Real Estate Contracts - Seller's Viewpoint

Last week we talked about Real Estate Contracts, and today you wanted to discuss them from a seller's viewpoint?

Yes, a real estate contract, or REC, put simply, is a way for the seller to act as a bank for the buyer. In other words, the seller is in effect lending all or a portion of the purchase price for their property to the buyer and accepting monthly payments, including interest, over a period of time. The seller can legally sell on an REC even if they still owe a mortgage on their home.

So what are the seller's responsibilities?

The seller has very little responsibilities if they hire an escrow company to collect the payments from the buyers. An escrow company protects both parties, for a small monthly fee of about $10. The escrow company will collect all the payments, send proceeds to the seller every month, and pay all taxes, and insurance payments, if so directed. They hold the warranty deeds until the property is paid off. In the rare instance where a buyer may default, they also hold the warranty deed back to the seller, thereby eliminating the need for a judicial foreclosure action.

Why would a seller want to sell on a real estate contract?

For the seller, they may be able to sell the property for a slightly higher price, since they act as the bank. This widens the pool of available buyers for their home. Also, the REC option makes the property desirable to more buyer who may not be able to qualify for a mortgage at this time, yet have the ability to make payments. Further, the costs of selling and purchasing a home on an REC are less. This can also provide the seller with a monthly income and the interest rates negotiated are significantly higher than interest rates paid for savings accounts and CD's. Payment terms are typically more flexible than with standard mortgages, and payout dates are negotiable. It is fairly common to see a 5 year due in full clause, where the buyer must pay off the seller entirely in that time frame, either by refinancing or selling the house.

Las week  you spoke about the importance of working with an experienced Realtor, can you delve into that again?

When dealing with REC's, where all of the terms are negotiable, it is critically important to have an experienced REC specialist, like myself, represent you, whether you're in the transaction as a buyer or a seller.