Define Contract for Deed
A contract for deed is an agreement for the future sale of a piece of property. This type of contract does not give the deed to the buyer during the sale. The contract for deed has an outlined date and payment amounts of when the buyer will take over the property.
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Time Frame
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There is no standard time frame that must be met in a contract for deed. The contract can cover a time frame as short as a few months up to several years. The buyer of the property must be ready to pay when the time outlines in the contract arrives.
Fee Schedule
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A contract for deed includes an outline of the payments due on the property once the sale is complete. This fee schedule is legally binding and the buyer has to pay the amount outlined in the agreement. This amount can include a sales amount outlined by the seller or the sale can include an existing mortgage. According to real estate investor Simon Volkov, a seller in a contract for deed situation can request a down payment for the buyer to use as security if the buyer defaults on the agreement.
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Benefits
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A contract for deed situation can benefit the buyer and the seller. For example in a down economy a seller may have a hard time finding a person who can afford to buy the property outright. Some potential buyers have issues with credit and employment history. In a contract for deed a seller can bypass this criteria and make their own agreement with a buyer. The buyer benefits if they don;t have a large enough down payment or poor credit. They can make an agreement with a seller who is having trouble and has the ability to move into a new property.
Types
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A contract for deed can cover a variety of different property types. It can cover residential, commercial or a land contract. In the case of the land contract a contract for deed can allow the buyer to build on the land at the specified amount of time listed on the contract. The seller can also list rules and regulations for building on the property.
Effects
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Contract for deed situations can have a positive effect on real estate. The private deal to unload a property can reduce the possibility of a foreclosure. In some cases of a contract for deed, the seller has purchased or intends to purchase a new property. Finding a new person to pay for the old property can free up cash or provide cash for a new property.
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References
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