. Our radon level exceeded the threshold value of 4 pCi/L, and the seller was required to perform radon mitigation. This involves hiring a mitigation company to drill into the bedrock and vent the radon gas via a pipe extending above the roofline.
Problem #3: MORTGAGE RATE LOCK EXTENSION
Just as we glimpsed calmer seas ahead, another storm arose. The sellers were moving to a retirement community, and discovered that their new residence would not be ready until 2 weeks after our mortgage rate lock expired. Whoops and shit.
Mortgage companies don’t like being jerked around. Oh, they will gladly allow you to postpone the closing date and maintain the interest rate on your mortgage, but not without throwing some Benjamins their way. Mortgage companies call this extra money “points,” expressed as a percentage of the total mortgage amount.
In our case, extending delaying our closing and extending the mortgage rate lock would cost us nearly $2000.
It wasn’t a pleasant conversation, but the sellers ultimately admitted that they were responsible for the delay and our additional incurred cost. They agreed to pay this cost at closing in the form of a “seller assist.”
Problem #4: DEATH AND DESTRUCTION
Sprinkled throughout this entire process like evil salt and pepper were several personal disasters which befell the sellers.
First, the seller’s brother died unexpectedly. He was 99 years old, so it wasn’t exactly a shocker, but obviously still traumatic.
As a result, the seller had to deal with the apparent mess of his brother’s estate, and take over the family business, from which he later discovered some employees had been stealing.
A few days later, the seller’s wife fell and broke her hip, requiring surgery. After a relatively short hospital stay, she was discharged home to recover. Whew!
Unbelievably, she fell again about a week later, and re-fractured her femur, requiring yet another surgery and longer recovery. Dang!
When it rains, it pours.
For the sake of brevity, I will omit countless forms, signatures, and communications needed during this process. The emails, texts, and phone calls certainly number in the hundreds, perhaps over one thousand.
Suffice to say that many governmental and private agencies collected their taxes and fees, and our signing hands were cramped by the end of it.
After the prior months’ roller coaster of emotions, the actual closing was a breeze. Our mortgage broker put us in touch with a lawyer who performs closings for a flat fee of $500. Forty five minutes after sitting down with the lawyer and the sellers, the home was ours!
We are the proud and slightly beat-up owners of a new home. What did we learn in the process?
- Be patient. The time from initial contact with the sellers to closing was almost a year. Admittedly, the length of our home sale process was unique to the situation, and augmented by the fact that we were in no hurry to move. But all home sales, private or traditional, need to be approached with patience for the process and time involved.
- You need help. The number of moving parts and deadlines in a home sale made my head spin. Realistically, I don’t think it is possible to complete a private home sale without either personal experience or professional help. We received extensive guidance and answers to our questions from the mortgage broker, closing lawyer, and home insurance agent, among others.
- Speak to the seller in person, if possible. I hate conflict. This made it extremely challenging when a problem arose, forcing me to confront the seller with the issue. I found that speaking in person (or less ideally on the phone) invariably resulted in less anger and frustration compared to a text or email interaction.
- Have access to a scanner, preferably in your home. The home-buying process moves forward in spurts and starts, and you occasionally need to get papers signed and sent ASAP. In this age of PDFs, many forms can be sent via email, signed, scanned and sent back via email in a few minutes. A scanner at home is a bit time and headache saver.
A home sale almost never occurs without a hitch—big or small—and a private home sale is that much more fraught with potential pitfalls. Was it worth saving the 3% buyer’s real estate commission (~15k in our case) by pursuing a private home sale? At some points during the process, I might have said “no.” But in full retrospect I am glad we did it, and are the proud owners of a wonderful new home.
What are your experiences with home buying and selling? Have you ever purchased privately? Please comment below!