{"id":20360,"date":"2020-11-30T11:48:58","date_gmt":"2020-11-30T19:48:58","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=20360"},"modified":"2023-06-29T19:39:18","modified_gmt":"2023-06-30T02:39:18","slug":"buyer-contract-for-buying-a-house-from-owner","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-contract-for-buying-a-house-from-owner\/","title":{"rendered":"Get it in Writing: A Homebuyer\u2019s Guide to Creating a Solid FSBO Contract"},"content":{"rendered":"

Buying a home in a for sale by owner<\/a> (FSBO) situation might seem like a low-key, ultra-casual way to conduct a purchase. You talk to the owner, agree on the price, and handshake the deal. Maybe put together a contract for buying a house from the owner if you’re feeling ambitious. Easy peasy, right?<\/p>\n

But what happens when the inspection reveals issues the seller doesn\u2019t want to fix? What happens if you can\u2019t get the financing you want? And who\u2019s responsible for paying this year\u2019s property taxes?<\/p>\n

Dianna Caldwell<\/a>, an Accredited Buyer\u2019s Representative in Hebron, Kentucky<\/a>, emphasizes the need for a solid real estate contract, even in a FSBO deal. \u201cIt is a legal document,\u201d she says, and one that should not be taken lightly. A solid contract is your roadmap for navigating the entire sale, including any bumps along the way.<\/p>\n

As you\u2019re thinking through your own real estate contract, you could start with a state-specific template<\/a>, though a cookie-cutter contract doesn\u2019t always cover everything. Don\u2019t neglect these important details when creating or modifying your real estate purchase contract.<\/p>\n

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<\/a> Source: (Lisa Fotios \/ Pexels)<\/figcaption><\/figure>\n

Who?<\/h2>\n

At the beginning of the contract, you\u2019ll need to define the buyer(s) and seller(s) by their full legal names. After the initial definition, the terms \u201cBuyer\u201d and \u201cSeller\u201d can be used to refer to the contractual obligations of each party.<\/p>\n

Many contracts require the buyer and seller to initial each numbered page as a way to ensure that nothing has been added or subtracted from the document.<\/p>\n

You\u2019ll also need to note whether or not either the buyers or sellers are married. This piece of information becomes important for property rights of ownership<\/a>, including assignment and succession.<\/p>\n

For example, in some states, married couples benefit from joint tenancy<\/a>, whereas unmarried couples can claim tenancy in common<\/a> \u2014 legal terms that affect who owns what proportion of the home, as well as how the property can be used and transferred.<\/p>\n

At the end of the contract, you\u2019ll need a spot for both buyers and sellers to sign their names, along with a witness. Usually, your witness can be anyone over the age of eighteen who can attest to the competency of the parties and the date of the contract.<\/p>\n

What?<\/h2>\n

Legal description of the property<\/h3>\n

Start with the basics. You\u2019re purchasing land and structures at a certain address. Those pieces of information should be the foundation of your description.<\/p>\n

But a real estate contract should also include the full legal description of the property. This can be quite lengthy, with terms such as \u201ctract\u201d and \u201cparcel,\u201d as well as directions, distances, and degrees. The full legal description for your address can be found on the deed<\/a> and should be copied verbatim onto the contract.<\/p>\n

Additional property included<\/h3>\n

Be sure to include a section for additional property that is included with the sale<\/a>. Usually, anything affixed to the property, such as light fixtures and appliances, will transfer ownership with the house.<\/p>\n

But norms vary by state. In some places it\u2019s common to leave the curtains; in other places, the fridge rarely stays with the home. List the items that will be included in the sale, along with the date of reference. For example, adding words like \u201cas seen in the home on November 30, 2020,\u201d after each item adds more specificity.<\/p>\n

In regards to furnishings or other non-affixed items, Caldwell says, \u201cYou generally don\u2019t want to write in a ton of personal property. All of that needs to be taken care of outside of the contract because of financing.\u201d Appraisers have to include anything that will transfer in the sale, and putting a dollar amount on items like furniture or similar items could jeopardize your loan.<\/p>\n

Disclosures<\/h3>\n

For the sake of full transparency, any important information regarding the property should be written into the contract. This may include (but is not limited to): easements, restrictions, buried utilities, and known defects.<\/p>\n

Each state has different requirements for disclosures. Check our state-by-state disclosure guide<\/a> for more details.<\/p>\n

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<\/a> Source: (Chronis Yan \/ Unsplash)<\/figcaption><\/figure>\n

How much?<\/h2>\n

Purchase price, earnest money, and financing<\/h3>\n

The total purchase price should be clearly noted in the contract. This is the final agreed-upon sum without financing costs, closing costs, or earnest money considered.<\/p>\n

Speaking of earnest money<\/a>, the contract also needs to specify how much will be held and what entity will be holding it until closing. Usually earnest money, or a \u201cgood faith deposit\u201d, runs between 1% and 3% of the purchase price, and it\u2019s typically kept in a trust account with a legitimate, third-party escrow company.<\/p>\n

If you\u2019re walking into a seller-financed situation, those financing details could be spelled out in this section as well. The term of the loan (how long you will take to repay the seller), the monthly payment amounts, and the interest rate should all be included in the contract.<\/p>\n

Property taxes<\/h3>\n

The calculation and payment of property taxes differs from state to state. Unless you close on the exact date that taxes are calculated (unlikely), your contract will need to account for prorating property taxes.<\/p>\n

In states that charge property taxes in arrears (taxes due at the end of the year, for the previous year), the seller will usually need to give the buyer a credit for the portion of the year that they owned the home. The buyer will then pay the full tax bill at the end of the year.<\/p>\n

In states where homeowners prepay taxes for the future year, it\u2019s the opposite. The buyer will typically give the seller a credit for taxes paid based on the portion of the year that the buyer will own the home (and owe the taxes).<\/p>\n

As you\u2019re creating your real estate contract, first check local property tax laws. Then designate who will be giving the credit to whom, and how it will be paid.<\/p>\n

Closing costs<\/h3>\n

A real estate contract should specify who pays for what at closing.<\/p>\n

Typically, the buyer will pay<\/a> for all loan costs<\/a>, including origination charges, appraisals, flood certification, credit reports, and more. They\u2019ll also usually pay for government recording fees and transfer taxes, along with title insurance.<\/p>\n

The seller is usually responsible for fewer closing costs<\/a>, though many can be negotiated. The bulk of the seller\u2019s closing costs usually revolve around the real estate agent\u2019s commission, and they typically pay the buyer\u2019s agent commission, too. If you\u2019re buying a FSBO house without an agent\u2019s help, then you won\u2019t need to worry about agent commissions (but maybe you can start to see why an agent can be a useful advocate in this exact situation!).<\/p>\n

When?<\/h2>\n

Dates to define<\/h3>\n

Every step of the homebuying process should be written into the contract to avoid delays that could affect both parties. Define the following dates:<\/p>\n