Seller Financing: Things to Think About When Creating a Land Contract or Lease Option Agreement
With today’s housing market in rough shape, and financing not as readily available as it was just a few years ago, many homeowners are turning to seller financing options in an attempt to “sell” a property. This is a bit more complicated than the typical sale of a home, so more thought should be put into the written agreement. Before you approach a real estate attorney to draft such an agreement, here are some items to discuss with your potential tenant/buyer. This is not a comprehensive list by any means, but should help to encourage a healthy discussion.
Will one of the parties pay for an appraisal? A survey? Title insurance? If so, which party?
Will a down payment be required? How much?
Who will be responsible for utilities?
What happens if the tenant/buyer does not pay on time? How many days until a late fee is assessed? How many days until the tenant/buyer can be evicted?
Who is responsible for major repairs? Minor repairs? What constitutes a major or minor repair? Will this clause look more like a clause for a tenant or a buyer?
Will repairs need to be made by a licensed and insured contractor?
Will there be a professional inspection of the premises before the contract is signed, or just a walk-through?
Who is responsible to pay for home insurance? Renters insurance? Property taxes? HOA dues? For mortgage insurance, if any?
Will the tenant/buyer be allowed to sublease or assign rights to the property? If so, does the tenant/buyer need written permission from the landlord/seller for assignments?
What is the amount the tenant/buyer is paying? What are the terms, such as interest rate, duration, and any escrow amounts each month? Will the tenant/buyer need to find financing after a certain number of months or years? What happens if the tenant/buyer cannot find financing?
Is the tenant/buyer allowed to make minor or major changes to the property? What constitutes a minor or major change, if this is an issue?
Will the landlord/seller be allowed on the property for any reason in particular?
What addresses will be used to send written correspondence to the landlord/seller?
Even if you personally know the tenant/buyer, it is always a good idea to have your agreement in writing. That way, both parties will know the terms of the original agreement. If there is no agreement, the two parties may remember the agreed-upon terms differently, which may cause problems in your relationship with the tenant/buyer.