Buying a home from a friend or a relative can be a great choice. For one, you might already be familiar with the house. You can also score a better deal that can help save you money. Having a less complicated closing process is another great advantage.
However, there are also some disadvantages. Although you are friends with the seller, it is advised that you still go through inspections, get disclosure forms, and negotiate professionally. In some cases, business transactions between friends such as this can go sour.
Make sure to follow the right steps to avoid any conflict that can damage your relationship. Here are the do’s and don’ts of buying a home from a friend.
Do’s of Buying a Home From A Friend
Get pre-approved for a mortgage.
Once you initially discuss buying a home from your friend, make sure that you apply for a mortgage pre-approval from your bank. Your friend might not require it, but it’s a kind and genuine gesture that shows that you are serious in buying his or her house. Having an approval letter gives your friend the assurance that you are qualified for a mortgage and that you can actually afford to buy the property.
It can be stressful for both of you to go through the next steps of the home buying journey and then find out later on that you are not qualified for a mortgage.
Conduct a home inspection.
You might be familiar with your friend’s property already or have spent a lot of time there, but it’s still important to conduct a home inspection to see any structural damages, foundational cracks, and other hidden faults that you won’t easily notice.
By having a professional home inspection done, you’ll be more aware of any repairs you need to make or if there are any red flags that you need to avoid. It could save you money when negotiating the contract price or even save you from buying something you might regret in the future.
Get everything in writing
Just because you are friends with the seller, doesn’t mean that everything can be talked about without writing legal contracts and agreements. Being too casual about business transactions such as this is where conflicts and disagreements can root from. Even if you trust each other, it’s important to have a tangible piece of paper that you can use as a basis for your transaction. Make sure that the seller provides home maintenance and repair conditions, disclosure forms, homeowners insurance records, the contract of the property sale, and of course, the title of the property.
Don’ts of Buying a Home From A Friend
Try to do the paperwork on your own.
When buying a home from your friend, you might be tempted to skip hiring a real estate agent or legal attorney to handle any paperworks or legal documents. Unless one of you is knowledgeable about these things, it’s better to let the professionals handle it to avoid any mistakes that can cost legal repercussions later on.
Ask for a discount that’s way below the market price.
Depending on how close you are with your friend, some might say that you shouldn’t ask for any discount at all unless it is voluntarily given as a sign of respect. It might be okay to negotiate with your friend, but don’t think that just because you are friends, you can expect to buy it way below the market price.Whether your friend inherited the house or bought it with his or her own money, you should respect that it is your friend’s property and that you should buy it at a fair price.
Speaking of fair prices, on the other hand, you should also be careful about your friend selling it to you at a price that’s higher than its market price. Your friend could be the one taking advantage of you, and you should be cautious about this happening too. It’s best if you can have the property go through a home appraisal to determine its real value.
Forget to ask about a seller’s disclosure form.
Don’t forget to ask your friend to give you a proper home disclosure form so you can have a record of anything concerning that’s happened in the property before. In most places, this is mandatory and lack of disclosures can lead to lawsuits (which we don’t want to happen, of course). Did a fire occur before? Water damage or toxic materials in the house? Any past disputes over property lines or fencing? You might be friends, but of course, transparency is always important in any transaction.
Don’t forget to keep these in mind when buying a house from a friend. It’s a great chance to buy a house from someone you trust. It will make the homebuying process a lot easier, especially if it’s your first time buying a home. Just make sure to keep your discussions open to both parties’ ideas and to keep things transparent so that it can be a transaction that can benefit both of you.