Essential Elements in a For Sale by Owner (FSBO) Contract in Mchenry, IL
Essential Elements in a For Sale by Owner (FSBO) Contract in Mchenry, IL
Owning a home is a keystone of wealth… both financial affluence and emotional security.
- Suze Orman
For Sale By Owner (FSBO) refers to putting one's house on the market for sale by the homeowner without assistance from a real estate agent.
The most common reason for a FSBO transaction is to avoid paying a large real estate commission when selling the property. By not using a real estate agent, the seller assumes all the responsibilities of completing the transaction. The FSBO contract contains the terms and detailed condition of the sale. It also describes the obligation of each of the parties.
Elements of a FBSO Contract:
1. Name the parties in the contract. Names of the parties in the contract should be stated and designate them either as a buyer or seller.
2. Name the contract. A short name for the contract should be provided in order to have a reference for the document.
3. Describe the real estate. Provide the common address and the full legal description of the property. Full description is essential because it provides a way of describing the property in a permanent manner. You can get hold of a full description from the county recorder's office where the property is located.
4. Describe the payment terms. Describing the payment in one sentence can be a simple way to understand the document. An FBSO contract however, is usually more complex than just exchanging cash for an executed deed. Make sure to include the following in the payment terms:
• Full purchase price. Refers to the full amount of the accepted offer without subtracting the deposit or any earnest money paid.
• Earnest money and other deposit. This is the money paid to the seller to let him/her know that the buyer is serious about buying the property. This is done when the seller accepts the offer of the buyer. This deposit on the purchase is done right away. This amount and date of delivery should be included in the payment terms.
• Trust. The money paid by the buyer will be held in trust until the sale is completed. It is now the owned by both the buyer and the seller. The trust company should also be included in the contract. If the sale did not push through, the money may be returned to the buyer depending on the circumstances of the failed transaction.
• Property taxes. When the purchase of property does not coincide with the tax schedule, the taxes will be prorated between the buyer and seller.
5. Describe any easements or restrictions on the property. Easements may refer to the use of a portion of another person's property. Easement is one of the rights in a portion of a property. Restrictions may be based on the homeowners' association requirements or the city or municipality or utility company requirements to dig or do work on your property for sewers, cable lines, electricity, gas lines, etc.
6. Describe any property that will be included in the sale. This would normally include all fixtures on the house. In order to avoid confusion, including the complete description of the fixtures as well as any other property to be conveyed with the house should be included.
7. Describe any contingencies. These are events or conditions which have to occur before the completion of the purchase. These may include:
• Passing a home inspection
• Obtaining financing
• The seller being able to sell their current home
8. Provide all required disclosures. Disclosure of certain information to the potential buyer is required by the federal and state law. Before you disclose, check on your states statutes, on what disclosures to provide. The common disclosures to provide may be:
• Defects on the property that may affect its property value and desirability
• Lead-based paints hazards
9. Determine if your state has requirements any specific language in home sale contracts.Check on the requirement of your state on specific language clause or information that should be included in the sales contract.
10. Describe what will happen if any party defaults on the contract. This is a way to protect the seller in case in case the buyer defaults on the contract. The court can be made to intervene or forfeiture of the earnest money paid may compensate the seller if the buyer backs out.
11. Provide closing information. This refers to the final meeting where the deal is closed. The payment is made by the buyer to the seller and the seller in return will deliver the executed deed to the buyer. FBSO contracts usually end within 60 days of signing the contract.
12. Create a signature block. You should provide plenty of space for the part of the contract where signatures are signed. Provide the parties printed names and also provide space for the notary public to notarize the signatures.