Real Estate Contract Options in My State

If you’re buying or selling real property, financing options are so common, most people don’t consider other options. However, one choice to consider, whether you’re the buyer or the seller, is a real estate purchase contract. A real estate contract can avoid traditional financing, with a deal just between the buyer and seller.

Real estate laws vary by state. Make sure you understand your state contract laws before making such a major transaction. Contact an experienced real estate lawyer for personalized legal advice on real estate contracts.

What Is a Real Estate Contract?

A real estate contract is an alternative to a traditional bank mortgage. It’s based on a direct agreement in which the buyer makes regular monthly payments to the seller.

For this type of transaction, no bank or mortgage company approvals are required. Generally, the parties have considerably more flexibility. However, using a contract without getting legal help can also involve more risk.

Under a real estate installment contract, the seller retains title until the purchase price is paid in full. However, the buyer maintains possession for the payment term and does not own the property until full payment is made. The arrangement is a written agreement between the parties. The parties can develop creative solutions to address individual concerns.

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Pros of a Real Estate Contract for the Buyer

A real estate contract can be attractive to a buyer for any of the following reasons:

• The buyer can’t get a traditional mortgage due to poor credit, inadequate employment history, or other reasons, but can manage regular monthly payments and possession of the property
• There are no origination fees or closing costs, which can save thousands of dollars
• Smaller upfront down payments are often involved
• The process is quicker, simpler, and more flexible than bank financing
• Interest is tax-deductible, like mortgage interest
• Having a direct relationship with the seller allows for flexible negotiation on terms like price, payment schedule, pre-payment options, title encumbrances, and improvements

Cons of a Real Estate Contract for the Buyer

However, buyers should consider the following potential downsides to a real estate contract:

• The homeowner, not the buyer, owns the property until the contract is paid in full
• The potential buyer must arrange and pay for a title search, title insurance, appraisal, and home inspection
• The seller will generally set a higher rate of interest based on their increased risk
• There is a shorter time to cure default than with a traditional home loan, and the seller has the option of either canceling the contract or pursuing foreclosure
• If the buyer uses contract payments to improve their credit score, the seller must report payments to a credit agency
• Not all states require sellers to provide disclosures, including for defects the seller should know about

Pros of a Real Estate Contract for the Seller

The upsides of a real estate contract for a seller include:

• The sale can be quick and efficient, saving costs and delays of bank financing
• Title examination and appraisal are the responsibility of the home buyer
• If you’re selling non-conforming property that wouldn’t qualify for financing
• It can be a way to earn a regular income from owned real estate without the landlord-tenant requirements for a rental property
• If the buyer defaults and the seller needs to reclaim the property, the forfeiture process usually takes around 100 days, which is quicker than a foreclosure
• In the event of default, the seller may keep all money already paid and also reclaim the property
• As with the buyer, having a direct negotiating relationship can allow for flexibility to meet individual needs

Cons of a Real Estate Contract for the Seller

Concerns a seller may have include:

• There’s a risk that the buyer will default on payments
• The property will remain in your name for many years during the term of the contract
• The seller won’t receive all the money until the completion of the contract
• Negotiating and enforcing the contract will take more ongoing effort than would an outright sale

Requirements for a Real Estate Contract

The legal requirements for a real estate purchase contract vary by state. Generally, a purchase agreement requires a signed document that identifies the parties, the property, the price, and other specific terms. Some states require disclosures. Other states require a standardized form. There are also different closing procedures, depending on state law.

To understand the real estate contract rules in your state, talk to a local real estate lawyer.

Get Legal Help for Your Real Estate Contract

The best way to ensure a real estate contract doesn’t contain any surprises is to work with a lawyer to negotiate a strong purchase agreement.

Paying a lawyer to help with a real estate contract can cost considerably less than real estate agent fees and closing costs associated with a typical real estate transaction. It is a good way to protect one of your most valuable purchases.

If you think a real estate contract makes sense for your transaction, talk to a residential real estate attorney with experience drafting these kinds of agreements.