Talon News - Good Local News



August 25, 2017

Yesterday I ran across an interested exchange on a Facebook yard sale site. One user was asking the local community what their thoughts were on lease to own, or real estate contracts, how they work and if they are just a scam. It was interesting to see the local community’s input and hear about some of their experiences.

One lady fell victim to a scam and wired money to a person in Georgia that was going to FedEx her the key to the home, only to be told she had to wire additional funds for the key to actually be sent. Another user shared how she had moved into a home, paid the seller’s lender directly the monthly amount on a verbal agreement for over two years. She was put off each time she repeatedly asked for a contract in writing only to be told it was coming. Then, after close to three years of paying the seller’s mortgage, the seller demanded that she vacate the premises!

While these seem like horror stories to those involved, we are going to use them as cautionary tales to avoid being taken advantage of.

What is a Real Estate Contract?

Wikipedia defines a real estate contract as: “A contract between parties (buyer and seller) for the purchase and sale, exchange, or other conveyance (transfer of ownership, right to use) of real estate. The sale of land is governed by the laws and practices of the jurisdiction in which the land is located. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases (rental contracts) cover such rentals since they typically do not result in recordable deeds (ownership, recorded with the county). Real estate contracts are typically bilateral contracts (i. e. agreed to by two parties – usually the buyer and seller) and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.”

Translation? You will most likely not be able to rent to own an apartment or other rental property, but given a written legal contract some buyers will be able to purchase property using a real estate contract.

What are some reasons people would need or choose to use a real estate contract?

Basic outline for buyers:

For those of us with less than ideal credit, purchasing a property on a real estate contract can enable buyers to get into a home while working on their credit. Typically, sellers will ask for at least 10% of the purchase price to be put as a down payment, and ask for a higher than market average percentage rate on the remaining balance (6% vs the current 4%). From here, the remaining terms such as monthly payment and length of time the seller is willing to carry the note are negotiated between the two parties. Business owners whose income and income-tax structure can be complicated can also benefit from the opportunity of property ownership that a real estate contract provide.

Basic outline for sellers:

There are some properties that cannot be purchased using traditional financing such as manufactured homes that have been moved more than one time, have not been placed on a permanent foundation, or the sellers are financially unable to bring the condition of the property up to appraisal standards – among other reasons.

The take away?

Using a real estate contract to purchase a property can be a great way to get into property ownership if all of the terms are laid out lawfully in a written legal contract agreed to by both parties. Consult your local Real Estate Broker to walk you through the details and complexities associated with writing a real estate contract on the property you would like to buy!

Happy shopping!


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