Write a FSBO Contract

When you own a home and wish to sell it without the assistance of a realtor, you must write a contract for the sale of the property. This type of contract is commonly referred to a “For Sale by Owner,” or FSBO, contract. It outlines the terms and conditions of the sale in detail, as well as the rights and obligations of both the buyer and seller. By including the proper details and language in your contract, you can write an effective FSBO contract and protect your legal rights related to the sale. Plus, it can save you up to six percent of the property’s selling price by not using a real estate agent.

Steps

Stating Basic Information in Your Contract

1. Name the parties to the contract. The parties will include the buyer(s) and seller(s). The contract should state the full legal names of all parties and identify each party as a buyer or seller. The contract also should set forth the marital status of all parties, because marital status directly affects how parties legally hold title to property.
   • For example, the contract could state "Jane Doe, Seller" and then refer to Jane Doe as "Seller" throughout the rest of the contract. Jane's full name only needs to be mentioned twice - once in the opening paragraph of the contract so that it is clear that she is the seller, and once in the signature block at the end of the contract, below her actual signature.
   • "Seller" and "Buyer" are the most commonly used designations for the parties to a FSBO contract.
2. Title the contract. There is no right or wrong way to title a contract. It is important for a contract to have a title so that its purpose is clear. This title also allows the parties to easily identify and refer to the contract. The title should be placed at the very beginning of the contract.
   • For instance, the contract could be entitled "Real Estate Purchase Agreement." The contract could then be referred to as "Purchase Agreement," or simply "Agreement" throughout the body of the contract.
   • Similarly, the contract could be entitled "Real Estate Sales Contract." The body of the contract could then use the shortened version of the title, i.e. "Contract," throughout the remainder of the contract.
3. Date the contract. It is essential that the contract be dated to protect both parties. In the event of a dispute, the date of the contract could become essential. All other obligations of either party that exist pursuant to the contract also should bear the relevant dates.
4. Describe the real estate. The contract should state both the common residential address of the property and the full legal description of the property. You will find the full legal description in the deed to the property, which is a document that shows ownership of the property. You can get a copy of the deed or an affidavit of sale from the recorder’s office in the county in which the property is located. You may have to pay a small fee to get a copy of either one of these documents, depending on the county and state in which you live. However, both of these documents will contain a full legal description of the property.
5. Detail any personal property included in the sale.The body of your contract should specifically name and describe each item of personal property involved in the sale. This is important because both parties to the sale must be absolutely clear on what personal property is included in the sale.
   • For example, appliances, such as stoves, refrigerators, and dishwashers, are often included in the sale of a home, but are not always included. As a result, the contract should specifically describe and list all appliances that the parties intend to include in the sale.
   • Fixtures are another item that are typically included as part of the property being sold in a real estate contract. These are items of personal property that are affixed to the real estate in some way. These might include plants in the yard or other landscaping, as well light fixtures throughout the home. Again, the contract should specifically list those fixtures that are being included in the real estate sale.
6. Include a signature block. At the end of the contract, there should be a place for both buyer and seller to print and sign their names. Some parties have a notary public present at the signing of the contract in order to witness their signatures. A notary public is usually available at your local bank, courthouse, or title insurance company. However, most states do not require that a notary public notarize a real estate contract.

Setting Forth the Payment Terms

1. State the full purchase price. Every FSBO contract should contain the full purchase price to be paid for the property. This is the total amount of the purchase price before any earnest money is deducted.
2. Describe how the full purchase price will be paid by the buyer. Many FSBO contracts require that the buyer obtain financing to purchase the house outright. In this case, the purchase price would be paid in full at the time of the closing of the sale. Other times, the seller may agree for the buyer to purchase the home on contract, by paying monthly installments toward the purchase price over time. The body of the contract should contain very clear language about how and when the purchase price will be paid by the buyer in full.
   • For instance, the contract could read, "Buyer shall pay the purchase price in cash at the time of closing the sale."
   • If the parties intend for the buyer to purchase the property over time, then the payment provision could read, "Buyer shall pay the sum of $10,000.00 in cash to Seller at the time of closing the sale. The balance of the purchase price, or the remaining $75,000.00, shall be paid by Buyer to Seller in 75 equal monthly installments of $1,000.00 each."
3. Give details about any earnest money to be paid by the buyer. Earnest money is a percentage of the purchase price that the buyer pays in advance in order to show good faith in proceeding with the sale of the property. Typically, earnest money is between three and five percent of the purchase price. It is usually held in escrow or trust by a title company or financial institution until the sale is complete.The contract terms should include the following:
   • The amount of earnest money to be paid
   • The date on which it should be paid
   • What entity should hold the money
   • A sample earnest money provision might read, "Buyer shall deliver to Seller earnest money in the amount of $500.00, no later than two days from the date of this Agreement. Said earnest money shall be delivered to [insert name of trust company] at [insert address of trust company], to be held in trust until this Agreement is fully executed or terminated."
4. Describe how property taxes will be paid by the parties. In many cases, property taxes are prorated between the parties as of the date of closing. Alternately, the seller may agree to pay certain property tax installments before the buyer becomes responsible for paying any taxes. If so, the contract should be very specific about which installments will be paid by whom, as well as the due date of those payments.
   • For example, a typical property tax provision in a FSBO contract might read: "Seller is responsible for all property taxes due and owing through and including the date of closing. Buyer shall be responsible for all property taxes due and owing following the date of closing."
   • If the tax payment deadline falls at or near the time that the negotiations are taking place, then the parties may agree to prorate the taxes that are due. For instance, the Seller might be responsible for the portion of unpaid taxes that are due and owing up to and including the closing date, with the Buyer being responsible for the balance of the taxes that becomes due after the closing date.
   • In a case of prorated taxes, the contract provision might read "All property taxes, as determined on the date of closing, shall be prorated between Buyer and Seller as of the date of delivery of this deed."

Disclosing Important Information to the Buyer

1. Describe any easements or restrictions on the property. A FSBO contract should contain a clear description of any homeowner’s association restrictions on the property. Such restrictions might affect, for example, lawn maintenance or a fence that the buyer wishes to build on the property. Easements refer to another person or landowner’s interest in the property or a portion of the property. One example of an easement is a driveway that two adjoining properties historically have shared.
   • FSBO contracts regularly contain a provision stating that the Buyer is taking title to the property "subject to any zoning restrictions." A zoning law that affects a particular parcel of property typically restricts how the owner can use the property. In other words, if a property is zoned residential, the Buyer cannot expect to buy the property and turn it into a store.
   • Another common easement provision includes utility easements. It is common for contracts to include a clause that, for example, "permits utility companies to continue using those portions of the property that are necessary for the existing utility services to remain operable."
   • A contract provision relating to another type of easement might state as follows: "The property has a 'right of way' running through the southeast section of its grounds, which is clearly marked and allows the adjoining landowner to enter and exit his property as needed."
2. Provide all required disclosures. Some disclosures about real estate are required by federal law, and some are required by state law. These disclosure requirements vary greatly from one state to the next. Some states require that you disclose only those defects of which you already have personal knowledge. Other states require a seller to actively search the property for any hidden defects so that they can be disclosed to the buyer. Common examples of defects that may be subject to disclosure are zoning issues, flooding, leaky pipes, and leaky roofs.
   • Some sellers have an inspection done to make sure there are no problems or disclosures to make before putting the house up for sale.
   • Probably the most common disclosure comes from the Residential Lead-Based Paint Hazard Reduction Act of 1992. This federal law applies only to houses being sold that were built prior to 1978. The seller must disclose to a buyer about the possibility of lead-based paint being used in the home.
   • Most state laws provide for a specific standardized disclosure form to be filled out by the seller and given to the buyer. Both parties typically must sign and date the disclosure form. It is usually presented by the seller at the closing of the sale.
3. Describe any contingencies. The contract should contain detailed information about any contingency, or an event that can make the contract invalid if it occurs. The buyer would be free to walk away from the contract without penalty if the contingent event occurs. There are some common contingencies that many contracts contain.
   • HSBO contracts are often contingent on the outcome of an inspection of the property. This type of contingency should outline the timeframe in which the inspection should occur. It also should set out which party is responsible for the costs of the inspection. This type of provision can refer to a general home inspection, or a specialized inspection, such as one that tests radon levels.
   • An example of a contingency provision clause in a FSBO contract is as follows: "Buyer shall pay for a house inspection, to be conducted before closing. Renegotiation of the agreement will occur only if a major defect, which will cost more than $500.00 to remedy. If the defect would cost less than $500.00 to remedy, then the Buyer shall be responsible for the costs of remedying that defect."
   • Another common contingency involves the ability of the buyer to get financing. Again, this type of contingency should describe the timeframe that the buyer has to find adequate financing. It may even give details such as the amount of financing that is needed and the name of the mortgage company or financial institution providing the financing.
   • The contract also may contain a contingency based on the ability of the seller to obtain suitable housing. Sometimes, the seller wants to make sure that he or she has another place to live before the property is sold and possession given to the buyer. As a result, FSBO contracts may contain a contingency provision like this.
4. Give detailed information about the consequences of default. The contract should contain information about what happens if either party terminates the contract, which might happen for a variety of reasons. For instance, the contract might provide that if the buyer terminates the contract, the seller will be entitled to receive the earnest money paid by the buyer. This provision might also detail the potential remedies for a party when the other party has defaulted on the contract, such as seeking relief through the court system.
   • For instance, the contract might contain the following provision: "If Buyer breaches this Agreement or otherwise fails to purchase the property as agreed, Seller shall retain the earnest money paid by Buyer as liquidated damages or seek specific performance of the Agreement, at his discretion." This provision allows the Seller to either keep the earnest money paid and terminate the contract, or proceed to file a lawsuit against Buyer claiming a larger amount of damages than the earnest money that was paid.
   • Likewise, a FSBO contract might contain the following clause in favor of the Buyer: "If Seller fails to deliver title to the property to Buyer at closing as contemplated by the Agreement, the Agreement shall terminate and the Buyer shall be entitled to a refund of any earnest money paid." This provision gives the Buyer a specific remedy if the Seller fails to perform the terms of the contract.

Advising Parties About Closing Procedures

1. Provide detailed closing information. The contract should contain a provision that explains how and where the sale of the property will be finalized. This information should include the time period within which the closing of the sale should occur. A common provision is for the sale to close within 60 days of the signing of the contract. Closings often occur at title company offices, but also may occur at an attorney's office or a bank.
2. Allocate closing costs. Another contract provision should set forth the payment of necessary costs of closing, which are allocated as agreed between the parties. One potential cost is for deed preparation and recording. A deed is the document that formally transfers ownership of the property from seller to buyer. In most states, a deed must be recorded with a certain local government office in order to be put into effect. The contract should also address the payment of closing costs, which can be paid by one party or both parties. There also should be a provision that addresses the payment for a title insurance policy. Title insurance ensures that the property is being transferred free of any liens, encumbrances, or claims to ownership by third parties.
   • A typical FSBO contract provision that addresses closing costs is as follows: "Seller shall pay at closing all costs related to the release of any mortgage on the property, delinquent real estate taxes, and outstanding mechanic's liens."
   • Another way to address different types of closing costs is as follows: "Buyer shall be responsible for the payment of any title insurance policy and survey performed of the property. Buyer also shall bear the costs of preparing and recording the deed and any mortgage secured by the property that is the subject of this agreement."
3. State the date of possession. While possession of the property does occur at closing in some cases, many contracts provide that possession of the property occurs at a later date following closing. For instance, a contract might provide for the buyer to take possession of the property 30 days after closing.

Tips

• Consult an attorney for advice.
• Provide full legal description of the property, not just the shorthand version or description that may be used by the recorder’s office.

Sample

Here is a sample FSBO Contract you can copy and use.

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Doc:Real Estate Sales Contract

Sources and Citations

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