8 Essential Clauses to Include in Your Real Estate Agreement

Dec 16, 2025
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Selling a home is one of the most significant financial decisions many people will make in their lifetime. For homeowners seeking to save on agent commissions and maintain full control over the sale, the "For Sale by Owner" (FSBO) approach is a popular choice. While FSBO can offer many advantages, it also requires the seller to handle several legal and administrative steps, including preparing a solid real estate contract.

In this comprehensive guide, we’ll explore the intricacies of a real estate contract for sale by owner, from its essential components to tips on drafting one correctly and avoiding common mistakes. Whether you're a homeowner preparing to sell your property or a buyer considering a FSBO home, this post will help you understand what’s involved in the process.

What is a Real Estate Contract?

A real estate contract is a legally binding agreement between the buyer and the seller outlining the terms and conditions of the property sale. When the sale is handled by a real estate agent, the contract is typically prepared and facilitated by the agent or their legal team. However, in a FSBO transaction, the responsibility of drafting and executing this contract falls directly on the seller.

The contract serves as the blueprint for the transaction and includes all relevant details such as:

The purchase price
Property description
Contingencies
Closing date
Earnest money deposit
Responsibilities of each party

An accurately prepared real estate contract ensures that both parties understand their rights and obligations, reducing the risk of disputes or legal issues down the road.

Why Choose For Sale by Owner?

There are several compelling reasons why homeowners opt to sell their property without an agent:

1. Cost Savings

One of the primary motivations is to avoid paying the standard 5-6% real estate commission, which can amount to thousands of dollars. For example, on a $300,000 home, that’s $15,000 to $18,000 in commissions that the seller can potentially save.

2. Full Control

FSBO sellers enjoy complete autonomy over the selling process. They can set their price, decide how to market their property, and negotiate directly with buyers.

3. Personal Involvement

Some sellers feel that they know their property better than any agent and are best positioned to highlight its features and benefits during the sale process.

While FSBO offers these benefits, it also demands that the seller take full responsibility for every aspect of the sale, especially the legal documentation.

Key Elements of a Real Estate Contract for Sale by Owner

Creating a proper real estate contract is not optional—it’s essential. Below are the critical elements that every FSBO real estate contract should include:

1. Property Details

The contract must clearly describe the property being sold. This includes the address, legal description (which can be found in public records), and any personal property included in the sale (e.g., appliances, fixtures).

2. Purchase Price

The agreed-upon price of the home must be explicitly stated in the contract. If the sale involves seller financing, those terms should also be detailed.

3. Earnest Money Deposit

The contract should mention the earnest money amount, which acts as a good-faith deposit by the buyer. This money is usually held in an escrow account and later applied to the purchase price or closing costs.

4. Financing Contingency

This clause gives the buyer time to secure financing. If they are unable to get a mortgage, the contract can be voided without penalty.

5. Inspection Contingency

This allows the buyer to conduct a home inspection. If issues arise, the buyer can request repairs, renegotiate the price, or cancel the contract.

6. Closing Date

The contract should include the anticipated closing date when ownership officially transfers from seller to buyer.

7. Disclosures

Most states require the seller to disclose known issues with the property, such as mold, pests, or structural problems. Failing to disclose can result in legal action later.

8. Title and Deed

The contract should specify that the seller will provide clear title (free from liens or claims) and deliver a deed at closing.

9. Signatures

To be legally binding, both parties must sign the contract. Some states may require notarization.

Drafting Your FSBO Real Estate Contract: Tips and Resources

1. Use State-Specific Templates

Real estate laws vary from state to state, so it’s crucial to use a contract template designed for your specific location. Many state real estate associations or government websites offer free templates.

2. Hire a Real Estate Attorney

While it may seem counterintuitive when you're trying to save money, hiring a real estate attorney can be a smart move. An attorney can review or draft your contract to ensure it's legally sound.

3. Be Transparent

Full transparency regarding the condition of the property, known issues, and any changes in terms is critical. Misrepresentation can lead to lawsuits or canceled deals.

4. Use Escrow Services

Even in FSBO transactions, it’s wise to use a neutral third-party escrow company to hold earnest money and handle document exchange.

Common Mistakes FSBO Sellers Make with Contracts

Selling a home without an agent is challenging, and mistakes can be costly. Here are some of the most common missteps related to the real estate contract:

1. Using a Generic or Incomplete Contract

A one-size-fits-all contract may not meet the legal requirements in your state or cover all necessary details. This can leave you vulnerable to legal challenges.

2. Omitting Important Contingencies

Failing to include financing or inspection contingencies could lead to disputes if the buyer can’t close or finds significant problems during inspection.

3. Skipping Required Disclosures

Every state has disclosure laws that protect buyers. If you don’t follow these laws, you could be sued after the sale.

4. Ignoring Deadlines

Missing key deadlines—such as closing dates or inspection windows—can invalidate the contract or cause penalties.

The Closing Process in FSBO Transactions

The closing process in a FSBO sale follows a similar path to traditional sales, but without the oversight of an agent. Here’s what the seller typically needs to handle:

Title Search – Verify that the title is clean and there are no liens.
Prepare Closing Documents – This includes the deed, settlement statement, and transfer forms.
Coordinate with Buyer – Ensure financing is secured, inspections are done, and final walkthrough is scheduled.
Choose a Title or Escrow Company – A neutral party to facilitate the transfer of funds and legal documents.
Attend the Closing – Sign documents, hand over keys, and receive payment.

Pros and Cons of FSBO Real Estate Contracts

Pros:

Saves thousands in commission
Full control of terms and negotiations
Personalized marketing and showings

Cons:

Legal risks if contract is poorly drafted
Time-consuming and stressful
Limited market reach without MLS access
May result in a lower sale price if not marketed properly

Real-Life Scenario: A Smooth FSBO Sale

Let’s look at a brief example:

Sarah decided to sell her home in Arizona without a realtor. She downloaded a state-specific FSBO contract template, hired a real estate attorney to review it, and used an escrow company to hold the earnest deposit. She marketed her home on Zillow and held open houses on weekends.

A buyer submitted an offer, and after some negotiation, they signed the contract. The buyer’s financing and inspection contingencies were met within 21 days, and they closed on the agreed date. Sarah saved over $12,000 in commission fees.

This scenario illustrates how careful planning, legal guidance, and good communication can make FSBO a viable option.

When to Seek Professional Help

While FSBO contracts are manageable for many homeowners, there are situations where professional help is highly advisable:

If you’re unsure about contract language
If there are title issues
If the buyer is using complex financing
If the property has legal complications (e.g., tenants, easements)

In these situations, hiring a real estate attorney can protect your interests and ensure the transaction proceeds smoothly.

Frequently Asked Questions (FAQs)

Q1. Can I write my own real estate contract?

Yes, you can write your own real estate contract, but it must comply with state laws and include all necessary elements. Using a state-approved template and having an attorney review it is strongly recommended.

Q2. Do I need a lawyer to sell my house by owner?

Not always, but in many states, especially those requiring attorney involvement in real estate closings, it's either mandatory or highly recommended. A lawyer can review your contract and guide you through legal requirements.

Q3. Is a verbal agreement legally binding in real estate?

No. Real estate contracts must be in writing to be legally enforceable under the Statute of Frauds.

Q4. What happens if a buyer backs out of a FSBO contract?

If the buyer backs out without a valid reason (like a contingency clause), they may forfeit their earnest money. However, if contingencies allow, they may walk away without penalty.

Q5. What disclosures are required in a FSBO sale?

Disclosure requirements vary by state but often include structural issues, lead paint (for homes built before 1978), pest problems, mold, and past renovations. Always check your state’s disclosure laws.

Q6. Can I list my FSBO home on the MLS?

Typically, only licensed agents can list on the MLS, but you can pay a flat-fee MLS listing service to include your property while retaining FSBO status.

Q7. How do I determine the right sale price?

Research comparable home sales in your area, consider your home's condition, and get a professional appraisal if needed. Online tools like Zillow’s Zestimate can also provide ballpark figures.

Q8. What is the role of escrow in FSBO?

Escrow protects both buyer and seller by holding earnest money and ensuring conditions are met before closing. An escrow company can handle document exchange and funds transfer.

Q9. Is a home inspection required in FSBO?

It’s not legally required, but buyers almost always request one. You can also conduct a pre-inspection as a seller to address issues ahead of time.

Q10. Can a FSBO contract be canceled?

Yes, but cancellation depends on the terms in the contract. If contingencies aren’t met or both parties agree, it can be canceled without penalty.

Conclusion

Selling your home “For Sale by Owner” can be a rewarding experience, offering more control and the potential for significant savings. However, the legal complexity of the transaction, especially the real estate contract, means you must proceed carefully and knowledgeably.

By understanding the key elements of a real estate contract for sale by owner, using reliable templates, seeking professional legal advice when needed, and staying compliant with state laws, you can successfully navigate your FSBO sale and close the deal with confidence.

If you’re preparing to sell your home without an agent, don’t overlook the importance of the contract—it’s the legal backbone of your entire transaction.