What Is a Real Estate Land Contract?

by Mary Schultz ; Updated July 27, 2017
Buyers and sellers can both benefit from a written and recorded land contract

A land contract is an agreement for the sale of real property between a seller and a buyer. Payment of the purchase price is made in installments after a down payment. Commonly with a real estate land contract, the seller is known as the vendor and the buyer is known as the vendee. The seller retains the legal title to the real property until the final payment is made to fulfill the contract. Land contracts can vary from state to state.

Buyer Benefits and Risks

For buyers who may not qualify for other types of loans, a land contract can afford them an opportunity to purchase real estate. The down payment may be relatively low by comparison to that of a lender financed mortgage. The remedies for default if the buyer falls behind on payments and catches up may be more favorable than with a mortgage. A land contract can be cheaper and faster to finalize than a mortgage.

There can be risks to buyer, as well. The seller retains legal title to property during the contract period. Once the contract is fulfilled and paid off, the buyer receives title. In the event that the buyer defaults, the buyer can lose the down payment and any other monies paid.

Seller Benefits and Risks

If the buyer defaults, the seller has a relatively uncomplicated way of cancelling out of the contract and retaking the property. Neither foreclosure nor judicial action is customarily required.

Depending on the terms of the contract, the seller is likely to be party to the contract for long period of time, so a land contract is one that requires seller involvement for sometimes years. In some states, buyers who fail to record the contract within a specified period of time are subject to fines. And if the buyer defaults, the seller may have little recourse but to take back the property.

Information in a Land Contract

The land contract contains, at minimum, the full names and most current mailing addresses of the parties; the date that the contract was signed by the parties; the legal description of the property to be sold on the land contract; the contract price; and any and all charges or fees for service that are to be included within the contract, including ones above and beyond the contract price. Additionally, it contains the buyer's down payment amount, the amount of the principal balance, the payment due dates and the amount of each installment payment, the method used for computing interest and the interest rate, and a clear statement of any existing encumbrances in effect against the property. Other minimal provisions within the contract require the seller to provide evidence of title, to deliver to the buyer a general warranty deed upon the completion of the contract, and to otherwise indicate that there are no other mortgages, liens or assessments against the property.

Important Questions

A property buyer considering a land contract should ask and get answers to a number of questions. One is to determine who owns the property and to view the deed. The county recorder’s office can reveal the real property’s status. Other questions address condition of the property, responsibility for maintenance, its insurance expense and tax status. These issues should be in writing. Also, determining where the land contract will be recorded is essential. Engaging the assistance of an attorney versed in land contracts is advisable.

Photo Credits

  • signing a contract image by William Berry from Fotolia.com