An FSBO (For Sale By Owner) selling approach is one that does not involve estate agents. House owners generally go for FSBO because it helps them save on thousands of dollars in agent fees and commissions.
Needless to say, an FSBO sale can pose various challenges, one of which is preparing the for sale by owner contract, which is a summary of all the agreements between buying and selling parties. Although writing up such a contract sounds simple enough, it needs to be written in the required form and should consist of all essential elements to be considered legally binding.
Basics of A Contract
As mentioned above, every contract needs to follow some basic guidelines to be rendered legally valid and binding. A contract can also be verbal, but a written contract keeps both parties protected and can be used as hard evidence in case of future problems.
Owing to their details, real estate contracts are almost always written, with every possibility and eventuality clarified for the interested parties. There are some essential characteristics that must be part of all real estate contracts.
It is vital for a contract to be legally binding because the court does not indulge in matters concerning contracts that are legally invalid. However, if one of the two parties breach a legally enforceable contract, they can be sued in a court of law.
Note that a contract is different from an agreement, which is a mutual understanding between parties but without any enforceable rights or obligations.
Essential Characteristics of a For Sale by Owner Contract
1) It should be for a legal purpose:
You cannot write enforceable contracts for illegal purposes. Your contract will also be considered illegal if it misses any of the essential elements and is, therefore, rendered unenforceable.
2) Competence of the involved parties:
To be competent, the two parties must be above the age of eighteen, be in a healthy mental state, and not under the influence of alcohol or drugs at the time of signing the contract.
If one party is proven to be incompetent, the other party can nullify the contract. Unconscious, underage, or mentally deficient parties are not allowed to execute contracts.
3) Consideration:
For a contract to be legally valid, the two parties need to exchange something of value, such as money, goods, or services. If only one of the two parties is bringing in something of value, the law will consider it a 'gift.'
4) Offer and acceptance:
There should be a specific offer made by one party and an acceptance of that offer by the other party.
5) Bona Fides:
This translates to 'in good faith,' meaning that both parties should agree to the identical terms and create a binding agreement.
6) Free will:
Neither of the two parties should have been coerced into entering the contract. If that is the case, the contract can be considered null and void.
Additional Requirements for Real Estate Contracts
The characteristics above are a part of every legal contract. However, real estate contracts need to have some extra characteristics:
1) Names and Purpose:
Your contract should begin with all the basic information. This includes the legal names of all the people or corporations involved. The buyer and seller should be explicitly mentioned, along with the buyer’s marital status.
Once this is done, the next step is to give your document a title. Keep it simple and descriptive – something like ‘Sales Contract for Real Estate’ should work just fine.
2) Description of the real estate:
Remember that description does not mean using salesy and promotional jargon – this is not the place for that. Instead, what is required is an accurate description of the property extracted from the property deed, along with the precise address. The county recorder's office will provide you with the property deed.
Clearly list down and describe everything that is included in the sale. For instance, you will have to describe any garden furniture and electrical appliances like air-conditioners or dryers. Clarify if these items are being sold along with the house.
The last standard part is the signature block, which is generally put right at the end. However, some states require the buyer and seller to put their initials on individual sections of the contract to indicate their acknowledgment and agreement of the terms.
3) Payment terms:
You are required to list down the full purchase price before subtracting earnest money. The amount and method of earnest money payment, as well as the date it is due, should also be specified in a for sale by owner contract.
Next, the payment terms for the remaining amount are included in the contract. Usually, the real estate payment is made in full at the time of closing.
It is important to precisely outline how much of the money will be paid in cash and how much will be funded by the mortgage company or bank.
Include all real estate tax information, including who will pay the taxes and how. Generally, these taxes are prorated and split between the parties, with either party making the payment at closing.
Make sure that the payment section is clear and unambiguous.
4) Disclose all other essential information:
This could include information about any restrictions or easements on the property, any structural defects, or other hazards. You will even have to disclose if you have any knowledge about any deaths in the house or if a sexual offender resides in the region.
Contingencies, such as pest control reports, mortgage funding, or home inspection, will also have to be detailed. Contingencies are conditions in which you can rescind the offer without being penalized. For example, if you can withdraw the offer if the potential buyer fails to arrange the required funding.
5) Closing procedure details:
This includes information, such as the date, time, and location at which the sale is to be finalized. Once a buyer accepts your offer, you have between 30 and 60 days to execute the closing, although you might negotiate a shorter or lengthier period.
Closing can be done at a title company, the office of a real estate attorney, or a bank. The contract should contain details about the closing costs and the bearer of those costs.
Writing up an FSBO contract can be overwhelming and time-consuming, but it might well be worth it, considering that doing so allows you to save a great deal of money. Feel free to contact us if you need any further information or advice.