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Thinking About Sales Thursday

Today we focus on a unique type of deal that buyers need to be aware of; contract-for-deed sales.

There are plenty of deals with different conditions out in the real estate world. A particularly problematic one can be a contract-for-deed sale that many people in the market are unaware of the true conditions these deals hold. This type of sale is a land contract settled between the seller and buyer that is an agreement for deed. In this contract it states that the seller provides financing for the buyer so that they may purchase it at their agreed-upon price. The buyers then pay the sellers back in installments. This often includes a balloon payment at the end, where a larger sum is found to compensate for this type of deal. As agents under the brokerage of BridgeView Real Estate Services, it is our responsibility to steer you away from these types of contracts that usually become messy and expensive.

This deal targets home buyers who are not available for loans from a third party. The third party is most typically a credit union or a bank, exactly where most people apply to get a mortgage from. A contract-for-deed sale is a way around the issue of a buyer having poor credit or just not wanting to deal with a third party in the sale. This can cause some issues because the seller retains ownership of the property until it is 100% paid off. There is less safety in these deals and more responsibility is placed on the buyer to make sure every payment is being taken care of on time. This is perhaps one of the biggest risks, there is an incredibly short time period to when the seller can cancel the contract. Meaning, if you miss one payment, the seller can yank the contract from you. The balloon payment at the end is usually so substantial the buyer will have to obtain a mortgage. If unable to do so, the contract will most certainly be terminated. These contracts are often extremely vague and hard to understand as well, which doesn’t help anyone involved deal with specificity questions.

If used correctly, this can be a great deal for those involved and can all be resolved within the main two parties. However, it is sometimes difficult where there is so much at risk for the buyers. We strongly encourage you to speak with one of our agents about these deals in detail before committing to one. Home buying is a confusing process as it is, ask about these optional deals with BridgeView today!

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