Using A Land Contract When Selling Real Estate

Are you planning to sell some real estate you own but confused about how to go about it? One of the options you have is using a land contract.

What is a land contract?

A land contract is a written agreement or a legal contract used in purchasing real estate, for example, an apartment building, a house, vacant land, or any other real property. It is the same as a mortgage; however, instead of borrowing money from a bank or lender to purchase a real estate, the buyer pays the owner of the real estate until the agreed price is paid in full. The land contract covers the agreed terms and condition of land sale which the buyer and the seller signs. Over a specified period, when all the contract terms and conditions are satisfied, and full payment of the purchase price is made, the property legal title transfers from the seller to the buyer, this is done by way of warranty deed or by use of other deeds that are used to convey title.

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Land Contract Pros and Cons

The are both some positive and some slightly negative reasons to sell your  property on a land contract. Please review both the pros and cons before selling your property on a land contract.

Pros of a land contract.

Land contracts are used and are advantageous to both the buyer and the seller. Below are some advantages.

Easier Financing with a land contract

A land contract allows a buyer to work on any credit issue he may have. The debt to income ratio is lowered and has time to save for down payment enabling him to buy the real estate. The seller can negotiate with the buyer and set an amount that fits the budget of the buyer.

Land Contracts are a Win-win for the seller

A land contract puts a seller in a win-win situation. The seller receives payment monthly and has many potential clients. Also, he can negotiate and sale his real estate at a higher price.

Selling with a land contract are quick and simple

A land contract makes the process fast because one does not have to go through land selling processes, especially bank procedures.

Tax and income benefits of selling on a land contract

A seller avoids paying all the taxes at once. The seller enjoys a higher interest rate. Taxable income is spread over several years rather than in one year of making sales. There is no capital gain tax.

Cons of a using land contract to sell your real estate

The drawback of a land contract is that one has limited ability to reinvest because at a particular time, the agreement expires, and you cease getting any income. Another drawback is that land contract leaves you tied to the property. In case the land buyer fails to pay for property taxes or to insure it properly, you can lose the property. Therefore a well written contract should be used.

Benefits of using real estate attorneys in a land contract transaction.

The seller can file a court action when the buyer fails to make a monthly payment to the seller as agreed; this is called a land contract forfeiture. The seller keeps the real estate and all the money received from the buyer if the buyer fails to pay. The seller usually takes the risk by selling land using a land contract because he/she does not receive all the payment at the time of making the transaction; However, the seller is protected by the forfeiture right. Land contracts are good and are sometimes the only option available for real estate buyers and sellers.

The rules of real estate vary from one state to another. It is therefore crucial to a consult an experienced real estate attorney to draft a land contract when selling your land. This is to ensure the contract entails the appropriate terms that will support a forfeiture action in case the seller needs it. Remember, land contracts involve comprehensive negotiations; therefore, both parties need sound legal advice to make sure that the land contract signed represents their interests as well as protect them legally.

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