Types of Real Estate Transactions

Real estate transactions involve the exchange of residential or commercial property between two or more parties. Beyond the conventional purchase and sale of a property, whereby a homeowner sells a home to a buyer who uses a mortgage loan to purchase the home in full, there are many different types of real estate transactions. Buyers and sellers arrange a variety of transactions to ensure the transfer of ownership will take place, even in the absence of a conventional mortgage loan.

Owner Financing

With owner financing, the buyer pays a mortgage note to the seller for a predetermined amount of time in exchange for ownership of the property. The amount financed could be the entire purchase price or a small percentage. Since the seller must pay his or her mortgage in full prior to the sale of the property, sellers with mortgages paid in full are prime candidates for this type of real estate transaction. When buyers are not able to obtain 100 percent financing through a traditional loan, they can ask the seller to "carry," or finance, the missing percentage.

Mortgage Assumption

Motivated sellers with significant amounts of equity in their homes may turn to a mortgage assumption transaction to ensure a quick sale. "The interest rate remains the same, and the lender may charge a fee for the transaction," explains Bankrate.com. Buyers take over the balance of the loan after he or she qualifies with the lender. If the seller has paid down the mortgage for 10 or 20 years, the buyers get a discount on the property that is difficult to obtain when buying new construction homes or properties with no equity available.

Like-Property Exchanges

Properties that appreciate in value are subject to capital gains taxes. Investors and businesses may attempt to circumvent these taxes by swapping properties with another seller. This transaction is called a like-property exchange. "Falling under section 1031 of the tax code, like-property exchanges offer business owners or investors a way to trade their property for something of similar value without reporting a profit and, thereby, defer paying taxes on the gain," reports Bankrate.com. Exchanges can only occur with investment properties and businesses.