How Does a Contract for Deed Work?

A Contract for Deed is known by many things. Land Contract, Land Contract Sale, Contract for Deed, Deed for Title. All of these terms describe a type of transaction where the owner of the property participates in the financing. Typically this type of owner financing has many more benefits than a lease option, but not necessarily as much as a seller carry back.

As a Buyer your goal is the DEED. Contract type transactions lay out the terms of how you obtain the deed. In simple terms the Seller is saying to the Buyer, if you do this and this, sometime in the future I will transfer to you full ownership (the Deed) of the property.

If you dissect the words on Land Contract or Contract for deed you will see the core word is Contract. At it’s most simplest form when you buy a seller financed property in this manner what you essentially have is a Contract. This contract lays out all the terms and conditions that both you and the seller have agreed upon. This contract typically can be filled at your local county recorders office to secure your interest in the property as well.

What are the benefits of Land Contract for Deed for the Buyer

Ownership without financing. Contract gives the buyer a vast amount of ownership benefits without involving bank financing. Well recognized in both the courts and tax laws this form of property ownership has been tested and tried time and time again.

Easier qualifying than traditional mortgage or bank loan. With traditional financing you have the bank or mortgage company that grants you approval. With the declining financial markets and bank failures it is getting increasingly difficult to find great financing. Even with a great FICO score and good credit history many financial institutions are simply staying away from the residential real estate market. With Contracts the owner decides if you are approved or not.

More ability to negotiate on price, terms, and other beneficial items when purchasing a new home. In this market negotiating an seller financed deal in most cases benefits the seller as much as the buyer. With Seller financing there are many points that you can negotiate in your favor that you simply would not be able to do with traditional financing.

When it is all said and done this type of financing for a buyer can be quite beneficial. Finding a seller willing to carry a note or a contract for a certain length of time can be one of the best ways to buy a new home if you are credit challenged, don’t have a long credit history, or just want to wait out the current financial ups and downs.

What are the benefits of Land Contracts for Deed for the Seller

Opens up the pool of potential buyers. This sometimes is the main factor in a seller offering to carry financing. It has become even more important in the current real estate market, sellers who have to sell their property in every state are scrambling to sell their property in just about any way imaginable.

Ability to get better terms, price or other selling benefits than a traditional real estate transaction. Even in a declining market sellers can get some great terms when selling a house while offering to finance. Sellers with a great house in a great location typically can get better asking price and tax benefits by offering to carry a contract.

This home in Chisago City, MN was sold on a Contract for Deed

Possible tax benefits. If the sale is structured in a way that helps both the buyer and seller the tax benefits for the seller can be quite beneficial. Sellers facing large taxable gains or other forms of life situations look to create an installment sale scenario where they can spread taxable gains over many years.

You should not be too concerned if the seller portion of this page was a little advanced. Even seasoned investors, real estate agents, and property owners can make simple mistakes when structuring a contract for deed or land contract. In my book I go in depth so you the buyer can understand most of the consequences for the seller when selling a property using some form of a contract type transaction.

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  1. tinacotts
    6 years ago

    hi just registered, glad I found your site. tina