If you have chosen to put an FSBO sign of your property, then you need to learn about “contracts for deed.” That term refers to a type of owner financing, as used in a real estate transaction. Under the terms of a sale conducted within a “contracts for deed” agreement, the property owner promises to give the buyer a deed after the buyer has paid the property owner a certain amount of money.
In most cases, the terms of a “contracts for deed” agreement allow the new property owner to make payments over a set period of time. Each of those payments is expected to include a payment for the interest on the unpaid balance. Only after the buyer has completed all of the required payments does the seller hand the buyer the deed for the property.
Whenever a property owner with an FSBO sign on his or her property calls for the making of a “contracts for deed” agreement, then that property owner can manage to lay aside certain concerns. Once a buyer has signed such an agreement, then the seller of a property expects that buyer to keep the property insured, and to pay the real estate taxes on that property. The buyer carries out those duties in exchange for the opportunity to possess the real estate that has yet to be paid off.
In the event that a property owner who has put an FSBO sign on his or her home finds that the buyer has failed to make the required payments, then completion of a “contracts for deed” agreement gives that seller a “green light” to move forward, and to take the necessary legal action. By signing the “contracts for deed” the buyer has given the seller a waiting period of only 60 days, after which the seller can cancel the signed contract.
The completion of a “contracts for deed” agreement provides the seller of a property with both advantages and disadvantages. Such a contract gives the seller the opportunity to gain interest income on a piece of real estate. Moreover, whenever interest rates are high, the seller might be able to offer the buyer better credit terms than a conventional lender. That can increase the potential sale price of whatever home has been placed on the market.
On the other hand, the seller must deal with the fact that any failure on the part of the buyer to follow through with the required payments could force the seller to repossess the property. Most sellers do not want to regain possession of a property they once placed on the market. The seller can reduce the chances for that unwanted possibility by asking the buyer to make a substantial down payment. The buyer who has made a large down payment on a property is less likely to want to cancel a “contracts of deed” agreement.
The seller who asks for a substantial down payment also diminishes the chances for a “worst case scenario.” If the seller demands a substantial down payment, then the buyer is less likely to default on the agreement at a time when the seller could not recover sufficient funds