Who Draws Up the Contract in A For Sale by Owner Transaction?
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Who Draws Up the Contract in A For Sale by Owner Transaction?
Selling and buying a home can be an exciting experience but it can also be a very expensive process. Sellers may opt to forgo hiring a real estate agent to avoid having to reduce their profits by having to pay a commission. While not hiring a real estate agent to sell your home can seem like a lucrative option, the process of selling your home by yourself can be very complicated.
You will have to do most of the work by yourself including marketing your home, dealing with prospective buyers and agents, and initiating the necessary legal processes. You will also need to draft and produce the legal documents required to facilitate the sale of your home which can be daunting for someone without the appropriate knowledge and experience. While it is your intention to save money by not hiring an agent, you may end up spending more on fixing costly legal mistakes and real estate litigation. Hiring an experienced real estate attorney can be beneficial in ensuring that your rights are protected.
Working with a skilled Manhattan residential real estate attorney can help give you the guidance you need to sell your home. At Avenue Law Firm, our experienced team of real estate attorneys has successfully assisted New York residents in selling or purchasing their homes. To learn more about how we can assist you, contact us today at (212) 729-4090 to schedule a consultation.
What is a For Sale By Owner Transaction?
When a property such as a house is offered for sale without a real estate agent or a broker, the transaction that commences is referred to as a For Sale By Owner (FSOB) Transaction.
A seller can save up to 6% of the sale price by opting out of hiring a real estate agent which is why it can be a logical choice for some. While it would still be necessary to pay the buyer’s agent a commission, the cost would be half as much compared to a traditional transaction with two agents.
Sellers who want to proceed with an FSBO deal would have to take on the responsibilities a real estate agent would. The seller themselves would have to determine a reasonable asking price for their home by conducting research on the costs of similar properties around the area that offer the same features as the seller’s own property such as the size of the lot and the number of rooms. An FSBO deal works best in a seller’s market or a market in which sellers have more leverage to price their property due to high buyer demand.
The seller would also have to conduct repairs and stage the home for viewings, including scheduling appointments for viewings and pooling buyers’ contact information. This also includes doing marketing such as taking photos and putting up listings on property search sites and multiple listing services. It would also be up to the seller to do legwork such as handing out brochures and flyers. It is possible to pay an agency a fee to list the property; however if the seller outright refuses to pay a commission to a realtor, they may be unwilling to show the property to their clients.
Once a buyer becomes interested, the more complicated stages of an FSBO transaction are initiated. The seller would be the only one to conduct negotiations with the buyer and the buyer’s agent to determine the price and other terms of the sale. The seller would also have to prepare the multiple legal documents necessary to officiate the transaction and the transfer of the property.
Contract of Sale vs Contract To Sell
The contract of sale is one of the many documents a seller is expected to draft and prepare as part of an FSBO transaction. While the contract of sale sounds similar to a contract to sell, sellers without a real estate agent should take note when creating these documents that they have significantly different purposes.
In a usual real estate transaction, the buyer and sellers’ agents or attorneys would be the ones involved in creating the legal contracts. However, in FSBO cases, the drafting can go down in one of different ways:
The seller drafts the contracts themselves. Under New York law, an attorney is not required to purchase or sell a home. There are DIY alternatives that can allow a seller to draft the necessary documents in a residential sale. However, your buyer may be reluctant to go into an agreement if the contract was not created by a professional. There is also the question of whether the agreement would hold under legal scrutiny if there is a dispute.
The seller engages the assistance of the buyer’s real estate agent as a "transactional agent" or "dual agent. In this scenario, the real estate agent would act as a neutral third party to draft the contract. New York law allows for dual agents but with the imposition of strict regulations. Dual agents are required to obtain written consent from the buyer and seller and inform them of their rights and responsibilities as accorded by their agency relationship. While the buyer is the one to pay their agent’s commission, the seller should at least agree to pay a share for the services rendered.
The seller enlists the assistance of an experienced real estate attorney to draft the contract. To ensure that the contract is legally binding, a seller can hire a skilled attorney to draft the contract. You would still be paying for the services of an attorney compared to paying a commission but this way, you can be assured that your rights are protected and that you have an advocate who can provide you with professional and legally-sound advice.
Negotiating the terms of the contract and drafting the relevant documents can be the hardest part of an FSBO. Sellers should be aware of their options and consider seeking additional guidance. Regardless of the option you choose, understanding the differences between a contract to sell and a contract of sale is important to avoid jeopardizing the deal or entering into a disadvantageous agreement.
Contract To Sell
Also known as a purchase and sale agreement, a contract to sell is an agreement illustrating the commitment of the seller to sell property to a buyer and the buyer’s commitment to pay for the property. The contract should contain the following:
The contract to sell is an outline of the actions or conditions the buyer and seller must meet. The ownership of the property would only transfer from the seller to the buyer once the terms and conditions have been met. In a contract to sell, the seller retains ownership of the property.
It is important to note that in a contract to sell, the seller and the buyer can still opt out of the agreement if the other party is not fulfilling the obligations indicated in the contract. Sellers should take note that most purchase and sale agreements are drafted to protect buyers. It may be a good idea to negotiate the inclusion of conditions that protect your interests in the event that the buyer is not holding their end of the bargain.
Contract of Sale
The contract of sale serves as proof that the seller has sold the property to the buyer and relinquishes any ownership they have of the property in exchange for the agreed-upon price. A Contract of Sale can and does sometimes have the same information as a contract to sell, especially the description of the property, the financing terms, and the negotiated price. Once the contract of sale has been signed, the transaction is considered final. The signing of the deed of sale can also be done at the same time as the contract of sale to reflect the immediate turnover of ownership.
Before you sign any kind of contract, it is important to always read the fine print, especially in an FSBO where you won’t have the assistance of a real estate agent. You might be signing away the rights to your home or agreeing to risky terms and conditions that put you in a vulnerable financial position. Depending on the kind of contract and the way it is written, reneging can be subject to expensive fines or can result in extensive litigation. It is strongly recommended that you consider having a competent lawyer review the terms of your contract to ensure that there are no issues.
Working with a Skilled New York City Real Estate Attorney
Even if you pursue the sale of your home without a real estate agent, consulting an attorney can save you the time, money, and energy necessary to learn the ropes of the real estate market in New York City. A skilled attorney can also leverage their experience and knowledge of both real estate law and the market to help you avoid scams and ensure that your rights are protected. Your attorney can also help you avoid litigation by providing guidance regarding New York’s disclosure and housing laws.
At Avenue Law Firm, our team of seasoned New York City real estate lawyers has assisted in numerous real estate transactions both on the buying and selling side. We provide quality legal services, from drafting contracts to representing your best interests in negotiations and fighting for your rights in real estate litigation. We can help you create a contract that reflects your real estate goals and ensure that the terms and conditions are enforced. With the help of one of our Manhattan attorneys, selling your own home can be a hassle-free and pleasant experience. Contact us today at (212) 729-4090 to schedule a free consultation.
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