Land Contract: Definition, Benefits, Risks
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- Avg cost to draft a Land Contract: $510.00
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What Is A Land Contract?
A land contract, also called a land contract agreement or purchase and sale agreement, is a legally-binding document used in the purchase of land, whether vacant or occupied by existing buildings or homes. It is a type of seller financing. Unlike a mortgage, the purchaser makes payments to the seller until the balance is paid in full.
If you need help drafting a land contract, it is best to speak with real estate lawyers. They can provide legal advice and guidance throughout the process.
Learn more about land contracts by checking out this article.
How Land Contracts Work
Under a land contract agreement, the buyer typically agrees to make a down payment and a promise to make periodic, routine payments on the balance’s remainder with interest. Depending upon the agreement, the monthly payment, term length, and interest rate can vary widely.
It is essential for buyers to keep in mind that they do not legally hold the property title until the balance is paid in full. They hold a deed of trust or equitable title to live on site or develop the property through a ground lease in the interim.
These are the steps involved with buying a property with land contracts:
- Step #1: The property owner agrees to sell and finance a property to a buyer.
- Step #2: The property owner works with real estate lawyers to draft a land contract.
- Step #3: The parties may collectively negotiate the terms and conditions of the land contract.
- Step #3: The property owner keeps the property titles and provides the buyer with a deed of trust.
- Step #4: The buyer continues to make payments according to the terms and conditions of the land contract.
- Step #5: The property owner and buyer clear the title from any applicable mortgages.
- Step #6: The property owner titles the deed over to the buyer when the balance is paid in full.
- Step #7: Both parties should retain documentation of the transaction for at least 7 years following it.
Some U.S. states use land contracts more often than others do. Both parties are encouraged to carefully consider the terms and conditions of the deal with property lawyers. Doing so may help you avoid future disputes and misunderstandings, primarily when you use a land contract agreement.
Here is an article about how a land contract works.
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Typical Terms in a Land Contract
While the typical terms in a land contract can be reasonably standardized, it is critical that you have real estate lawyers complete a contract review before signing it. This strategy helps you avoid legal mistakes and common pitfalls. Doing so can also help you save money in the long run by avoiding disputes.
These are the typical terms in a land contract:
- Name and address of all parties
- A description of the property
- Acknowledgement of the person who owns the property
- Describe easements on the property
- Include land contract limitations
- Reference any liens on the property
- Provide the property’s terms of use
- Determine the terms of payment
- Assign an interest rate with a land contract calculator
- Ascribe how to handle late payments
- Identify a contract start and end date
- Assign party responsibilities and obligations
- Clarify the terms of the insurance
- Set the terms for transferring the property ownership
- Include warranties and guarantees
- Assert your right to acceleration
- Insert state-specific clauses and terms
- Provide a blank signature and dateline
After legally drafting your document, you can then arrange for a final signing with the buyer. Once signed, take a scan or photograph of the document, and disseminate copies to all relevant parties. You can also make hard photocopies that you can reference later in case disputes arise in the future.
Check out this article later for more information about the terms of a land contract.
Advantages of A Land Contract
Since a land contract is an alternative form of financing, there are advantages and disadvantages of using them. A traditional lender is not involved, which means that the buyer and seller should consider the terms carefully.
The advantages of a land contract include:
- Advantage #1: There is no involvement of a traditional lender
- Advantage #2: The seller gets to flexibly establish the terms and conditions of the sale
- Advantage #3: The buyer can close immediately and counter with terms and conditions to the seller
- Advantage #4: There are no lender requirements, which means that the closing costs are less under a land contract
- Advantage #5: There are tax and income benefits for both the buyer and seller
As you can see, there are distinct advantages of land contracts. However, there are disadvantages that buyers and sellers should also consider. These risks may outweigh the reward depending upon your situation.
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Disadvantages of a Land Contract
The most significant disadvantage of a land contract is the amount of risk both parties take on. Therefore, it is critical for buyers to carefully select sellers and vice versa. Any concerns should be taken up with property lawyers in your state.
The disadvantages of a land contract include:
- Disadvantage #1: The title does not automatically pass to the purchaser in a land contract
- Disadvantage #2: The seller could be held legally responsible for inspection issues with local or state authorities
- Disadvantage #3: Forfeiture of a land contract by the purchaser is a fairly common occurrence
- Disadvantage #4: It can take several months for the seller to resume control of the property in case of buyer forfeiture
- Disadvantage #5: An existing mortgage supersedes a land contract, which can create problems for the buyer
If you are considering or contemplating buying or selling land through a land contract, real estate lawyers can help you draft a land contract agreement that sets clear guidelines and terms. They can also answer legal questions throughout the entire process.
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Getting Help With A Land Contract
Whether you are facing a complicated or straightforward land contract deal, it is a wise choice to hire property lawyers to draft the agreement. Problems can arise at any given point. You will want to have an experienced legal professional on your side to help prevent them.
These are the ways that property lawyers can help you with getting a land contract:
- Offering professional contract reviews for fairness and compliance
- Providing legal advice when dealing with complicated land contract issues
- Assisting sellers when dealing with liens and title searches
- Handling a proper and lawful closing for both sides
- Contract negotiation for the conditions and terms of the land contract
- Preparing a closing statement for both parties
Property lawyers offer valuable advice and assistance when purchasing land or property through a land contract. They can also handle pressing questions related to costs or disputes.
If you choose to forgo your opportunity to work with property lawyers, it could result in future legal mistakes with negative ramifications. Avoid this critical mistake by hiring legal representation early on in the process.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Meet some of our Land Contract Lawyers
Samuel R.
My career interests are to practice Transactional Corporate Law, including Business Start Up, as well as Real Estate Law, Estate Planning Law, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Business Transactional Agreements, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the Super Lawyers Southwest Rising Stars list for 2024 - 2026. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, and also trademark registration and licensing.
"Sam was awesome to work with, super helpful, knowledgeable, and professional. Highly recommend."
Nichelle W.
Nichelle W.
I help business owners, founders, employers, athletes, creators and families get contracts and legal documents done right the first time, at a flat fee agreed before any work starts. I am licensed in Florida (2021) and Washington, D.C. (2022). I practice as a business and contracts attorney and outside general counsel with Amethyst Law Group, and previously served as Florida Managing Attorney at Lento Law Group. Before that I sat on the business side of the table as General Manager and General Counsel of a professional basketball organization and as Deputy Commissioner of a start-up sports league, so I have negotiated, drafted and enforced the same agreements I now prepare and review for clients: sponsorship and vendor deals, player, coaching and staff contracts, employment and independent contractor agreements, licensing and brand deals. What I handle on ContractsCounsel: - Contract drafting, review and redlining: service agreements, MSAs, NDAs, vendor and supplier agreements, sponsorship, licensing, endorsement and brand deals - Business formation and governance: LLCs and corporations, operating agreements, bylaws, partnership and shareholder agreements, founder and equity arrangements - Employment and hiring: offer letters, employment agreements, independent contractor agreements, non-compete and confidentiality agreements, separation and severance agreements, handbooks and policies - Sports, entertainment and creator agreements: athlete representation, NIL, sponsorship, appearance, management and agency agreements (licensed FIBA agent) - Real estate: purchase and sale agreements, residential and commercial leases, contract review before you sign - Wills, trusts, powers of attorney and estate planning documents - Demand letters, cease and desist letters and pre-dispute contract enforcement - Ongoing outside general counsel support for small and growing businesses How I work: Every project starts with a fixed price and a delivery date you can plan around. You receive a plain-English summary of what the document does, what I changed and why, and any risks you should know about, not just a marked-up file. Two rounds of revisions are included so the final draft is exactly what you need, and I respond to messages the same business day. Credentials: J.D., Nova Southeastern University Shepard Broad College of Law, summa cum laude, top 5% of class, Senior Editor of the Southern Journal of Policy and Justice, Dean's Certificate of Professionalism, 300+ pro bono hours; M.S. Forensic Psychology (4.0 GPA); M.S.Ed. Sports Administration, University of Miami; B.A. English Language and Literature, Southern New Hampshire University. Recognized as an Elite Lawyer recipient. Malpractice insurance carried. Litigation background: first-chair trial attorney with experience in business, employment, real estate, consumer protection and family matters. I draft every contract with a clear view of how it will hold up if it is ever tested.
"I had a great experience working with Nichelle! She was knowledgeable, clear, helpful and flexible throughout the process. She was able to work with my timeline and explain legal issues in an easily understandable way. I would recommend her services."
Blake L.
I am a sole practitioner who has been in practice for over 25 years. I have represented many small businesses during this time. Let me bring my expertise to your business.
Alexander N.
Having overseen over $1.2 billion in transaction value, we are able to provide top-tier service at affordable rates, with much more personalized attention and fast turnarounds. After working for a AM Law Top 100 firm, I started my own firm and have been lucky enough to represent numerous conglomerates (FOX, Endeavor, etc.), promising startups, small businesses and private individuals. Our areas of expertise - Business Formations and Operating Agreements; Capital Raises and Debt Financing; Commercial Transactions; M&A; Real Estate; Intellectual Property; Employment and Hiring; Outside General Counsel; Corporate Agreements and Governance; Litigation and Dispute Resolution. We have been featured in The Wall Street Journal, Marketwatch, Yahoo Finance, Variety, Business Insider, Los Angeles Magazine, the LA Times, and others. We are driven by an unwavering commitment to our clients, going above and beyond to deliver results.
"Alex and his team turned a 2-page professional services agreement into a clear, practical standard template for our engineering firm. The redlines came with plain explanations, and they answered follow-up questions about how the terms should change for architect, owner, and subconsultant engagements. Communication was prompt and professional, and the work stayed within the quoted fee. We’d use them again."
Heather B.
Heather B.
Delivering proactive and strategic guidance to health and fitness professionals and entities as they scale.
"Heather did outstanding work reviewing our sponsor-facing contract templates. Her memo was thorough and practical, with clear explanations, specific replacement language, and a negotiation guide we'll use for years. She caught issues we had missed and turned everything around remarkably fast, including clean tracked-change redlines on all four documents. Highly recommended for life sciences and commercial contract work."
Gina S.
Experienced business attorney in the field of real estate, construction, and design.
Neil B.
Family Law attorney with focus on Divorce Mediation
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Sales contract
"Allen was extremely easy to work with, was very prompt, and went above and beyond what was asked."
Reply From Allen L.
Thank you so much for the kind words and the five stars! I really appreciate you taking the time, and I'm glad I could help get the land contract drafted and squared away for you. If anything else comes up, don't hesitate to reach out. Allen
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