How Does a Land Contract Work?

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,036 reviews

Jump to Section

Need help with a Land Contract?

Post Project Now

If you want to sell a property to someone without involving traditional banks, it’s essential to protect your rights and assets. Land contracts will help you define the conditions of the sale, plus payment terms and more. However, ensuring you have the correct contract language enables you to avoid legal and financial mistakes in the future.

The article below details everything you need to know about land contracts and how they work.

What Is A Land Contract?

Land contracts are real estate contracts between buyers and sellers in purchasing or selling land or real property. They’re used specifically for seller financing and work similarly to a mortgage. However, instead of securing a bank loan, buyers make payments directly to the seller. A land contract defines the terms and conditions of this exchange.

Here’s an article about land contracts also.

How Are Land Contracts Structured?

There are several variations of land contracts. However, they’re all primarily structured in the same manner. Some agreements may require balloon payments , while others seek collateral after negotiations. Negotiating land contracts is a straightforward process so as long as both parties agree to the provisions.

Let’s look at a land contract example for clarity:

John wants to buy a $100,000 house from Mary. Both parties are amenable to a land contract arrangement as long as there are specific stipulations in place. Mary wants John to put his vehicle up for collateral and a 20% down payment while financing the rest in equal amounts for the next ten years plus interest. John agrees to the terms, and Mary drafts a contract for signing.

Before structuring your land contracts, the buyer and seller must agree upon a sale price, payment terms, cost allocations, and other limitations. Therefore, you should have the discussion after familiarizing yourself with essential assignments in land contracts.

Meet some lawyers on our platform

Daniel R.

11 projects on CC
View Profile

Albert M.

9 projects on CC
View Profile

Jane C.

105 projects on CC
View Profile

Jonathan M.

1 project on CC
View Profile

Important Terms

You don’t need a law degree to open the negotiation discussion of a land contract. The only exception to this rule is if the transaction is complicated and you strongly believe you need legal advice. Otherwise, you need to learn only a few terms to get started.

Important terms in land contracts include:

  • Property Deed : A property deed is a document that describes a property and assigns the ownership.
  • Financing : Land contract financing doesn’t involve banks, which means that these terms should be discussed in detail.
  • Collateral : Collateral is something tangible of value that the buyer agrees to place in holding for the seller’s benefit if the agreement defaults.
  • Down payment : Down payments are a tool that sellers use to reduce their risk when entering into land contracts.
  • Balloon payment : Balloon payments are similar to a down payment, but instead of falling initially, they fall at the end of the payment series.
  • Interest : A seller’s advantage is to collect interest payments from the buyer, so the rate should be negotiated carefully.
  • Costs : Determine whether the buyer or seller is responsible for mortgage notes , liens, insurance, property taxes, and more before signing on the dotted line.

You may need to include more specific provisions in your land contracts later. However, real estate lawyers can assist you in that aspect while drafting an agreement that resonates with the original intent.

Do Land Contracts Need to Be Recorded?

Land contracts don’t need to be recorded, unlike property deeds, conveyances, and warranties. Instead, they’re reserved for the private use of a buyer and seller. If a dispute or issue arises, the land contract is the standard by which decisions are made in negotiations, mediation, or civil court.

What Happens When Land Contracts Are Paid In Full?

The seller transfers the property deed to the buyer when land contracts are paid in full. They complete the process by filing the necessary legal documents with the County Clerk and Recorder’s Office in which the property is situated. The County Clerk will record the new ownership information. The buyer then becomes legally and financially responsible for the property.

This web page also discusses land contracts.

Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Disadvantages of Land Contracts

The most significant disadvantage of land contracts is that there’s no transfer of ownership until paid in full. Due to the land contract structure, the seller generally retains the title. However, they are still liable for property issues as they arise. Ensure that you carefully choose your buyers when entering into a land contract.

Another drawback is that the buyer doesn’t build their credit history under land contracts since sellers don’t report to major bureaus. Property is likely the biggest asset one will ever purchase. Buyers may want to receive credit for their timely payments since it can affect their financial future.

Other Pros and Cons of Land Contracts

There are both pros and cons of land contracts. The significant advantage is that neither party needs to work with banks and is overall less expensive. In addition, both parties can create more individual wealth by engaging in this type of transaction versus a traditional mortgage.

Here are some other notable pros and cons of land contracts:


Bad credit can make it nearly impossible to finance a dream home. However, land contracts can ease these limitations. Owner financing allows you to purchase real estate if you can find a flexible seller. They may request that you put down collateral or make a balloon payment to initiate the process.


Sellers and buyers don’t have to pay for closing costs or origination fees under land contracts, which can range between two and five percent of the total purchase price. There are several cases in which the seller may not even ask the buyer for a down payment. As such, land contracts make the process more financially flexible.


The level of seller involvement makes land contracts even more secure for both parties. For example, if you miss several payments, the property doesn’t go into foreclosure unless the seller stops making mortgage payments. However, most land agreements contain provisions that direct the seller to pay the mortgage, if any, for it to remain intact.

Who Pays Taxes on a Land Contract?

The buyer pays taxes on a land contract. They are also responsible for additional expenses, such as property taxes, mortgage note interest, and insurance premiums. Buyers usually pay these expenses directly to the seller and may deduct them from their taxes. Sellers are not afforded the same opportunity.

Do Land Contracts Differ Across States?

Land contracts may differ across the U.S. There’s no standardized form in which land contracts must follow. As such, the structure, language, and terms will vary state-by-state. Real estate lawyers ensure that your land contracts are valid and enforceable under your state’s laws.

When Are Land Contracts Used?

Land contracts are used when a real estate seller agrees to take payments on a property until paid in full. Typically, the seller drafts the contract with their real estate lawyers and offers it to the buyer for acceptance. Once both parties have signed a land contract, the contract terms begin.

Land contracts are an essential component when selling land without the protection of a traditional bank. Without one, the buyer could take advantage of your vulnerable position and vice versa. Ensure that it reflects the intent of negotiations and verbal agreements by working with real estate lawyers in your state.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Dean F. on ContractsCounsel
View Dean
5.0 (4)
Member Since:
November 18, 2022

Dean F.

Managing Attorney
Free Consultation
Get Free Proposal
Castle Rock, CO
27 Yrs Experience
Licensed in CA, CO, TN
University of Mississippi School of Law

Ferraro Law Firm was founded by Dean C. Ferraro. Dean earned his Bachelor's Degree from California State Polytechnic University, Pomona ("Cal Poly Pomona") in 1992 and his J.D. Degree from the University of Mississippi School of Law ("Ole Miss") in 1996. He is licensed to practice law in the State Courts of Colorado, Tennessee, and California. Dean is also admitted to practice before the United States District Courts of Colorado (District of Colorado), California (Central District), and Tennessee (Eastern District). Shortly after earning his law license and working for a private law firm, Dean joined the District Attorney's office, where he worked for five successful years as one of the leading prosecuting attorneys in the State of Tennessee. After seven years of practicing law in Tennessee, Dean moved back to his birth state and practiced law in California from 2003-2015. In 2015, Dean moved with his family to Colorado, practicing law in beautiful Castle Rock, where he is recognized as a highly-effective attorney, well-versed in many areas of law. Dean's career has entailed practicing multiple areas of law, including civil litigation with a large law firm, prosecuting criminal cases as an Assistant District Attorney, In-House Counsel for Safeco Insurance, and as the founding member of an online law group that helped thousands of people get affordable legal services. Pursuing his passion for helping others, Dean now utilizes his legal and entrepreneurial experience to help his clients in their personal and business lives. Dean is also a bestselling author of two legal thrillers, Murder in Santa Barbara and Murder in Vail. He currently is working on his next legal thriller, The Grove Conspiracy, set to be published in 2023.

Jason P. on ContractsCounsel
View Jason
5.0 (2)
Member Since:
December 1, 2022

Jason P.

Business Lawyer
Free Consultation
Get Free Proposal
Portland, OR
7 Yrs Experience
Licensed in OR, WA
Lewis & Clark Law School

Jason is a self-starting, go-getting lawyer who takes a pragmatic approach to helping his clients. He co-founded Fortify Law because he was not satisfied with the traditional approach to providing legal services. He firmly believes that legal costs should be predictable, transparent and value-driven. Jason’s entrepreneurial mindset enables him to better understand his clients’ needs. His first taste of entrepreneurship came from an early age when he helped manage his family’s small free range cattle farm. Every morning, before school, he would deliver hay to a herd of 50 hungry cows. In addition, he was responsible for sweeping "the shop" at his parent's 40-employee HVAC business. Before becoming a lawyer, he clerked at the Lewis & Clark Small Business Legal Clinic where he handled a diverse range of legal issues including establishing new businesses, registering trademarks, and drafting contracts. He also spent time working with the in-house team at adidas® where, among other things, he reviewed and negotiated complex agreements and created training materials for employees. He also previously worked with Meriwether Group, a Portland-based business consulting firm focused on accelerating the growth of disruptive consumer brands and facilitating founder exits. These experiences have enabled Jason to not only understand the unique legal hurdles that can threaten a business, but also help position them for growth. Jason's practice focuses on Business and Intellectual Property Law, including: ​ -Reviewing and negotiating contracts -Resolving internal corporate disputes -Creating employment and HR policies -Registering and protecting intellectual property -Forming new businesses and subsidiaries -Facilitating Business mergers, acquisitions, and exit strategies -Conducting international business transactions ​​ In his free time, Jason is an adventure junkie and gear-head. He especially enjoys backpacking, kayaking, and snowboarding. He is also a technology enthusiast, craft beer connoisseur, and avid soccer player.

Lauren W. on ContractsCounsel
View Lauren
5.0 (1)
Member Since:
December 15, 2022

Lauren W.

Free Consultation
Get Free Proposal
New Port Richey, Florida
2 Yrs Experience
Licensed in FL
Western Michigan University Cooley Law School,

Accident and injury attorney. Prior to going to law school I was a paralegal for 12+ years primarily in personal injury. I also worked for a local school district as the Risk Manager and a Buyer in Procurement where I facilitated solicitations and managed all the contracts for the district.

Maigan W. on ContractsCounsel
View Maigan
Member Since:
November 2, 2022

Maigan W.

Principal Attorney
Free Consultation
Get Free Proposal
San Diego, California
2 Yrs Experience
Licensed in CA
California Western School of LaW

Maigan is a registered nurse and attorney with tech law experience, specifically in Web3, including NFTs. Maigan acted as general counsel for a NFT platform for two years and speaks and understands smart contracts. As a registered nurse, Maigan is in a unique position to understand health law issues and graduated with a concentration in health law distinction. Maigan is happy to help you create a business entity, draft and negotiate contracts and agreements, apply for trademarks, draft terms of service and privacy notices, draft terms of sale for NFT drops, draft web3 licenses, and act as a consultant for other attorneys looking for someone who understands web3 and NFTs. Maigan speaks conversational Spanish.

David W. on ContractsCounsel
View David
Member Since:
November 2, 2022

David W.

Free Consultation
Get Free Proposal
7 Yrs Experience
Licensed in TX
South Texas College of Law

Founder David W. Weygandt, the Singing Lawyer, is passionate about helping families and businesses stay in tune with what they care about and avoid conflict. When injustice has been done, David is proud to stand up to the modern Goliath and vindicate your rights on your behalf. David lives and practices law in The Woodlands, Texas, and assists clients all across Texas.

Ben P. on ContractsCounsel
View Ben
Member Since:
November 28, 2022

Ben P.

Free Consultation
Get Free Proposal
Overland Park, KS
21 Yrs Experience
Licensed in KS, MO, VA
American University, Washington College of Law

Ben Prell is a “business concern” lawyer. Whether a legal issue or concern could develop into a dispute, or already has, he stands ready to advise, assist, and advocate for his clients. Over more than 20 years of practice, Ben has represented clients in all manner of business disputes. He has handled matters that include business ownership and control disputes, non-competition agreements, contract breaches, employment disputes, securities fraud, misappropriation of trade secrets, and intellectual property infringement. Ben provides advice and counsel to businesses regarding litigation and regulatory risk management, compliance with federal regulations, and contract negotiation, revisions and updates. Ben’s recent work includes the successful resolution of cases involving the defense of C-Level executives who became embroiled in larger disputes with their company’s buyers or creditors and the disputed ownership and control of multiple businesses. He has also served as counsel for court-appointed receivers, brought wrongful termination and compensation claims by executives and minority shareholders and addressed securities fraud claims, a partnership claim related to the development of a cellulosic ethanol plant, and a contract dispute involving information technology services. His efforts on behalf of his clients led to his recognition as one of Kansas and Missouri’s Rising Stars by Super Lawyers®.

Ari G. on ContractsCounsel
View Ari
Member Since:
November 28, 2022

Ari G.

Of Counsel
Free Consultation
Get Free Proposal
Ann Arbor, MI
2 Yrs Experience
Licensed in MI
University of Michigan

Ari is a transactional attorney with substantial experience serving clients in regulated industries. He has worked extensively with companies in regulated state cannabis markets on developing governance documents (LLC operating agreements, corporate bylaws, etc...), as well as drafting and negotiating all manner of business and real estate contracts.

Evan F. on ContractsCounsel
View Evan
Member Since:
December 2, 2022

Evan F.

Attorney & Founding Member
Free Consultation
Get Free Proposal
Livonia, MI
3 Yrs Experience
Licensed in MI
Wayne State University Law School

I am the Founding Member of Evan Ficaj Law Firm PLLC, and I am passionate about helping businesses launch, grow, and succeed. My law firm assists clients with business, contract, entertainment, IP, and estate planning matters.

Michael C. on ContractsCounsel
View Michael
Member Since:
December 5, 2022

Michael C.

Owner / Managing Attorney
Free Consultation
Get Free Proposal
Staten Island, New York
11 Yrs Experience
Licensed in NJ, NY
Widener University Commonwealth Law School

We are business and immigration attorneys, committed to delivering compassion-driven and innovative legal solutions that better our clients' lives. Founded in 2019, Carbone Law provides legal services tailored to the unique needs of our clients. We pride ourselves in building a personable attorney-client relationship and are dedicated to establishing a complete understanding of our client’s legal issues, so that we can develop an effective plan for achieving their desired results. Michael T. Carbone, Esq. started Carbone Law with the goal of delivering exceptional legal services to his community. At Carbone Law, Michael counsels individuals and small businesses on a variety of legal issues. Whether aiding families in building successful applications for immigration benefits or advising freelancers and business owners on contract, governance and related issues and the complexities of complying with federal, state and local laws, Michael is committed to building a lasting relationship with his clients.

David C. on ContractsCounsel
View David
Member Since:
December 6, 2022

David C.

Free Consultation
Get Free Proposal
Cold Spring Harbor, NY
35 Yrs Experience
Licensed in NY
St. John's University School of Law

New York Business law attorney with corporate, securities and contracts experience.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call