Contract for deed, also known as an installment sale contract or a land contract, is an agreement between a seller and buyer of real estate in which the seller finances the purchase of the property for the buyer. A contract for deed offers benefits to both parties, but can also carry disadvantages as well. If want to use this financing option, there are various steps you need to consider as a buyer or seller.

What is Contract for Deed

A contract for deed is an agreement between a seller and buyer in which the former provides financing for the purchase of the property. The buyer is able to move into the property right away, while the seller receives agreement that the buyer will pay off the balance of the full price of the property. The buyer will be obligated to make payments according to the contract and in return, will receive owner’s title to the deed once the balance has been fully paid off. These payments usually consist of an interest rate, a down payment, and installment payments with various intervals such as quarterly, monthly, or bi-annually. A contract for deed is much different than a mortgage loan though and the paperwork that needs to be completed is significantly less.

Benefits of Contract for Deeds

The primary benefits in a contract for deed are experienced by the buyer. The biggest advantage for the buyer is that a credit check is not required so it’s a great financing option for those with no credit or bad credit. This allows buyers who may not be able to obtain a traditional loan the capability to purchase a property without being required to submit to a credit inquiry and verification of income.

Another benefit for buyers is the rewarding aspect of being able to purchase a property with less money upfront with minimal paperwork and a simplified loan process. The mortgage process can be complex and lengthy, requiring various forms of paperwork, detailed credit history purchases that review credit information, employment verification, income verification, and other detailed analyses. Contracts for deeds often only require simple paperwork and compared to the alternative mortgage loan a contract for deed provides more flexibility to the buyer.

It is also important to note that because contract for deed contracts are agreements between two parties, they can usually be tailored to meet the needs of both the buyer and seller. This is important in that the terms can be customized to the needs of both the buyer and seller, allowing more negotiation as to what may need to be included or excluded from the contract rather than traditional loan financing, in which the terms are standard and non-negotiable.

Seller Benefits

Sellers may also benefit from contract for deed as a real estate financing option. One of the major business advantages for the seller is the fact that the full purchase price of the property may be paid right away, giving the seller immediate liquidity. Additionally, with the contract for deed, the seller has the ability to act as the lender by setting interest rates for the buyer's payments rather than letting the bank or other lending institution set the rate.

Therefore, the seller can use the contract for deed as a way to create a higher return on capital than could be obtained with a conventional loan. Additionally, the seller could also potentially receive a larger down payment with the contract for deed, with payments that are made on a monthly or quarterly basis.

With all of this in mind, it is important to understand how to get started on a contract for deed.

Get Started on Contract for Deed

If you are located in New York and are looking for legal counsel, there are many options available to you, so make sure that you do your research. Look for experienced lawyers who understand the laws and regulations surrounding contract for deed in your area. An established practice will have lawyers who are familiar with the intricacies of contract for deed and the other aspects of real estate law in your state.

In addition to finding an experienced and knowledgeable lawyer, prior to getting started with a contract for deed, you should also be sure to understand the law relating to contracts in your state. Specifically, you should have a keen understanding of the rules regarding earnest money requirements, the statute of frauds or frauds against creditors requirements, disclosure requirements, and more. All of this information can typically be found in your state’s real estate law.

Once you have familiarized yourself with the laws and regulations surrounding contract for deed and have identified appropriate legal counsel, the next step would be to create the actual contract. Some lawyers might be able to help you draft the document or work with a pre-created template, but it is important to make sure you thoroughly understand the details of the agreement.

The contract should contain the following:

-A description of the property and any associated taxes

-The total purchase price of the property

-The amount of the down payment being made

-The total of all payments to be made

-Possession details

-Closing costs

-Default consequences

-What will happen upon the sale

Once you have determined all of this information and the contract is fully drafted, the document is then signed by both the buyer and the seller. Afterward, the contract will be filed with the county recorder to note that the seller owns a legal interest in the property.

Contract for deeds can be a great financing option and provide numerous advantages for buyers and sellers alike. However, there are some drawbacks that should be taken into consideration, such as the fact that the buyer could default on their payments, and the seller could be left with few legal options. It’s important to do your research prior to entering into a contract for deed and to make sure that you understand the laws surrounding contract for deed in your local area.


Contract for Deed,

Real Estate,

Installment Sale