This is the second of two articles on what it takes to write a good real estate contract.  Here, I want to help FSBOs understand the twelve most basic elements of a legal and enforceable contract.  They are:

1.       Principle Parties: The persons entering into the agreement must be clearly written in the contract.  If more than one person's name is one the deed, then those names must also appear on the contract to sell. 

2.       Property Description:  A full legal description of the property may not be necessary but the address (including City, State, County and Zip) and tax map number should be written in.

3.       Purchase Price:  Although this is a personal decision, remember that your home is only worth what a buyer is willing to pay.  Don't be offended or get upset by a lower offer than expected.  Everyone wants a deal, especially from a FSBO.  This is where good negotiation skills need to suppress emotions.

4.       Conveyance:  This will normally be the day of closing.  It is not recommended that buyers be permitted to take possession of the home before then or that the sellers remain in the home after that date.  Exceptions must be worked out in detail and in writing, including any financial considerations due one party by the other.

5.       Earnest Money:  The amount of earnest money needed is always negotiable.  I just read today where someone recommended that this amount be between 2% and 5%.  That's way too high in our area, where it generally runs from $500 to $5,000, depending on the value of the home and agreement between the parties.  Demanding a high amount of earnest could cause you to lose a buyer.  Don't make the mistake of assuming that you always keep the earnest if the contract falls through. This will depend on the reason and what is written into the contract.  Also, the law requires a separate escrow account for these funds.  They cannot be put in a personal account.

6.       Financing:   There are several items to be considered here.  What kind of financing is the buyer getting?  How much?  By what date is final approval required?  Will the seller pay any of the buyers' closing and prepaids?  If so, how much?  Write it in the contract!

7.       Personal Property:  Don't confuse personal property with real property.  If a plasma TV is attached to the wall, it's become real property and must stay with the home unless specifically excluded in the sales contract.  Any personal property that is to convey with the sale should be written into the contract, or preferably, handled separately with a bill of sale.

8.       Closing Date:  The closing date needs to take into consideration the time required for loan processing and title work.  It is usually accompanied by a limited 10 to 15 day extension agreement in case there are unexpected delays. 

9.       Taxes: Most taxes are prorated at closing.  This means that the seller will pay the buyer at closing for every day of the current year that he has owned the house.  The buyer will then pay the total tax bill at the end of the year.

10.    Inspections: Provision must be made in the contract for any inspections the buyer wants done on the home, as well as the deadline for any repair requests to be made.  The contract should also address the specific items you agree to repair and what happens if the buyer decides there is too much work to be done on the home.   

11.    Contingencies:  It's not unusual for there to be many different contingencies in a real estate sales contract; inspections, title and financing are all contingencies.  Be careful, however, about agreeing to a contingency that links the buyers' purchase of your home upon the sale of his.  If you agree to such a contingency, be sure to write in a 48 hour first right of refusal or you have in effect taken your home off the market.

12.    Title Issues:  Before a sale can be completed, the title needs to be clear!  In South Carolina, the closing attorney (or title company, abstract company, etc) will do that for you, but what happens if a title problem occurs needs to be in the sales contact.

        I have prepared a sample real estate contract that I believe will be helpful to someone who has made the choice to go FSBO.  I will post that on my website after having a chance to review it with my team.  If you have not seen Part 1 of this 2-part series on understanding contracts, just click HERE.

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