Deciding to sell your home is no easy decision. When it comes time to put your house on the market selling it yourself can be an attractive option.
Whether you’re a professional investor or a first-time seller, going rouge without a realtor can save you thousands on real estate broker commissions. As a seller, creating and implementing a for sale by owner or, FSBO contract, is one of your main to-do items.
Contracts are the key to making your sale official and legally binding. While making one without a realtor may seem daunting, this handy guide will tell you everything you need to know about creating a real estate for sale by owner contract template.
Why Go For Sale by Owner?
One of the biggest reasons people chose to sell their homes themselves is to save on real estate commission. Real estate brokers can typically charge up to 6% to sell your home.
The real estate brokerage fee usually includes listing your home on the MLS, marketing your home, touring it to prospective buyers, negotiating the final sales price, and getting you over the finish line at the closing table.
Depending on the value of your home, an agent’s commission can be thousands, if not tens of thousands of dollars. For this reason alone, many home sellers decide to give selling their homes solo a try.
With advancements in online home searches and social media, the process of selling your home alone is easier than it has been in years past. That being said, there are still a lot of hurdles you’ll have to overcome and questions you’ll have to answer when you’re selling a home without a real estate professional.
One of the biggest challenges a seller faces without an agent is drawing up the real estate purchase contract.
How the For Sale by Owner Contract Works
A FSBO or for sale by owner contract is designed to outline the conditions and terms of your home’s sale. When you draw up a contract, you’ll need to include the rights and obligations for both the buyer and seller as well.
These documents are required by law in order to complete a sales transaction.
When you properly execute a for sale by owner contract, not only will you be protecting your legal rights but you’ll also be saving up to 6% on realtor commissions. That’s a lot of extra money in your pocket.
Drafting the Real Estate for Sale by Owner Contract Template
It’s important to note that every state has a different requirement for the sale of a home. There are also different terms established for every home sale. In one sale, a home may be purchased in cash, for example, while another is through a mortgage.
Each scenario will significantly change the wording of the final real estate contract. So while a few of the basics in a for sale by owner contract template stay the same, each sale can be very different.
Let’s go over a few of the crucial elements to each FSBO contract:
1. State All of the Basic Information
You first need to start by laying out all of the basic information in your contract. The first place to start is with everyone’s legal names. You’ll also need to identify everyone as the buyer or seller and add the purchaser’s marital status.
Titling the contract is the next step. While there is no wrong answer here, you want to make sure the title of your contract clearly states the purpose. An easy one to use is, “Real Estate Purchase Agreement”.
This one may seem simple, but dating the contract is also a crucial piece. If there is ever a dispute, the date of the contract could be of importance.
You will also need to describe the real estate for sale. The contract should include the property address, and the legal description of the property. This can be found on the deed to your property. You’ll need to get a copy from your county’s recorder’s office for a small fee.
Details on what is included in the sale of the property also needs to be included. You’ll need to describe an exact list of appliances such as the stove, dishwasher, and dryer. Even though these are often included, they aren’t always sold with the property so it’s important to note them. You will also need to include fixtures and window treatments.
The final piece for this section is a signature block. You’ll want to place this at the end of the contract. You can also have the purchasers initial anywhere else you feel is important. In some states, it may be required that you notarize your contract as well.
2. Set Up the Payment Terms
Payment terms are a crucial component of every FSBO contract. You should always include the full purchase price of the property before any earnest money is deducted.
You will also need to include payment terms. In most cases, the home is paid for in full at the closing. If this is the case, your agreement will outline what they are paying in cash and what their mortgage company is funding. Be as precise and clear as possible here.
In the FSBO contract, you can also include how the earnest money should be paid. Earnest money is usually between three and five percent of the purchase price. The contract should include the amount of earnest money that should be paid, the date it is due, and where the money is being held until closing.
FSBO contracts also outline how real estate taxes will be paid. Most often, the taxes are prorated and split between both the buyer and the seller at the closing. It should be very explicit as to who is paying for which taxes and when.
3. Disclose All of the Important Information to the Buyer
FSBO contracts will also include any important information that needs to be disclosed to the buyer. If there are any restrictions or easements on the property, for example, you can write them out here.
FSBO contracts also include all of the required disclosures for a property. Some of these disclosures are determined by federal or state law. Disclosures typically include information on lead paint, environmental hazards, or structural issues.
If there are any contingencies, your FSBO contract should include detailed information about them. If any contingency occurs that might make the contract invalid, you will need to write those out.
One example of a contingency is a home inspection. FSBO contracts nat be contingent on a home inspection being completed by a certain time.
Lastly, it’s important to include the consequences of defaulting on an FSBO contract. An example of this is if you include language stating that if the buyer terminates the contract, the seller will receive the earnest money.
4. Include Information About the Closing Procedures
The last section that will need to be included in every FSBO contract are details regarding the closing procedures. Closing information includes where the sale of the home will be finalized and what date and time the sale will occur.
It’s typical that closing will take place anywhere from 30 to 60 days after the offer has been approved. A closing will usually happen at a title company but you can also hold a closing at a bank or real estate attorney’s office.
Brush up on Your State Requirements
In the United States, each state is able to determine its own real estate laws. Because of this, some areas of your purchase contract will vary depending on the state you’re selling in.
In addition to different state requirements, there are also different laws and documents required for specific counties.
Documents that get recorded by your state and county offices include deeds, licenses, fees, foreclosures, estoppels, and leases. The act of having any or all of these documents recorded into the official county records is a vital piece in a real estate transaction.
Real estate recording systems also vary by state. While some states track real estate titles, others register land instead. Documents recorded by the state or county are public record and can be used to dissolve ownership disputes.
Check with your local county registrar’s office as well as your state to see what documents you will be required to file at closing. The title office and a real estate attorney will also be able to walk you through this process.
Don’t Forget the Additional Closing Documents
In addition to your real estate purchase contract, you will also need to prepare a few other documents and forms over the home selling process.
Some of the documents you may see at the closing table include the HUD-1 Settlement Statement, certificate of title, the deed, loan payoff, bill of sale, and your closing statements.
You should also be prepared with the tax information you’ll need at tax time. If you’re making a profit on the sale of your home, chances are you will have to pay some taxes on at least a portion of the gains.
Your accountant will be able to tell you about how much you’ll need to pay in taxes, if anything, come April.
Pros: How to Sell Your House Yourself
There are several advantages to selling your home yourself that are worth noting. The biggest positives when it comes to selling your home by owner is that you’ll save some money on real estate commissions that are typically paid to an agent.
As the owner of the property, no one cares about the sale as much as you do. When you list your home for sale, you have complete control over the process. This means you can show it as often as you’d like and you can market it how you want to.
As the homeowner, you won’t be competing with an agent’s other listing and other clients for their attention. When it’s just up to you to sell your home, you can give the selling process 100% of your attention.
Cons: How To Sell Your House Without a Realtor
While it may seem like you’re saving money when you sell your home without an agent, it may end up costing you elsewhere. Because you may have a leak of real estate knowledge or negotiating power, your home may end up selling for less.
A real estate agent may be better equipped to market your property for the right price to the right buyers. They tend to be able to negotiate a better price on your behalf.
In addition to the closing and final negotiations, selling a home is a lot of work. In addition to your career and family responsibilities, you’ll also have to have the time to market and show your property. From inspecting it, getting it ready to sell, listing it, and taking photos, there is a lot more to do than just put up a for sale sign.
Professional Back-Up Is Always a Good Investment
If you do decide to sell your home without a real estate agent, there are some professionals that can still help you along the way. You’ll for sure still need a real estate attorney that can help give your real estate for sale by owner contract template a second look.
An attorney can also walk you through the closing documents and protect you during negotiations. In addition to an attorney, an accountant is a good person to call. Your accountant can help answer any financial or tax questions you may have.
If you’re unsure if going solo is the right option for you, a best-of-both-worlds approach may work best. You can list your property and have a flat fee MLS listing without paying a commission. This still allows you to have the professional back-up when you need it.
Get started here to learn more about using a service that can help list and market your property so you can get packing.