HOW THE CONTRACT FOR DEED CAN HELP
SELLER'S WITH NO EQUITY AND
BUYERS WITH NO DOWN PAYMENT
By: Craig E. Buck, Attorney
Some people think you can only do a Contract for Deed if the buyer has enough down payment to cover the commission and closing costs.That is not true.There are many cases where one can use a Contract for Deed with no down payment.In fact, it happens very often when home values drop and the sellers have little or no equity.A seller, whose loan is close to the home's value, already needs to write a check to sell his house.He may not be happy about it, but that is reality.For example:The house is worth $300,000 and the loan balance is $300,000.Even if the seller gets that $300,000 offer, he writes a check for the commission at closing.It doesn't matter if he sells on a Contract for Deed or new financing.The difference is, that by offering Contract for Deed financing, the seller attracts a lot more buyers including well-qualified buyers with no down payment.
Also, in a Contract for Deed sale, the seller has several opportunities to recover his selling costs.The buyer might be willing to pay more, say $320,000.Remember, there is no appraisal and beauty is in the eye of the beholder.The buyer might pay more because he is getting financing terms he can't get anywhere else.In that case, the seller holds a note for $320,000 and the buyer puts no money down.At closing, the seller writes a check for the commission and closing costs as he would with a conventional sale.However, when the buyer sells or refinances, the Contract for Deed seller would get the $20,000 over the loan balance and pay himself back.
Another way to recover selling costs is to charge the buyer a higher rate of interest than the seller is paying and profit on the financing (wrap around).A 2% advantage on a $300,000 loan is $6,000 a year profit to the seller and he would recover the entire 6% commission in 3 years.
A major advantage of Contract for Deed financing is flexibility.Yu can match the transaction to the needs of the parties.Contracts for Deed let a buyer in with little money down.The seller can recover his selling costs.The agent gets paid.It is a win-win situation for everyone.
