For Sale by Owner Laws in Alabama: What You Need To Know

Modern Home for Sale with sign in front yard
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Alabama homeowners can sell their own homes without real estate agents, but the state requires them to act in accordance with its laws. Alabama is one of the few states that requires those who sell their homes as for sale by owner (FSBO) to hire a real estate attorney to guide them through the process. However, most of what the sellers need to do will be on their own.

What a Real Estate Lawyer Does

Alabama real estate attorneys offer legal assistance to homeowners and buyers from pre-sale to post-sale. They assist in reading, analyzing and comprehending real estate contracts to protect all the parties involved, as well as the property. Attorneys help resolve liens or other issues that arise during the real estate transaction to secure a property's free and clear conveyance and to ensure that the title is clear and legally sound.

Real estate lawyers may recommend using home inspectors for a pre-closing inspection, and they or a member of their team will usually attend the closing to make sure that all documents between the buyer and seller are complete. Additionally, a real estate attorney helps troubleshoot any challenges to a home's closing.

Caveat Emptor in Home Selling

Alabama is one of the few states that employs a caveat emptor law when selling a residential property. (Caveat emptor means "let the buyer beware.") This means that a home seller in the state of Alabama is not required to disclose to a prospective buyer negative issues with the physical condition of the sale property. The state instead places the responsibility of finding defects upon the buyer. But there are exceptions to this rule.

An FSBO seller becomes legally responsible for disclosing a home's defects if:

  • A fiduciary relationship or legal duty exists between themselves and the buyer. If so, they must act in the home buyer's best interest.
  • The seller knows that the home contains a defect that cannot be seen by a potential buyer, and that it could pose a safety or health risk.
  • The buyer directly questions the homeowner on specific defects.

Avoiding Risk by Disclosing Defects

If potential buyers find significant defects during a home inspection, both parties will likely need to renegotiate to decide which party will pay for the repairs. One solution is to have the homeowner repair the issue or lower the listing price to allow the buyer to correct the issue after purchasing the home.

If the buyer finds a defect that the seller should have disclosed, they can sue the homeowner for misrepresentation, negligence, material suppression or fraud. However, in Alabama, failure to disclose a defect alone may not be enough to hold the homeowner liable. The buyer would also have to illustrate that the homeowner knew the problem existed and failed to disclose even when obligated to do so.

Advertising as Your Own Realtor

It is illegal for a seller to advertise the home with the intent to mislead or deceive the public. A seller must identify themselves as a salesperson or licensed broker if that is indeed their profession. If they are not either of those, they cannot misrepresent themselves as such.

Advertising under Alabama laws refers not only to print media but to the Internet, including websites and social media pages. The law covers all media on which advertising occurs.

FSBO Sellers and Fund Requirements

A seller must keep records of any financial transactions. They must declare and deposit the money they receive in a federally insured account at an Alabama bank and keep it separate from their finances before completing the sale. The state also requires detailed financial records of the funds belonging to others, with information including to whom the funds belong, the date the deposit took place, the date their withdrawal took place, and other pertinent information regarding financial transactions for at least three years.

The homeowner must not attempt to deceive a lender by failing to disclose the terms of the transaction. Not only is it illegal in Alabama to do so, but it is a federal felony.

Paperwork Required for FSBO Sale

Once a seller finds a buyer for their home, they can start the closing process. Real estate agents usually walk both parties through collecting the necessary forms, but an FSBO seller will have to navigate the documentation mostly by themselves with help from their real estate attorney. Alabama requires these documents in all real estate sales:

  • Two forms of ID, such as a valid passport, driver's license or other Alabama-issued ID.
  • Copy of the original signed purchase agreement with any agreed upon changes.
  • Detailed list of all sales costs for the home and who pays them, often prepared by an escrow or title company.
  • Signed deed proving that the person making the sale is the rightful owner of the property. At closing, the seller signs the deed over to the home's buyer.
  • Bill of sale, a receipt that includes the buyer and seller's information that lists the home's final price and what the sale included.
  • Notarized affidavit of title stating that the seller owns the home outright, there are no liens on it, and there is no simultaneous sale of it to someone else.

The state may also require additional documents, depending on the circumstances of the home sale. They include loan payoff documentation; HOA forms and guidelines; survey results or affidavits; home inspection documents; proof of renovation or repairs; home warranty documents; copies of wills, trusts and power of attorney letters; relevant affidavits such as name affidavits, or a nonforeign Affidavit Under IRC 1445; a closing disclosure; or a correction statement and agreement.