If you are planning to sell your house without a realtor, you may need a For Sale By Owner Contract. However, many FSBO sellers are not aware of this term itself.
Usually, the real estate agent is responsible for writing the purchase agreement. But in case you forego using an agent, you can create your own sales contract.
Contracts can be tricky and they are legally binding. Your purchase and sale agreement should be free of errors. Especially when hundreds of thousands of dollars are at stake!
🚀 The Rise of FSBOs
- According to Zillow, 26% of Gen X’ers and 36% of millennials listed FSBO.
- National Association of Realtors found that FSBO homes sold faster than agent-assisted homes. 77% of FSBO homes sold in less than 2 weeks.
- MLS is an important FSBO tool. Homes on the MLS sold faster and for 17% more than homes not on the MLS.
- Houzeo.com is America’s #1 For Sale By Owner website. Beycome and List With Freedom are the next best options.
What is a For Sale By Owner Contract?
An FSBO contract is a legally binding document used to buy and sell a house. Usually, a real estate agent creates the contract and ensures all terms are outlined carefully.
It protects the rights and interests of both the seller and the buyer throughout the transaction.
What is For Sale By Owner?
FSBO or For Sale By Owner is the process of selling a property without the assistance of a listing agent.
Often sellers take this route to save on agent commissions and may use a Flat Fee MLS service. The average listing commission is around 2.5% – 3%, whereas the buyer commission is around 2.5% – 3%. This adds up to usually 5%–6% of the sale price.
Who Draws Up Contract For Sale By Owner?
The seller’s agent is responsible for drafting the FSBO contract. However, there are a few other options available if you can’t write them:
- Hire a Real Estate Attorney: They have the knowledge and ability to draft a real estate contract. In some states, you may need to hire one to ensure the transaction is legally binding. They charge approximately $150 to $300 per hour.
- Hire a Limited-Service Listing Agent: A limited-service agent will only help you in some aspects of the transactions. They will have standard forms to help you draft up the FSBO contracts including seller’s disclosures, purchase, and seller’s agreement.
- Ask your Buyer’s Agent: If the home seller doesn’t have an agent, the buyer’s agent can step in to help. You can engage them as a dual agent who represents both you and the buyer. Alternatively, they can just be a transactional agent and not represent either party but just help ensure that the transaction remains on track and provides all the necessary forms and disclosures.
A Dual agent would charge significantly more for their services. Since a transactional agent is not representing either party, they are significantly cheaper.
If you plan to draft the FSBO contract yourself, consider looking at a real estate FSBO contract template online.
What to Include in an FSBO Contract
To draw an FSBO contract, you need to include the following information:
- Title of the Contract: The Title of the contract defines the purpose of the document. You may use a ‘Real Estate Sale Contract’ or something similar.
- Name of Home Seller and Buyer: The document should include the legal names of both the buyer and the seller.
- Date of the Contract: When you sign or close the sale, this date is important in case of any future dispute.
- Property Details: The location, shape, size, and boundaries of the lot should match the tax records.
- Payment Terms: Payment terms are critical for any real estate transactions. Explicitly highlight all of the price expectations, who pays closing costs, and related expenses.
- Method of Payment: The For Sale By Owner contract defines the buyer’s financing. it can either be a full cash offer or a traditional mortgage.
- Contingency Clauses: Contingencies are contractual rights allowing parties to back out of the agreement safely, without any penalty. Common contingencies in an FSBO contract include:
- Financing Contingency: This gives buyers time to secure financing and the option of getting their earnest money back.
- Inspection Contingency: The buyer has the right to back out of the deal if the home inspector reports any serious problems.
- Home Sale Contingency: If the buyer is unable to sell their current home within the specified timeframe, they can withdraw their offer.
- Appraisal Contingency: The buyer can blackout if the home is appraised for less than the purchase price.
- Closing Procedures: Your FSBO contract should include details about the closing procedure such as the closing date, time, and location. In the event of any change in information, the contract must be amended and both parties must sign it.
- Signature Block: You have to leave some space at the bottom of each page for all parties i.e., the buyer, seller, and witness to sign the contract. In some states, initials are required on certain sections of the contract. Check your state requirements and ensure they are met.
- Property Disclosures: Legal disclosures are an essential part of your purchase agreement. It is the seller’s responsibility to disclose all information required by law.
Is For Sale By Owner Real Estate Contract Enforceable?
Yes, they are enforceable if both parties agree and sign the document. However, a contract for FSBO will only carry legal weight if you take steps to ensure it.
- Legal Purpose: Your proposed contract should be something that is admissible in court. You can hire a lawyer who can review your contract for legal validity to ensure everything holds up in court.
- Competence: Both the signing parties should be able to understand the terms of the contract. Neither party can be a minor, under the influence of alcohol or drugs, and mentally ill.
- Consideration: There has to be a reasonable exchange of value between the parties.
- Agreement: The FSBO contract should contain an offer from the buyer and an acceptance from the seller.
- Bona Fides: Bona fides (in good faith) means that both parties should agree to the terms of the created binding agreement.
- Mutual Consent: The contract is only valid if it is signed with informed consent. If one party threatens or coerces the other, the contract is invalid.
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Conclusion
An FSBO contract is legally enforceable and valid only after the consenting parties sign them. The details including contract title and party names must be up-to-date.
If necessary, get the contract reviewed by a lawyer. Keep in mind that a “handshake transaction” without a contract is invalid.
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Frequently Asked Questions
1. How do you write a purchase agreement?
A purchase agreement is a legally binding document used to buy and sell a house. A purchase agreement should include the following: Name of buyer and seller, Address of the property being sold, Price of the property, Disclosures, and Signatures.
2. Who draws up contract in for sale by owner?
The seller writes the FSBO contract. The buyer agent or a real estate attorney can write it too.
3. At what point is for sale by owner house contract binding?
The contract becomes legally binding when both parties agree to the terms and sign it with mutual consent.
4. How does a for sale by owner contract work?
An FSBO contract works when all parties involved sign the document. You need to make sure the transaction and property details of the contact are included.
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