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How to Write a Contract to Sell a House

Written By

Aug 5, 2010

3 minute read

Every "For Sale By Owner" contract made between a seller and a buyer has a few essential ingredients. Whether you are writing your own contract from scratch – probably not advisable unless you have prior real estate law experience – or using one of the many FSBO contracts available online, here are the elements to include.

Who is Selling and Who is Buying?

Three basic groups of information appear at the beginning of the contract:

The names and addresses of the buyer and the seller
The address and description of your property. For example: "A three-bedroom single family residence at 661 Pleasant Avenue, Sun City, California, 90065."
The effective date of the contract.

Note that the exact description required may vary from state to state. Some states also require the parcel description you find on your property tax documents, while others do not.

Follow the Money

Documenting the cash aspects of the deal is perhaps the most important part of the contract. The question of who is paying for what falls into three categories:

Purchase price

How much is the buyer paying for the property? In addition to the purchase price, also state the particular terms and conditions of the sale, including credit for any prior payments, such as earnest money, and the description of the buyer's deposit of the agreed-upon remainder. This same paragraph describes what happens to the earnest money if the sale falls through. If you, the seller, decide for any reason to cancel the contract, you will normally return the earnest money to the buyer. The contract also stipulates what happens to any earnest money or prior payments if the buyer defaults.

Closing costs

Here is where you'll state how the various tax and title costs are apportioned. In some states, who pays for some or all of these is at the discretion of buyer and seller. In other states, they are the legal responsibility of one of the two parties. Closing costs generally include annual real estate taxes, transfer taxes, title report and title search fees and title policies.

Special conditions

Often, the buyer and seller agree to special conditions. You may agree, for example, to leave one or more pieces of furniture, or the buyer may agree to accept steps or railings "as is" even though they are not code-compliant. These special conditions probably originated with a verbal agreement, but should also be included in the purchase agreement.

Keeping Things Legal

Each state's real estate contract requirements are available online or from your state's housing agency. In California, for example, an online search for "California's real estate contract requirements" returns both a California Department of Housing brochure on the subject as well as several commercial sites offering California real estate contract forms, most of them for under $50. A search for Oklahoma returns commercial sites offering similar forms and the Oklahoma Department of Real Estate website, which offers contract forms without cost.

References

Resources

Tips

Earnest money deposits are a way of assuring the buyer is serious about the offer. The deposit is usually substantial enough that the buyer will not want to lose it if he walks away from the contract and the seller feels justified in taking his house off the market. Earnest money amounts are established by the seller and agreed upon by the buyer. Earnest money deposits are often between $1,000 and $3,000.

Possession of the property is a negotiable item. After closing on the house, if the seller remains in the house, he must pay rent to the buyer at an agreed upon rate and length of time. This information must be included in the sales contract under the "possession" clause. It is customary and recommended that the buyer and seller also draw up a separate rental agreement that includes full details of the rental terms.

Counter offers can be made on an addendum to the contract instead of initialing changes in the body of the original contract. Counter offer addendums are a good choice if the changes to the original contract are substantial or if the buyer and seller issue more than one counter offer. Too many changes to the body of the contract can make it difficult to read. At the same time, some sellers prefer to make counter offer changes on the body of the original contract because addendums can get separated from the contract.

Warnings

Inspection requirements may differ from state to state. Some states require a termite inspection that is usually paid for by the seller. The cost of a whole house inspection is sometimes a negotiable item. If the seller has proof an inspection has already been done, but the buyer insists on a new inspection, the buyer may be expected to pay for the new inspection. This is the kind of detail that can sink a contract and should be clearly understood in the language of the contract to sell a home.

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