Agreement for Deed Explained

Posted on December 29, 2009 by admin

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In today’s real estate market, the lending guidelines are so tight that normal blue collar people cannot qualify for a loan to purchase a home. Due to these tight lending guidelines, the market is suffering tremendously and sellers have very few options. One option that is shining enormous light on the situation is seller financing, also known as “agreement for deed” or a “land contract”.

In a typical seller financing or agreement for deed, the seller/owner sells the property to a buyer for an agreed upon amount of money. In essence, the seller is the bank. The buyer makes a down payment then the monthly payments to the seller. The seller does not transfer the title until the loan is refinanced or paid in full, thus the name “Agreement for Deed”.

The seller may have an underlying mortgage on the property, but it can still be sold via seller financing. A wrap-around mortgage is where the seller owes money on the property. This amount should be less than what the buyer has agreed to pay, so the buyer must pay for the mortgage amount, plus an amount to the seller each month.

The seller signs a contingency in escrow that he will not place additional liens on the property. Also the seller agrees to keep an insurance policy and pay the taxes through escrow. Most loans today have the taxes and insurance escrowed through the lender.

All “Agreement for Deed” purchases should be closed with an attorney to protect both the buyer and seller. If you keep the insurance policy in the owner’s name and hire an attorney for protection, seller financing via agreement for deed is a great deal.

Seller financing offers benefits for sellers. If the seller does not mind getting the money in small increments, they would gain the interest on the payments instead of the bank or mortgage company. Sellers can sell their property very quickly vs a normal conventional purchase. A number of sellers may be falling behind on their payments and can’t wait for a buyer to get qualified for a loan, which could take up to 3 months to close.

I predict an increase in the number of seller financing deals in 2010. The number of foreclosures will increase which will make it more difficult for a seller to compete with banks. We also plan on increasing our number of purchases and sells via owner financing. It is the best buying/selling instrument in the business.

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Discussion: 17 Comments

17 Responses to “Agreement for Deed Explained”

gmcmarket

- 26th Oct, 10 03:10am

thx webmaster,i’ve leant it“`
RCA Ieftin

- 31st Oct, 10 06:10pm

i think is better to negociate with the seller, so you can buy the house at a lower price

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daytoshop

- 12th Nov, 10 01:11am

are you sur about this one
Yogurt Slavnikoff

- 24th Nov, 10 02:11am

I disagree with RCA Ieftin, nowadays it is hard to buy chaep house
admin (author comment)

- 30th Nov, 10 09:11am

I beg the differ. We run across a lot of great deals. If we acquire a property by getting the deed, then there probably isn’t a ton of equity in it anyway. But if the property is a great deal with 40%+ equity, we put a contract on the deal and close lightening fast! There are great deals in the marketplace. The key is navigating through all of the junk deals to get to the diamonds… Thanks for your comment.
RCA ieftin

- 14th Dec, 10 11:12am

Very interesting your opinion !
(rca ieftin)
hongthon

- 15th Dec, 10 03:12am

thank for share guy
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- 9th Jan, 11 10:01pm

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Sakioka

- 13th Jan, 11 07:01am

thanks..good blog
rca ieftin

- 24th Jan, 11 11:01am

The best option is to negotiate with the seller. In this way you will have the best price for the product.
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- 3rd Mar, 11 12:03pm

truly a very interesting idea!
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- 31st May, 11 02:05am

Due to these tight lending guidelines, the market is suffering tremendously and sellers have very few options.
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- 9th Aug, 11 09:08pm

Due to these tight lending guidelines, the market is suffering tremendously and sellers have very few options. One option that is shining enormous light on the situation is seller financing, also known as “agreement for deed” or a “land contract”.

In a typical seller financing or agreement for deed, the seller/owner sells the property to