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For Sale by Owner Guide

Guide for Sellers

See all Seller Guide topics

Understanding & Evaluating the Offer

A purchase agreement or offer includes many of the following elements, including some "contingencies." A contingency means simply that unless a particular thing happens, the transaction won't go through. Example: If the buyer has a financing contingency and then cannot obtain the financing, the buyer can refuse to go through with the purchase.

Offer Components

Sales Price

The full amount being paid for the property.


Full Names of Buyers & Sellers & Their Martial Status

Full legal names of buyers and sellers and whether they are single or married.

Address & Legal Description of the Property

Complete address and legal description of property.

List of Items Included in the Sale

List of what will go with the house - appliances, lighting fixtures, window treatments, etc.

Earnest Money Deposit

The earnest money deposit, also called the good faith deposit, should accompany the offer. Rule of thumb: the earnest money deposit should be for at least 3-5% of the sales price. It is generally deposited into an escrow account with a real estate attorney or escrow officer after the home and radon inspection contingencies have cleared and all disclosures have been delivered to the buyer and accepted.

Identify Escrow Company

Who chooses the escrow company  varies with locality. Generally, the party responsible for paying for the title insurance chooses the escrow attorney or company.

Payment of Closing Costs

The contract should stipulate who will pay the buyer's and seller's closing costs and the various transfer and recordation taxes that localities and states charge when property is transferred. Who pays these costs is almost always negotiable between buyer and seller, but there are usually common practices in each locality. Contact an escrow officer or real estate attorney to determine the common practices for your area. It is not unusual for a buyer to ask the seller to pay some of their closing costs, including points on their loan, transfer and recordation taxes and other closing costs. It is best not to try to list all of the closing costs that the seller will pay, but simply to agree on a gross amount to be applied to closing costs. Generally, a lender will not allow a seller to contribute more money than the buyer can actually spend in closing costs. In other words, the buyer cannot take cash away from the settlement.

Payment of Commission

If you and the buyer have agreed to work with real estate agents, the contract should spell out the amount of commission due and to whom.

Date & Location of Settlement

This is also called closing. You should agree with the seller on a timeframe for closing the transaction.

Date Property is Vacant & Property Condition

It is best to vacate the property on or before the day of closing/settlement if possible. Some sellers will need to stay in the house after closing/settlement for a period of time. If you need to do this, you will generally have to pay the buyer a pro-rated "rent back." This rent back amount is usually the daily cost to the buyer for their entire mortgage payment, including taxes and insurance. The property is generally left in "broom clean" condition. The buyer may require a walk-through of the house on the day before or day of settlement to ensure it is in good condition.

Pro-ration of Expenses

How real estate taxes, rents, fuel, water bills and utilities are to be adjusted (pro-rated) between buyer and seller.

Offer Contingencies

Financing Contingency

The contract should stipulate the terms and amount of the mortgage and down payment the buyer will make to purchase the house. Under most contracts, if the buyer does not qualify for the specified loan, the buyer is entitled to the earnest money deposit back. That's why it is critical to move the financing along as quickly as possible. The financing contingency should include:

  • The period of time the buyer has to obtain a "pre-approval" letter, complete with credit and source of funds review.
  • The period of time the buyer has to make a formal loan application, which the buyer agrees to diligently pursue.
  • The period of time the buyer has to obtain a FULLY approved loan, complete with an appraisal and all other documentation the lender needs. This final approval is called a commitment letter.

Home Inspection Contingency

If the buyer chooses to have a home inspection, the contract should indicate how long the buyer has to complete the inspection. The buyer orders and pays for the home inspection. If the buyer chooses not to have a home inspection, some sellers may wish to include a clause in the contract that the buyer was offered the opportunity to have a home inspection and declined. Then, the buyer cannot later claim that they were denied an opportunity to inspect the house.

There are several ways to handle this contingency. Two of the most popular are:

  • The seller has the right to repair all of the deficiencies the inspector finds and hold the buyer to the contract OR the seller has the right to choose not to repair the items and releases the buyer from the contract and returns the earnest money deposit. The power to move forward to settlement is in the seller's hands.
  • The buyer has the right to walk away from the deal if they are unsatisfied with any aspect of the inspection, in spite of the seller's willingness to repair the deficiencies. In other words, the power to move forward to settlement is in the buyer's hands.

Encourage your buyers to obtain a home inspection. It is very difficult for the buyer to indicate that the seller did not fully disclose problems if they have had a home inspection. Home inspections protect both the buyer and the seller.

Radon Inspection Contingency

In many areas of the country, it is common to have a radon inspection  completed. If you choose to have a radon inspection, the contract should stipulate how long you have to complete it. The buyer orders and pays for the radon inspection.

Additional Inspection Contingency

Some buyers will want other special inspections, including roof, electric, or plumbing.

Termite Inspection Contingency

The termite inspection is generally required by lenders in many areas of the country. This inspection is done by a licensed pest inspector who indicates the current presence of wood boring insects and/or the past damage caused by them. The inspection must be dated within 30 days prior to settlement and is usually ordered by the buyer and paid for at closing. Generally, the lender will require any past pest damage to be repaired prior to settlement. Usually the seller pays for these repairs. You can limit your exposure by agreeing to pay only up to a certain amount in prior pest damage repairs, if any are discovered in the inspection and repair is required by the lender.

Disclosure Contingency

If you are in a locality that requires certain disclosures, the contract should indicate:

  1. When you are required to give the disclosure forms to the buyer.
  2. How long the buyer has to review the disclosures.

The contract should also advise you IN WRITING whether the information is acceptable. If you are selling a condominium or co-op, you will have to provide condo or co-op documents for the buyer’s approval.

Clear Title Requirement

The seller must provide a clear and marketable title to the property.

Home Purchase Contingency

Use if the you have to find a house before you can close. There should be a timeframe for you to locate and put a contract on a new house of your choosing, which you must agree to diligently pursue. The buyer's deposit should be refunded in full if you cannot locate and contract for a new house.

Home Sale Contingency

Use if the buyer must sell another house before purchasing this house. There should be a timeframe for the buyer to sell their old home and settle the closing transaction on that home, if necessary. CAUTION: See potential issues .

Suggested Timeframes for Completion

Financing Timeframe

Pre-approval letter with credit check within 5-7 days after contract ratification, if the buyer wasn't pre-approved when they presented the purchase agreement to you. Application should be made within 5-7 days after contract ratification. Fully approved loan should be obtained within 30-45 days from the date of contract ratification.

Inspection & Disclosure Timeframes

Inspections and delivery of any disclosures should be completed within 5-7 days from contract ratification. The buyer should have 2-3 days after completion to indicate to the seller IN WRITING any problems discovered in the inspection or disclosures. The seller should then have 2-3 days to determine whether and how to fix the problems and respond back to the buyer IN WRITING.

Termite Inspection Timeframe

To be completed prior to settlement. Most lenders require a clear termite inspection within the 30 days prior to settlement. This ensures that the termite inspection is current.

Realty Transaction Task List

For a summary of tasks and timeframes, see our Realty Transaction Task List .

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