Selling Your Home With
A Land Contract-of-Sale

Question: I am selling my home on my own and have a potential buyer that wants to purchase the home using a land contract. What are the advantages and disadvantages of this type of purchase for me, as the seller?

Quinton: Land contracts-of-sale are probably the oldest property-transfer mechanism. They were originally used for transactions where the buyer didn't have enough cash to come up with the full purchase price. Instead of giving the buyer a deed to the property, the seller gave a contract to purchase. When the buyer eventually came up with enough money, the sale was consummated, and a deed issued.

Today, some buyers use land contracts-of-sale to "flip" properties. That is, they tie up the seller with the contract, without having the expense or liability of getting new financing, then quickly find a "re-buyer" for more money. They then sell the property to the re-buyer, pocketing the profit; it's all handled in escrow.

Since you're selling on your own, my suggestion is that you get a comparative market analysis from a good broker immediately. This will show you how much properties similar to yours are selling for and allow you to be sure that your property is not under-priced. Only then, if you're happy with the price, should you proceed with the sale.

Since buyers with good credit can get financing for up to 97% of the purchase price in today's market, chances are that the reason your buyers want to use a land contract -- assuming they're not flipping the property -- is a poor credit rating. Get a credit check to see if you want to consider selling to them.

Finally, if they check out, you may want to use a lease-option instead of a land contract. It puts the buyers in the position of tenants until they actually exercise the option and buy the property. That means you will probably have an easier time getting them out if they don't pay.

We've only scratched the surface here on land contracts-of-sale. You'll want to get a good attorney to give you all of the pros and cons and draft a contract for you if you decide to use one.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Power Tips for Buying a Home for Less," (McGraw-Hill, 2000).

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Quinton, Aurora, Colo.

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