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If you’ve chosen to sell your home FSBO (For Sale By Owner), one of the most important and complex parts of the sale process is writing a home sale contract. A home sale contract is a written sale agreement that outlines the terms of the sale the seller agrees to an offer on his/her home. This agreement is a legally binding contract. Normally, the buyer’s real estate agent gives them a form with all the required fields and gets the contract written. It is also considered prudent to have a real estate attorney look over the contract once before closing on it. However, if you decide to not use their services, here are some DIY tips for writing a contract for selling a house to guide you.
Types of offers
There are essentially two types of offers that you as a seller will have to deal with before you enter into a real estate purchase agreement with a prospective buyer. Let’s take a minute to define both of them.
A non-binding offer is an indicative offer made by the buyer in order to open up a channel for contractual negotiations between the two of you.
While the purpose of this offer is for the buyer to express interest in your property there are certain factors that should be included in this document.
A non-binding offer must include an indicative price range, expected sources of finance for the purchase, payment terms, and estimated closing date.
An indicative offer is not legally binding either to you or to the buyer.
If there are certain aspects of the non-binding offer you are not satisfied with, the next step is for you to send the buyer a counteroffer clearly stating your preferences.
If and when a buyer responds with an offer that has terms and conditions that are satisfactory to you, you can accept it by signing the offer unconditionally. This is called a binding offer.
Considering you cannot easily back out of a binding offer, it would be advisable to go through it with a fine-toothed comb before signing on the dotted line. If you’re easily confused with legal jargon, it may be prudent to get an experienced realtor or an attorney to go through the offer before you accept it.
Basic Information Needed for an FSBO Contract
The first part of writing a For Sale By Owner home sale contract is putting down the basic information of the real estate transaction.
Naming the document
Begin by naming the document to make its purpose clear to all parties involved. While there are no hard and fast nomenclature rules, naming the document a “Home Purchase Agreement” or “Real Estate Purchase Contract” would be ideal.
The name of the document should appear on the top center of the document. Once the document has been named, you do not need to use the full name in the rest of the document. For example, if the document is named “Home Purchase Agreement”, you can simply refer to it as “Agreement” in the document.
Details of parties
The first thing that should be stated is your and the buyer’s full legal names. Both your legal marital status and current residence addresses should also be mentioned.
These details must be mentioned in the first part of the contract. However, once your identities have been established, you will be referred to as the seller and buyer throughout the rest of the document.
Add a date
Date the contract accurately. The date mentioned ought to be the date the contract is signed by both parties.
Ideally, completion of the sale of a house takes between one or two weeks once the contract has been signed. Dating the contract is essential to legally protect both the buyer and you in case of disagreements during that time period or alter.
The agreement needs to have the address of the property you’re selling, as well as a detailed legal description of the property.
The legal description of the real estate can be found in the deed to the property, a copy of which you can easily procure from the recorder’s office.
Personal property description
If you’re skiing any furniture and effects, such as air conditioners, refrigerators, dishwashers, etc. along with the house, the contract must include a detailed list of all those items as well.
The end of the document should feature a signature block where your and the buyer’s names will be printed, and space should be left for the both of you to sign the document.
Full purchase price
The sale contract should mention the full price the buyer is expected to pay to purchase the property.
Terms of payment
The contract should also clearly mention the terms of payment as agreed by both parties.
For example, if the buyer needs to obtain financing to buy your home, then the payment will be made in full on the closing date, which is when the buyer gets possession of the property.
If you’ve made alternate arrangements with the buyer, like for example, accepting the payment in installments, those details must also be clearly mentioned.
The terms of payment must also mention which one of you bears the closing costs.
Earnest money details
Earnest money is the money the buyer will pay you to confirm the contract. Simply put, this is an amount that the buyer will pay as a sign of serious intent in buying the property
Your FSBO contract should include the date the buyer has agreed to pay you the earnest money, the amount that will be paid as well as the escrow agency that will hold the money until the sale is complete.
Property tax agreement
In most cases, the property tax is paid by the seller until the closing date of the sale. Whatever your agreement with your buyer is with regards to the payment of property tax must be clearly mentioned on the contract.
Read more: Make home sellers earn money
The disclosure statement is a very important component of the sale contract. This is a statement where you disclose all the existing flaws your home may have, be it flooding problems, HVAC or electrical system issues, leaking plumbing, the presence of hazardous lead-based paints, or structural defects.
While it is not uncommon for buyers to get professional home inspections done to unearth such issues before making an offer, this is not a mandatory procedure. So if your home hasn’t been inspected, you will be expected to fill a standardized disclosure form and only disclose those flaws that you’re aware of.
However, keep in mind that wilfully withholding major problems in your disclosure statement is legally punishable.
Contingencies ought to be a part of your home sale agreement to ensure both you and the buyer have an opportunity to walk away from the deal if things don’t fall into place.
For example, a financing contingency is a clause that allows a buyer to walk away from a contract if he/she fails to come up with the finances required to buy the property before the closing date.
Similarly, if the buyer gets a home inspection was done that shows the house to be in a worse condition than mentioned in your disclosure statement, the buyer has the right to walk away from the sale. This is known as an inspection contingency.
Inspection contingencies state that the buyer must get your home inspected by a certified professional within a week of the agreement being signed. If everything is in line with your disclosure, the sale proceeds as is.
However, should a buyer’s inspection find any major discrepancies, the buyer has the choice of walking away from the deal altogether. Most buyers use this as an opportunity to negotiate the sale price down, or to get the homeowner to bear additional costs, such as closing costs and repairs. So keep these aspects in mind to make sure you don’t lose out on a prospective buyer.
Get an expert opinion
Real estate deals are not matters to be taken lightly, and even the most experienced realtors slip up sometimes. While selling a house without using the help of a listing agent may save you money, it is always advisable to have your sale contract double-checked by a real estate attorney to make sure you’ve not left any loopholes that could be detrimental to your end of the home sale.
Read more: Seller’s preparation for a home inspection