How to Write a FSBO Contract

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FSBO is an acronym for “For Sale by Owner.” When a homeowner sells their home without the use of a professional real estate agent, the transaction is termed a FSBO. Even in a FSBO real estate transaction the buyers and sellers need a sales contract to define their agreement. Technically speaking, a contract can be written on the back of a napkin. Yet, that is not in the best interest of either party. Each state will typically have a standard sales contract that is used by real estate agents when writing a sales contract.

Understand the parties involved in the transaction. Not only will the buyer and seller both be mentioned in the contract, the title and escrow company may also be mentioned. The title company will research to determine if the seller has clear title on the property, and will offer title insurance to protect the buyer. The escrow company will hold the funds as an impartial third party during the transaction. In some instances one company handles both title and escrow. Using a title and escrow company is not mandatory, yet it is in the best interest of both parties.

Don’t reinvent the wheel. Request a copy of a blank sales contract from the escrow and title company. Sales contracts have typically been prepared by attorneys and real estate specialists. There is no reason to write a sales contract from scratch, when you can begin with a standard blank contract.

Read the sales contract. There may be parts of the sales contract that you want to change.

Pay attention to the warranties listed in the contract. If you plan to sell the property “as is,” there may be warranty items that you want to exclude. Many contracts specify appliances must be in working order.

Consider the inspection time frames. Many contracts offer a period where the property can be inspected by the buyer. If the property does not pass inspection, the buyer may have the opportunity to back out of the contract. Understand the inspection portion of the contract, so both buyer and seller are in agreement.

Ask yourself if personal property will be listed in the sales contract. Personal property includes items such as furniture. Many lenders will not accept a purchase contract where personal property is included, as they are lending on real estate, not personal property. If this is the case, consider a separate sales contract for any personal property.

Note the expenses in the transaction and be clear which party will responsible for the expenses. Expenses would include escrow fees, title insurance, any transfer fees or inspection fees.

Clarify any contingencies with the purchase. If the purchase is contingent on the buyer’s ability to obtain a loan, appraisal results, or other issues, these items should be included in the contract. Many contracts already specify the sale is contingent on an appraisal.

Note the closing dates listed in the contract. All parties will need to understand when the property must close escrow, and if there are penalties for a late close or will it simply void the contract.

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