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I live in California. Usually when people buy a house here, they just entrust a broker. The broker deals with all the paper work, etc. for both parties. There are 4 parties involved...seller, buyer, broker, bank. (In NY...where I just moved from, there are 7...seller and broker, buyer and broker, each party' lawyer, and the bank)

How do I go about buying a house directly from an owner? I know a family friend that wants to sell.

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You don't have to use an agent (broker, as you call it), but it is strongly advised. In some counties lawyers are required, in some not. Check your local requirements. Similarly the escrow companies that usually deal with recording and disbursing of money.

You will probably not be able to get a title insurance without using an escrow service (I'm guessing here, but it makes sense to me). You will not be able to secure financing through a bank or a mortgage broker without an escrow company, and it might be hard without an agent.

Agents required by law to know all the details of the process, and they can guide you through what to do and what to look into. They have experience reading and understanding the inspection reports, they know what to demand from the seller (disclosures, information, etc), they know how and from where to get the HOA docs and disclosures, and can help you negotiate the price knowing the market information (comparable sales, comparable listings, list vs sales statistics, etc). It is hard to do all that alone, but if you do - you should definitely get a discount over the market price of the property of about 5% (the agents' fees are up to 5% mostly).

I bought several properties in California and in other states, and I wouldn't do it without an agent on my side. But if you trust the other side entirely and willing to take the risk of missing a step and having problems later with title, mortgage, insurance or resale, then you can definitely save some money and do it without an agent, and there are people doing that.

  • +1 for a comprehensive answer. I will add that some sites have information for sellers and buyers working without agents, for example, this one, which may be helpful. – Dilip Sarwate Feb 28 '13 at 16:11
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    Good answer, but since the buyer and seller know each other in this case, I'd suggest just hiring a real-estate attorney to arrange the paperwork. It would probably cost less than the agent commission (which is split between buyer and seller agents but paid by the seller). You'll still probably have to work with a title/escrow company to deal with the transaction, but those fees are in addition to the commissions anyway--almost impossible to avoid. – Rick Goldstein Feb 28 '13 at 16:53
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    Sorry to disagree, I understand the value of a Realtor in finding a buyer, but in this case, two people wishing to transact a sale, there's no value in adding another cost to the mix. When I bought a property from the gal who would years later become my wife, I waived conflict, and we used one Attorney to handle the transaction. In this case, I don't know what the agent would actually be doing. – JoeTaxpayer Feb 28 '13 at 19:07
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    @joe I'm not saying he shouldn't do it, I'm saying that I wouldn't do it. I don't know how well he knows that "family friend" and how much trust there is, but from my experience, mangling personal and business relations is not a good idea. – littleadv Feb 28 '13 at 19:15
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    Agreed. To keep it 'business' I recommend two lawyers. – JoeTaxpayer Feb 28 '13 at 20:47

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