Wondering what a land contract entails? Deciding if selling land contracts is right for you? Then look no further and learn more about how to sell land contract today. Take a closer look.
What is a Land Contract?
By definition, a land contract is a contract between two parties to sell a piece of land/real estate on terms that both parties agree to. The land contract keeps a note of all the terms of the sale, such as the term, purchase price, down payment, monthly payment, interest rate, and so on. They are essentially seller-financing agreements that allow the buyer to pay the seller directly for the property over time, instead of using traditional lending avenues. In this case, the buyer makes a down-payment upon the signing of the agreement, and further agrees to make regular scheduled payments until the price for the property has been paid in full. The contract may stipulate monthly payments until the entire due amount has been paid, or it may require a final “balloon payment” at an agreed-upon time in the future. Unlike a mortgage, the title or deed to the property in a land contract is held by the seller until all agreed-upon payments have been fully made.
Selling A Land Contracts
A land contract is beneficial to both the buyer and the seller as it allows someone who might not otherwise be able to acquire the required financing, to have the ability to purchase the property with certain pre-conditions that are favorable to the seller as well. However, complications might arise when the seller wants to get the cash out of the land contract before the final “balloon payment” is made. In that case, the seller has the option to sell the land contract to a third party that will then continue receiving payments from the buyer. There are a few things to keep in mind when selling a land contract:
1) Calculate the value of the remaining payments that you are yet to receive for the land contract. There is no set amount that you will be offered for the title and rights to your land contract; hence, knowing a base amount value will help you in evaluating offers for the same.
2) Factor in – and adjust the value for – inflation and interest. Once you have sold your land contract, you will receive the full payment immediately, while the concerned party will be receiving the payments from your buyer as agreed upon earlier. In this case, they will want to keep up with inflation as well as make profits on the investment based on the recurring interest paid by the buyer for the land contract.
3) Research reputable companies that purchase land contracts. Verify that the company you are working with has a valid business license; in order to do so, check with the Better Business Bureau (BBB) and your state licensing board. Referrals from someone you know, work best in these types of scenarios.
4) Contact at least four to five companies. Getting multiple offers will allow you to compare the various deals on the table, and go ahead with the one you think is suitable. The companies making offers to purchase your land contract will ask for specific documentation related to the contract, so get them in order before approaching the companies.
5) Accept an offer. Make sure that the contract includes all pertinent information, including the amount values, relevant dates, and property information. If possible, have an attorney review the contract; once everything is settled, both parties will need to sign the contract accordingly.
Selling Your Home with a Land Contract
Selling your home with a land contract has a lot of benefits attached to it. The sale of the property in question is quicker without the banks getting involved. Additionally, if you factor in interest into the payment schedule, you are earning that money as pure profit, over time. It also opens up your sale of property to buyers who might not have the resources needed for the down payment from traditional loan avenues. You will need to follow the enlisted steps, in order, before selling your home on a land contract:
1) Consult your state laws: each state differs in its understanding and treatment of land contracts. Some states consider the property to be solely owned by the seller until the final payment is made, while other states provide ownership rights to the buyer once the majority of the payments have been made.
2) Work out a deal with the buyer. Determine the purchase price, the down-payment, the monthly payments and the “balloon payment”. Establish an estimated date when the buyer will take over the title and rights to the property.
3) Write a contract. Make sure that the land contract includes the basic things that any sales contract would cover, including allowing for contingencies.
4) Sign the contract and collect the down-payment before allowing the buyer to move in to the property. Both parties need to agree to the contract in its entirety.
5) Record the contract with the state. Not all states require that land contracts be recorded; however, if you need to take legal action to sort out any dispute with the buyer, it will be in your best interest to have the contract legally recorded.
Overall, land contract’s for any real estate transaction that takes place requires research before making any decisions. However, they are applicable under certain conditions, especially when financial options, or the lack of, are taken into consideration. The pros and cons of a land contract must be carefully weighed against each other; both the buyer and the seller should fully understand the benefits as well as the risks involved. To minimize unforeseen problems later on, all agreed-upon provisions should be clearly stated in the contract, and carefully reviewed by an attorney before it’s signed by both parties.