Spring is finally here and they're popping up all over your neighborhood. No, not flowers or weeds, but "For Sale" signs, and more and more of those "For Sale" signs are "For Sale By Owner".
Instead of using a Realtor or other real estate professional, sellers are choosing to forego the typical 5% - 7% commission in an effort to realize more money from the sale of their homes.
While selling or buying a home without the use of a Realtor or broker can be rewarding, the risks are great. But if you choose to go the "For Sale By Owner" route there are ways to minimize the risks.
One way to reduce the risk is to hire the services of a real estate attorney who can provide practical advice for marketing your home, can make sure the contract is legally binding, and can guide the seller and buyer through the closing process to make sure everything goes smoothly.
At the very least, every "For Sale By Owner" seller or buyer should have the agreement prepared or reviewed by an attorney who practices real estate law. Agreements vary widely across the spectrum. Some are pre-printed, fill-in-the-blank forms purchased at office supply stores, that are designed to be used in any state.
Unfortunately, these agreements are too generic and usually do not address specific state laws or what happens when problems occur with the transaction.
Other times, seller's merely copy the Realtor's standard agreement that they used to purchase the house. The problem with that is these standard agreements are constantly being changed and an agreement only a few years old may not be up to date with the latest developments in the industry.
Finally, an agreement prepared by one party's attorney may be so one-sided that it is money well spent for the other party to have an independent review of that agreement.
It is especially important to have the agreement reviewed before it is executed since it becomes legally binding as soon as both parties sign the agreement. It is a common misconception that the purchaser has the right to cancel the agreement within three days of signing the agreement. This is not the case, and once the agreement is signed there is no automatic right to cancel.
Also, by using the services of a real estate attorney, the parties will ensure that the agreement is complete. In Ohio there are two documents that most home sellers must provide to the buyer before the agreement becomes legally binding: a Residential Property Disclosure Form and a Lead-Based Paint Disclosure Form.
The Residential Property Disclosure Form requires most sellers of residential property to disclose certain conditions that are currently present, or were present during the seller's ownership of the property. Problems with the water supply, sewer system, roof, basement or crawl space, the houses structure, mechanical systems, or any other material condition that would affect the buyer's willingness to purchase the property are all addressed by this form.
If the Residential Property Disclosure Form is not provided to the buyer, the buyer has a thirty day right to terminate the agreement for any reason or no reason at all.
The Lead-Based Paint Disclosure Form requires sellers of homes built before 1978 to provide buyers with certain know information about the presence of lead-based paint in the home. Like the Residential Property Disclosure Form, if the Lead-Based Paint Disclosure is not provided, the buyer can arguably cancel the agreement.
In addition to provisions that are required in an agreement, each transaction requires different elements that are tailored to that specific transaction. Many real estate agreements contain contingency clauses that require certain events to occur prior to the completion of the transaction.
For instance, since most buyers need to obtain a mortgage loan in order to pay the purchase price, the most common contingency is the financing contingency. Even with the use of pre-approval and pre-qualification letters from banks and mortgage lenders, a buyer needs to make sure that the loan is available for that particular house.
No matter what type of pre-approval the buyer has obtained, the loan is always conditioned on a satisfactory appraisal. Thus a buyer who requires a mortgage loan should always ensure the agreement has a financing contingency.
Another common contingency is an inspection contingency. The right to an inspection is designed to protect the buyer against unknown defects, but also provides the seller a benefit. By allowing the buyer to have an independent professional inspection the seller reduces the chance of a lawsuit down the road.
One common contingency which a seller should avoid at all costs is the home sale contingency. This contingency requires the buyer to sell their home before they are obligated to buy the seller's home, and is normally used when the buyer needs the proceeds from their home to pay for the seller's home.
This contingency puts too much reliance on the buyer and the purchaser of the buyer's home. In some cases there can be two or more home sale contingencies tied together, and a problem with one transaction can create a domino effect and destroy every transaction down the line.
The above only touches on a few of the legal issues involved when buying or selling a home in a "For Sale By Owner" transaction, and there are many stories of people who have learned expensive lessons by not seeking the proper help in the sale or purchase of a home.
Despite that, it may still be a worthwhile venture to sell your home on your own or to purchase a home from someone selling it on their own, but remember to take steps to reduce your risks.
David R. Button is a Partner in the law firm of Wegman, Hessler & Vanderburg, www.wegmanlaw.com , concentrating in real estate services, estate planning, trusts and probate litigation, and creditors' rights. He is experienced in the negotiation and drafting of real estate purchase agreements, commercial and residential lease agreements, leases with options to purchase, construction contracts, easements, and mortgages. David is a member of the Ohio State Bar Association, the Cleveland Bar Association, and the Real Estate Section of the Cleveland Bar Association. He graduated from The Ohio State University College of Law and The Ohio State University College of Business.
Reprinted with permission of The Cleveland Women's Journal