How to Protect Yourself and Your Sale From Costly Legal Problems
Selling your home For Sale By Owner (FSBO) gives you control, flexibility, and the potential to save thousands on commission fees. But with that freedom also comes legal responsibility — and this is where many first-time FSBO sellers make mistakes.
Real estate is a highly regulated industry, and even a small oversight in paperwork, disclosures, or communication can lead to delays, lost deals, or even lawsuits. The good news is that most legal problems are entirely avoidable if you know where the risks are and how to prevent them.
In this guide, we’ll walk you through the most common legal mistakes FSBO sellers make — and how to protect yourself every step of the way.
⚖️ 1. Failing to Provide Required Disclosures
One of the most common — and most serious — legal mistakes FSBO sellers make is failing to disclose known issues with the property.
In nearly every U.S. state, sellers are legally required to share certain information about the condition of the home with potential buyers. This typically includes defects, safety hazards, past repairs, and environmental risks. Failing to do so isn’t just unethical — it can lead to lawsuits for fraud or misrepresentation even after the sale closes.
Examples of disclosures that are often required:
- Roof leaks, water intrusion, or flooding history
- Foundation cracks or structural damage
- Mold, termite infestations, or pest problems
- Electrical, plumbing, or HVAC issues
- Easements, boundary disputes, or zoning violations
- Presence of lead-based paint (for homes built before 1978)
💡 How to Avoid This Mistake:
- Always complete a state-specific seller’s property disclosure form.
- If in doubt, disclose it. Over-disclosing is far safer than under-disclosing.
- Provide documentation (receipts, warranties, inspection reports) to back up any repairs or maintenance.
📑 2. Using the Wrong or Incomplete Contracts
Your purchase agreement is the core legal document in your sale — and one of the most common places FSBO sellers go wrong. Using a generic online template or drafting one yourself can leave out critical terms, misstate the legal description, or fail to meet state-specific requirements.
Mistakes like these can create legal loopholes buyers can exploit to back out of the deal or sue for damages.
Key elements your contract must include:
- Full legal names of buyer and seller
- Accurate property address and legal description
- Purchase price and deposit details
- Financing, inspection, and appraisal contingencies
- Deadlines for all contingencies and closing
- Responsibility for closing costs and property taxes
- Signatures from both parties
💡 How to Avoid This Mistake:
- Always use a state-approved purchase agreement. Most are available from your state’s real estate commission or attorney.
- Consider having a real estate attorney review the contract before signing.
- Document all changes through signed addendums — never rely on verbal agreements.
🧾 3. Not Understanding Contingencies (or Managing Them Properly)
Contingencies — clauses that must be satisfied for the sale to proceed — are a normal part of nearly every real estate contract. But many FSBO sellers fail to fully understand them, which can lead to missed deadlines, disputes, or unintentional contract breaches.
Common contingencies include:
- Inspection contingency: Buyer can renegotiate or cancel if inspection reveals significant issues.
- Financing contingency: Buyer can back out if they fail to secure a loan.
- Appraisal contingency: Protects buyer if the appraisal comes in below the purchase price.
- Sale-of-home contingency: Allows buyer to cancel if they can’t sell their current property.
💡 How to Avoid This Mistake:
- Carefully review all contingencies in the purchase agreement.
- Create a timeline checklist for each contingency deadline.
- Keep all communications documented in writing.
- Don’t make assumptions — if you’re unsure how a contingency works, ask your attorney.
🧑⚖️ 4. Mismanaging Earnest Money Deposits
Earnest money — the buyer’s good-faith deposit — is a small but legally significant part of the transaction. If mishandled, it can lead to disputes, lost sales, or even legal action.
Common mistakes sellers make with earnest money:
- Accepting deposits directly into personal accounts instead of escrow.
- Failing to specify what happens to the deposit if the deal falls through.
- Withholding earnest money when the buyer has a legal right to a refund.
💡 How to Avoid This Mistake:
- Always have earnest money held by a neutral third party (title company, escrow agent, or attorney).
- Clearly outline refund conditions in the contract.
- Follow state laws regarding release of escrow funds.
🧾 5. Misrepresenting the Property (Even Accidentally)
Misrepresentation — whether intentional or not — is one of the most common reasons sellers end up in court. This can include exaggerating the property’s condition, hiding known defects, or making false claims about permits, zoning, or square footage.
Even if a misstatement was unintentional, you can still be held legally liable.
Examples of unintentional misrepresentation:
- Advertising a property as “recently renovated” when work was done without permits.
- Describing a finished basement as “living space” when it doesn’t meet code.
- Failing to disclose that an addition wasn’t properly permitted.
💡 How to Avoid This Mistake:
- Double-check all listing information for accuracy.
- Be transparent about the home’s condition, improvements, and history.
- Never guess — if you don’t know, say so.
📜 6. Ignoring State and Local Real Estate Laws
Real estate is heavily regulated at the state and local level — and failing to follow those laws can void your contract or result in legal penalties.
Examples of commonly overlooked requirements:
- Failing to use state-specific disclosure forms.
- Not including mandatory legal language in contracts.
- Violating “Right to Cancel” periods for certain buyers.
- Not complying with fair housing laws in advertising or communication.
💡 How to Avoid This Mistake:
- Research your state’s FSBO requirements thoroughly.
- Consult a real estate attorney or title company to review your forms.
- Never make assumptions about legal requirements — laws vary widely by state.
🏦 7. Mishandling the Title or Transfer Process
The title transfer process is one of the most legally sensitive parts of any home sale. Errors here can lead to delayed closings, financing issues, or post-sale disputes.
Common mistakes include:
- Failing to clear old liens or judgments before closing.
- Recording the deed improperly (or not at all).
- Incorrectly listing ownership details on the transfer documents.
💡 How to Avoid This Mistake:
- Work with a title company or real estate attorney to conduct a full title search before listing.
- Resolve any liens, disputes, or ownership issues early.
- Ensure the deed transfer is prepared, signed, and recorded correctly.
📉 8. Relying on Verbal Agreements
Real estate contracts must be in writing to be legally enforceable. Unfortunately, many FSBO sellers make handshake deals or rely on text messages and emails as part of their negotiation process — only to discover later that they’re not legally binding.
💡 How to Avoid This Mistake:
- Put every agreement, amendment, and contingency in writing.
- Use signed addendums to document any changes to the original contract.
- Don’t rely on “understandings” or verbal promises.
📚 9. Not Seeking Legal Help When Needed
Many FSBO sellers try to avoid legal fees by doing everything themselves — but this can be a costly mistake if something goes wrong. Even a brief consultation with a real estate attorney can prevent expensive disputes or lawsuits down the road.
💡 How to Avoid This Mistake:
- Hire an attorney to review key documents like the purchase agreement and disclosures.
- Consider legal representation during closing, especially for complex sales.
- View legal fees as an investment in protecting your largest asset.
🏁 Final Thoughts: A Little Caution Goes a Long Way
Selling your home FSBO is absolutely doable — but it’s also a legally complex process. The difference between a smooth, profitable sale and a stressful, costly one often comes down to attention to detail and proactive legal protection.
By understanding your responsibilities, using the right documents, disclosing everything you know, and seeking legal help when needed, you’ll dramatically reduce your risk of disputes, delays, or lawsuits.
Remember: you don’t need to be a lawyer — you just need to act like a smart businessperson. And that means protecting yourself, following the law, and treating every part of the sale with care.