For sale by owner: avoid common legal problems

real estate lawyer

Most common FSBO legal issues

With today’s do-it-yourself approach to many things home-related, it’s not uncommon for home sellers to take the for-sale-by-owner route. Statistics indicate that FSBO homes stay on the market an average of 19 days longer and sell for about 19 percent less than homes sold by Realtors. But the promise of saving that commission — oftentimes around 6 percent — is too enticing for many home owners, and about nine percent choose to sell their homes themselves.

If you’re among that 9 percent, you’re far more likely to run into legal issues during or after the sale. The most common issues occur in one of the following three areas.

Contingencies in the offer 

Contingencies are an important component in offers, providing buyers with a way to terminate the offer if the contingencies are not satisfied. For many buyers, the most critical contingencies relate to

  • Financing — securing a home loan from a lender at a desired rate and term;

  • Appraisals — ensuring the home’s value is equal to or greater than the purchase price;

  • Inspections — discovering potential defects and unsatisfactory conditions with the property.

Real estate condition report 

Sellers are required to fully disclose to buyers defects or unsatisfactory conditions with the property on a real estate condition report. If a seller fails to disclose or misrepresents defective conditions which are later discovered by the buyer following the sale, the seller could be liable for the costs to repair or replace the defective conditions if the buyer pursues litigation. The key for sellers is to disclose in the real estate condition report all defects with the property (water leaks, mold, infestations, etc.). By doing so, the seller can avoid potential lawsuits by buyers which can be costly and time consuming. 

Return of earnest money deposits 

This is another area where legal challenges often arise. Consider, for example, an inspection conducted by the buyer’s certified inspector reveals 10 to 15 defects with the property. The buyer requests that all the defects be cured or fixed at the seller’s expense. The seller has the work performed to cure the defects, but it’s not to the approval of the buyer and the buyer terminates the offer. The seller disagrees and refuses to disburse earnest money deposit to the buyer. As a result, the parties are now disputing over who gets to retain the earnest money deposits.

This issue is so common that there’s actually a special category in the standard small claims complaint forms designated specifically for return of earnest money.

Avoid problems in the first place

Many of these problems can be avoided with a little guidance up front. That’s why many homeowners use Realtors. However, if you still want to sell your property yourself, you would be wise to invest at least a little up front to help you avoid legal problems.

An experienced real estate attorney can handle a basic residential real estate transaction for just $300 to $400 to advise the seller or $200 to $300 to assist the buyer. That investment also brings assistance with preparing and reviewing offers, reviewing title work, scheduling the closing at a title company and preparing the deed and transfer returns. It’s a small amount to pay to ensure one of the biggest financial transactions of your life goes smoothly.

For sale by owner: avoid common legal problemsBy Brandon Prinsen, Partner, Johns, Flaherty & Collins. For a La Crosse real estate lawyer, call him at 608-784-5678.


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