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For Sale By Owner

For those sellers who you want to try and sell your house yourself, and save on the real estate sales commission, please consider the following. This process is known as "For Sale By Owner," or FSBO (pronounced "fiz-bow"). You are about to engage on a momentous roll of the dice. Many sellers can successfully conclude the FSBO process without a problem. Many other sellers will wish that they had never attempted it. The purpose of this FSBO page is not to convince you one way or the other, but simply to provide a brief guide to the FSBO process from start to finish. However it is our opinion that a Professional Real Estate Agent is well worth any commission they may charge. Now for the disclaimers:


This letter is NOT intended to be a comprehensive explanation of everything that can or will be encountered in a FSBO sale. By its very definition, each real estate property is unique and will have its own particular issues to deal with.

All explanations in this letter are based on North Carolina law and custom, and certain customs and procedures may vary from county to county within North Carolina.

Nothing in this summary should be applied or used for property sales outside of North Carolina.

For the purpose of this summary, we are assuming that a residential house is being sold, but some of the same basic principles should apply to vacant land, residential rental houses, or other non-commercial real property situated in North Carolina.

Step 1: Setting the Price

The first step is to evaluate the property for sale. Here you try and separate your emotions about the property and look at the property as a buyer would see it. This is much harder to do than it sounds. Most people think that their house is wonderful and worth more than it really is. You have to consider factors such as what kind of similar properties have sold in your neighborhood, how much the properties sold for, and how long the properties that sold were on the market. Real estate professionals call this process a "market analysis." A market analysis is usually a free service offered by local real estate professionals to potential sellers. The hope and expectation associated with a market analysis is that the sellers will then list the property for sale with the real estate professional.

You can try setting a sales price for your property by collecting market analyses from various real estate professionals, but this seems inherently dishonest and unfair to me, unless you tell the real estate professionals up front what you are doing. Another way to establish value is to hire a professional residential appraiser and also consider having a "pre-emptive" house inspection done by a licensed home inspector. You'll see later on in the FSBO process where appraisers and inspectors come back into the picture.

Step 2: Advertising

Once you have set the sales price, now you have to get the word out about your sale. This is where real estate professionals really earn their commission. They own and run the formidable multiple listing services (MLS). The function of the MLS is to spread word of your property sale details among all real estate professionals in your area, so that a wide range of real estate professionals can then find out about your property and show it to interested buyers. If you have Internet access, there are some fee-paid services available to FSBO sellers which can get your property into your local MLS.

Many FSBO sellers bypass the MLS and online advertising, and simply advertise using traditional direct methods, such as newspaper and magazine advertisements and putting a FSBO sign in the yard.

Step 3: Showing the Property and Evaluating Prospects

This is probably the most difficult step of the FSBO process. When you employ a real estate professional, they meet with the buyers and show the house to them. Your job is simply to keep the house presentable as directed by your real estate professional, stay out of the way, and make the final decision on any contract which may be presented by your real estate professional. When you go FSBO, everything is up to you. Here is a short list of some potential things to watch for: (a) Browsers - there are a lot of people out there who just want to browse and have no intention of buying your house. Their function is to waste your time; (b) Nut Cases and Criminals - there are also predators out there looking for victims; and (c) Those who can't afford to buy your house - Many people, particularly first time homebuyers, want to buy more house than they can afford.

You can cut down on some of these problems by taking some common-sense precautions:

Step 4: Required Disclosures

Before you enter into a contract (FSBO STEP 5, below), there are two basic seller disclosures which are required for North Carolina sales. The first disclosure is the North Carolina Residential Property Disclosure Statement. North Carolina General Statutes Chapter 47E requires all sellers to fill out this form and give it to their buyers.

In completing this form, keep in mind that any "Yes" answers mean you are aware or a problem, and requires a detailed explanation, using extra sheets if necessary. Any "No" answer means that you are not aware of any problem. Any "No Representation" answer means that you're not certifying anything, yes or no, and is similar to an "as-is" statement in a contract. While a "no representation" answer is safest for a seller, to a buyer it may be like waving the proverbial red flag.

The second disclosure depends on the age of the house. If the house was built before 1978, the seller is also required to give the buyer a Lead Paint Disclosure Fact Sheet and a Lead Paint Disclosure form.

There is also the possibility that if you're a selling a home that may have Radon problems, you will have to sign a Radon Disclosure form.

Lastly, if you are selling a home or condo with a Homeowners association that collects dues, you will be required to give the Buyer information on the Association and amount of the dues.

Step 5: Making the Contract

Once the seller and the buyer have agreed on the terms of sale, everything that was negotiated must be put into writing and signed by both seller and buyer. Verbal or "handshake" contracts for the sale of real estate are not enforceable in North Carolina, and no mortgage lender will make a loan to a buyer without a written contract.

Since 1977, the standard form for entering into a North Carolina real estate contract has been North Carolina Bar Association Form No. 2 (also known as North Carolina Association of Realtors Standard Form No. 2). The form is entitled "Offer to Purchase and Contract," and it becomes a fully binding contract once it has been signed by both the buyer and the seller. The contract form is copyrighted as a joint effort between North Carolina's lawyers and real estate professionals, and is therefore not available for Internet download.

The drafting of a contract must not be taken lightly, since many thousands of dollars will be at stake. Many times the buyer and seller will have verbally negotiated the terms of the sale without considering all of the possible issues, and ask an attorney to put these terms into a formal contract. The better practice is for sellers to have met with an attorney first, then buyer and seller carry out their negotiations using a checklist of issues to agree upon, and then have the attorney formalize the agreement into a written and signed contract.

Here is a sample checklist of issues that need to be addressed when drafting up a North Carolina real estate residential sales contract:

Names: Correct names of buyers and sellers.

Personal Property Items and Fixtures: What items of personal property will be staying with the house? Personal property is defined as anything which isn't affixed to the house and which a seller might remove and take with him.

Purchase Price: The amount of overall purchase price, and how that price is to be paid. For example, if a house is selling for a total purchase price of $200,000, the seller may ask for a $2,000 deposit, with the balance of $198,000 to be paid at closing.

Earnest Money Deposit: How much, and who is going to hold it?

Financing Contingencies: If the buyer needs to borrow money to come up with some or all of the purchase price, the buyer will want to insert a condition into the contract that the buyer can terminate the deal if the buyer can't get a certain amount and type of loan. This is called a financing contingency. From the seller's point of view, the financing contingency should be terminated and cleared as soon as possible, and should contain liberal financing terms (that is, if the going interest rate is 7.5% for a 30-year fixed rate mortgage loan, then put 8.5% in the financing contingency to allow for a possible rate increase during the time the contract is being processed. The seller may also want to insert a condition that requires buyer's lender to share with seller progress reports on the securing of the mortgage loan.

Closing Costs: It is becoming increasingly common for a buyer to ask seller to pay for discount points, or for a certain fixed amount of buyer's closing costs, and write these payments into the contract. The seller may agree to such a condition, and the amount agreed upon will be deducted from the seller's proceeds at closing. Sometimes the seller will agree to a figure, provided that the purchase price is increased in an amount sufficient to make up for the "loss" in paying for that amount. This is acceptable, provided that the property appraises for at least the amount of the increased purchase price.

Inspection Rights: Unless the property is being sold "as-is," the buyer will want to make sure that the property is structurally sound and free from termites before closing on the property. The Real Property Disclosures referred to in FSBO STEP 4 above are not guarantees or warranties to the buyer, and North Carolina still puts the burden on buyer of checking out a house before the buyer purchases it. With limited exceptions, buying a used house is similar to buying a used car - the buyer needs to fully check out what the buyer is purchasing, because once closing occurs, there is virtually no real recourse against the seller. The North Carolina form contract contains provisions allowing the buyer certain rights of inspection before closing. These inspection provisions provide, among other things, that if the buyer's inspections show structural or termite problems, then seller either has to fix them at seller expense, or seller and buyer have to agree on what will be done, or buyer can simply terminate the contract. Therefore, from the seller's point of view, these inspections can kill a deal and should be completed as soon as possible. As noted in FSBO STEP 1 above, the seller may be able to shorten this process by having a home inspection done before putting the property on the market, and sharing this inspection report with prospective buyers. The buyers may still insist on their own inspection, but they may also be willing to go along with the seller's inspection and limit their own inspection time accordingly.

Closing: When will the property close? When will possession of the property pass to buyer? How long does the buyer need to get his loan together?

No Unwritten Agreements: Any other special conditions or agreements not covered by the standard contract?

Step 6: From Contract to Closing

Once the Contract has been fully agreed upon and written up, it needs to be reproduced in at least four (4) counterparts - one each for the buyer, seller, buyer's lender, and the person holding the earnest money deposit. The buyer then is required to use his best faith effort to meet all of the conditions, such as financing and inspections. The mortgage loan process can take anywhere from one week to six weeks, depending on the property and the borrower, and it is possible that the buyer will not be able to qualify for the mortgage loan needed to close. Things that affect qualification are (but are not limited to) the actual credit report of the borrower, the value that an appraiser selected by the lender assigns to the property, and the available cash that a buyer has on hand to make up the difference between the purchase price and the loan amount.

While the loan is in qualification process, the buyer will also need to conduct all of his inspections and provide the results of those inspections to the seller, as noted in FSBO STEP 5 above. The buyer and seller need to resolve all inspection issues prior to closing. At some point between the contract signing and the closing date, the mortgage qualification process will be completed. If the buyer qualifies for the mortgage loan, a closing date will be set between buyer, lender and buyer's closing attorney.

Closings in North Carolina are generally held at the office of a licensed attorney selected by the buyer and approved by the lender. In a FSBO sale, the seller and the buyer will appear at the office of the closing attorney on the closing date and sign all of the closing documents. The seller will be responsible for providing a warranty deed to the buyer and paying for North Carolina excise stamps and any other expenses which seller has agreed by contract to pay. Also, in order to close, the seller will need to be able to deliver to buyer "marketable title," which means that a title search done by the closing attorney reveals that seller can deliver clear title to the buyer with "acceptable encumbrances" (such as restrictive covenants, general easements, etc.). If the title search shows that the seller has an uncancelled mortgage, judgment, unpaid tax or other "unacceptable encumbrances" on the property, then the closing attorney will make arrangements with the seller, through closing, to pay off, satisfy or otherwise remove unacceptable encumbrances. Certain acceptable encumbrances, like taxes for the current year which are not yet payable, or mandatory assessments for a homeowners association, will be prorated between buyer and seller at closing, so that seller has paid seller's share of the encumbrance, and buyer then assumes the encumbrance from the seller. All of these payoffs and adjustments will be reflected on a document known as the HUD-1 Settlement Statement. The HUD-1 will itemize all of the buyer's and seller's expenses and credits, and come down to the net funds required by buyer and the net funds payable to seller when closing is complete. Both the buyer and the seller sign off and agree to the HUD-1.

Once all of the documents are signed, then the closing attorney collects the closing funds from the buyer. The funds must be in the form of acceptable certified funds as required by the North Carolina Good Funds Settlement Act. Once the closing attorney is satisfied that he has the correct amount and type of closing funds, and that all documents have been properly signed and notarized, the closing attorney will proceed to record the documents at the county Register of Deeds (in the county where the property is situated), and update title. The closing attorney will not distribute the net sales proceeds to the seller until all of this is done. The FSBO seller will need to be sure to ask the closing attorney when seller can reasonably expect to receive seller's net proceeds check.

Our Representation

If you have asked us to represent you in assisting with the sale, we will prepare the offer to purchase, hold the earnest money, answer any questions concerning the contract and prepare the closing documents on your behalf, which include a deed, lien waiver and any other closing document required. We will review the settlement statement prepared by the closing attorney and will make arrangement to pick up your proceeds if you wish. The total cost for out services is $450.00, $100.00 of which shall be paid upon engagement, and the remainder due when closing occurs. We will provide you with copies of the standard offer to purchase and disclosure forms but request that if you find a buyer that you let us prepare and review those for you. The above fee does not include any negotiations of the offer to purchase with Buyer, preparing of additional documents or amended contracts. If the sale falls through, you do not owe us the remainder of the fee, unless we have actually prepared the deed and other closing documents. Preparation of additional contracts for subsequent sellers or other services rendered outside of the above will result in additional charges at our hourly rate of $200.00. In some cases the Buyer may ask us to prepare the loan documents and exam the title. We will only do this if you do not object.

The information contained in this site is provided as a public service for informational purposes only and is not intended to be a comprehensive statement of the law or, in particular, to contain legal advice. Laws vary from state to state and are subject to change, which could affect the information available on this site. If you have questions regarding any information found on this site, you should consult an attorney who can investigate the particular circumstances of your situation. Persons receiving information found on this site should not act on this information without receiving professional legal counsel. Use of and access to this web site does not create an attorney client relationship between Harris Law Firm, PLC and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.
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