When it comes to selling your home by yourself, one of the scariest areas of the process can be working with legal documents like the real estate contract (or “real estate purchase agreement”).
Worry not!
I’m going to walk you through some of the things to consider when you are thinking about drafting your own purchase contract / purchase agreement.
I’m an attorney and I’ve sold multiple homes on my own (FSBO – For Sale By Owner) and I’ve sold some homes with a realtor, too – so, I know how the process works both ways. But, without knowing your specific situation, I can’t possibly give you legal advice (and neither can a real estate agent – finding an hiring a real estate attorney may be the right answer in your situation.
Contract Basics
Let’s start with the basics – what is a contract? A contract is, at its simplest level, nothing more than an agreement where both (or more) parties involved receive a benefit.
This concept of each side of a contract receiving a benefit is called “consideration.”
Technically, there isn’t really a difference between a written contract or “oral contract.” If there’s an agreement where there is consideration for both sides, then there’s a contract.
The reason written contracts are preferred is because it’s easier to confirm the terms that were agreed upon.
For example, in a real estate transaction, the purchase agreement will involve one party (seller) receiving money and the other party (buyer) receiving a house.
Even if this was written on the back of a napkin, both parties received something (consideration) and there was an agreement. Therefore, it’s a contract.
However, if someone drafted up something on paper that said you have to give them $1 million, made it look like an official legal document, had you sign it, and even had it notarized, it is NOT a contract because you didn’t receive a benefit.
Real Estate Contracts
Real estate contracts are purchase agreements for a buyer to purchase a home from a seller – they are the main legal document that governs the sale process of a home.
In most states, real estate agents have contract form templates that they use for all of their listings. These templates have sections where the relevant information can then be filled in by the buyer’s agent and presented to the seller as an offer.
If the offer is accepted by the buyer, then a valid purchase agreement (legal contract) exists.
The use of a standard contract not only makes an agent’s job easy, it also has been made to conform to the real estate laws of that particular state and ensures that the most common elements are included.
In a FSBO transaction (For Sale By Owner), the seller isn’t using an agent and won’t have access to the standard contract used by realtors in their state (this is just one of the many ways real estate agents try to force people to use them instead, and give up a lot of their money, instead of handling the sale on their own like they might for a used car).
However, since they buyer’s agent is the one that submits the contract as an offer to be considered by the seller, this isn’t usually an issue. However, if the buyer doesn’t have a realtor, the two parties may be working together to draft an agreement that works for both of them.
Because this is such an important part of the home-sale process, we have an entire chapter of the Home Solo online coursededicated to working with for sale by owner contracts.
Common Elements of a Real Estate Purchase Contract
There are some elements that will be a part of every good home purchase agreement:
Buyer / Seller – Both the buyer and seller (whether individuals or corporations/trusts) will be identified by their full legal names.
Property description – The contract should clearly identify the property that is being sold. This includes the property address and the information about the land (like plot number from the deed).
Purchase Price – The offered purchase price will be a part of the legal agreement and this might be modified as part of negotiations. This will also include how the payment will be made (e.g. cash or financing) and how much of a deposit will be made.
Title Company – The title company should be identified along with the escrow agent which will be holding any deposit (sometimes called “earnest money”).
Seller Disclosure – Although not usually in the actual legal agreement, the seller’s property condition disclosure statement, should be referenced. Sellers, be careful on this one – you have a legal and ethical obligation to disclose all things about the property for which the buyer should be aware.
FSBO Contract FAQ
In a for sale by owner transaction, the potential buyer (not the property owner) typically draws up the contract and submits it to the property owner as an offer to purchase the home.
No, a realtor can not give you legal advice – they can only give you their pre-formatted contract and advise you to go hire a real-estate attorney on your own.
Real estate agents must use certain tricks to force people to use them – one of those is protecting their pre-formatted contract and another is keeping you from using the MLS system without them.
You could use one of those (but the realtors won’t be happy). The realtor groups copyright their contracts and try to protect them as much as possible or else people will figure out that they don’t need realtors.
