What does a land contract cost? This is a question often asked by property owners considering leasing their land. Let’s explore this question and review some general information about ground leases and how they benefit both parties.
How Much Does a Land Contract Cost?
A land contract is a legally binding contract between a landowner and a party that agrees to purchase the land. Unlike a regular real estate sale where the buyer obtains a mortgage through a lender, a land contract is a seller-financed contract. It allows the buyer to make payments directly to the property owner for the cost of the real estate.
Some other commonly used names for a land contract include:
- Installment land contract
- Contract for deed
- Memorandum of contract
- Real estate contract
- Bond for title
Land contracts are beneficial for buyers who want to avoid mortgages through banks or who have bad credit and cannot obtain approval for a mortgage.
In a traditional land contract, the seller, sometimes called the “vendor,” will keep the legal title to the property until the land contract is paid in full by the buyer, sometimes called the “vendee”. If a seller agrees to finance their property to a buyer, they must have a well-written land contract to secure the deal.
It is highly recommended that a landowner hires an experienced attorney to draft this agreement. A lawyer will ensure that the land contract includes all necessary terms and conditions and fully protects the seller and their property rights.
Based on ContractsCounsel’s marketplace data, the average cost of a project involving a land contract is $450.00.
What’s Included in a Land Contract?
Land contracts can be complicated documents and need to include several key terms and clauses. At a minimum, a land contract should include the following information:
- Party Information. The names and addresses of both the buyer and the seller.
- Property Description. The address and physical description of the property. Sometimes land contracts are for empty lots. Other times they have houses or apartments already built.
- Sale Price. The total price of the property being sold.
- Down payment. Much like a traditional mortgage, many land contracts require an initial down payment.
- Interest rate. How much the buyer will pay in interest during the duration of the contract.
- Payments. Payments for a land contract are usually made in monthly increments. The amount due each month should be clearly noted as well as penalties and fees for late payments.
- Seller responsibilities. The rights and responsibilities of the seller under the land contract.
- Buyer responsibilities. The rights and responsibilities of the buyer under the contract, for example, making payments on time.
- Title settlement. How the title is transferred once the property is paid off in full and the land contract terms have been met.
Advantages and Disadvantages of a Land Contract
Determining whether a land contract is suitable for you comes with weighing several advantages and disadvantages of this contract. Here are a few pros and cons for both the buyer and the seller to consider:
Advantages of a land contract for the seller. Sellers benefit from land contracts because this type of agreement provides a steady income stream. Each month, the seller will receive a payment from the buyer, and the seller maintains ownership of the property until it is paid off in full.
Advantages of a land contract for the buyer. Some buyers can’t get approved for a traditional mortgage, so a land contract is an alternative way to buy property. In addition, buyers won’t have to deal with large lending companies and their many stipulations for loans.
Disadvantages of a land contract for the seller. Instead of receiving a lump sum payment for the property, the seller is tied down by a contract. It could take several years to officially sell their property and receive full payment. If they want to get paid quickly, a land contract is unsuitable.
Disadvantages of a land contract for buyer. Many land contracts come with higher-than-normal interest rates because the main reason for a land contract is the inability to get approved for a traditional mortgage. In addition, property ownership is a grey area because the buyer receives equitable title to gain equity with payments. Still, the seller holds onto the legal title.
Examples of Land Contract Projects
Land Contract Drafting Services
Land contracts are significant agreements, so many property owners choose to hire real estate lawyers to draft their land contracts when they are ready to sell their real estate.
An attorney familiar with land contracts will know what terms and conditions must be included in the contract to ensure that the property owner and their interests are protected. The lawyer will also ensure the contract adheres to all state and local land contract laws.
Land Contract Review Services
When buyers sign a land contract, they take on a big responsibility. Therefore, it is important that the buyer fully understands the terms and conditions of the agreement and knows what is expected of them. For this reason, many buyers hire their real estate lawyers to review the contract before signing.
The buyer’s lawyer will read over the agreement and ensure that it is fair, legally binding, and protects the buyer and their interests. Some lawyers will even negotiate new terms on the buyer’s behalf.
Land Contract Drafting Cost
Land contract costs will vary based on the document’s length, complexity, and how many custom terms need to be included in the contract.
ContractsCounsel’s marketplace data shows the average land contract drafting costs are $400.00 across all states and industries.
Land Contract Review Cost
Document review also incurs legal fees, although usually less than document drafting fees. The lawyer will charge for their time reviewing the contract, suggesting edits, and negotiating new terms.
ContractsCounsel’s marketplace data shows the average land contract review costs are $500.00 across all states and industries.
How Do Lawyers Charge for Land Contracts?
Hourly Rates for Land Contracts
Real estate lawyers commonly use hourly rate fee structures. Under this fee agreement, the lawyer charges the client for their time working on a project using a predetermined hourly rate. Clients are typically billed after the case for the total fees.
The marketplace data for ContractsCounsel shows that the average hourly rate for a real estate lawyer ranges from $200 - $350 per hour.
Flat Fee Rates for Land Contracts
Flat fee rates are commonly used when a lawyer is hired for a specific project, like drafting a land contract.
When using a flat fee rate structure, the lawyer will assess the work that needs to be completed and quote the client a total price for their legal services. This fee is usually paid upfront before the lawyer begins working on the task.
ContractsCounsel's marketplace data shows the average flat fee rate for a land contract is $450.00.
Get Help with a Land Contract
Do you need help with a land contract project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from business lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.