Drafting a “For Sale by Owner” Contract
Summer is finally here which means the housing market is really heating up. For those of you selling your residential property without the assistance of a real estate agent, there are a few things to keep in mind. One of the most important documents that you will prepare is the For Sale By Owner (FSBO) contract, which you will enter with your buyer. The contract sets out the terms of the agreement such as your purchase price and the obligations imposed on each party.
In order to have as smooth a transaction as possible, you’ll want to ensure that the contract includes the following terms:
- While it may seem obvious, the names of both parties to the contract, noting which is the seller and which is the buyer. If there is more than one seller or buyer, list all the names in the relevant section;
- A description of the property being conveyed including the address, city/village/town, and county in which the property is located and an approximate lot size;
- A breakdown of the purchase price including the agreed-upon price, any deposit being paid by the buyer either at the time of entering the contract or later, any other additional deposit being made and the payments being made at closing;
- The items being included in the sale – anything that is nailed down and would cause damage to the property if removed is assumed to be included but in order to avoid confusion, it is a good idea to list any items being included in the sale, most commonly washer/dryer, stove etc. You should also list any items being specifically excluded – again, you cannot remove items that are nailed down and would cause damage to the property if removed but if a secondary fridge for example is being excluded from the sale, it is best to disclose that fact from the very beginning;
- List any covenants, restrictions, and easements of record, zoning, and environmental restrictions on the property. As the buyer is accepting to take title subject to these restrictions, it is important that s/he is made aware of them;
- If there are any contingencies attached to the sale, be sure to list these as these conditions must be satisfied in order for the sale to go through. The most common contingencies in FSBO contracts are the buyer’s inspection contingency (where the buyer conditions the purchase on an acceptable inspection to be conducted in a set number of days, by a licensed inspector and at the expense of the buyer) and the financing contingency (whereby the seller conditions the purchase on the buyer obtaining a loan or other form of financing);
- A number of riders are often required including:
- Property Condition Disclosure Statement – a standard form that contains basic questions about the property such as whether the property is located near a landfill and whether there is smoke or fire damage. Please note that if you do not know the answer to the question, don’t guess, ‘unknown’ is a perfectly good answer;
- Lead-Based Paint Rider – if you are selling a home that was built prior to 1978, you must include this rider alerting your seller to all known lead-based paint present in the property;
- Condominium/Homeowners’ Association Rider if you are selling a condo – this sets out relevant information about the sale of the condo such as the condo/association fees, anything that the buyer would have exclusive rights to such as a parking space or a basement storage area and the additional certifications required from the board or managing agent;
- A time period offer which provides that the parties agree that unless an offer is specifically withdrawn, it is good until a specified time and that if it is not accepted by the seller prior to said time, the offer becomes null and void;
- If either buyer or seller had any assistance from a real estate broker, be sure to include their and any other cooperating broker’s agreed-upon compensation. This is often agreed at being a percentage of the purchase price;
- Make sure that all the terms being agreed to are included in the contract and do not have unwritten side deals that you expect to hold the buyer to as this can very quickly turn into a dispute over what was agreed to;
- A signature block for both parties to sign and to include their contact details such as email addresses, phone numbers, and attorneys appointed for each party.
Selling a home, although exciting, can also be a long and tedious process. There are often complex legal issues that arise that no amount of careful planning could have avoided. If you are selling your home and wish to speak to an attorney, please feel free to contact the Real Estate Department at HoganWillig at 716-636-7600 and one of our specialist attorneys will be glad to assist.