Every real estate sale transaction should include the creation of a real estate contract between the buyers and sellers. The contract consists of the terms of the purchase and sale between the parties and particulars concerning the closing the sale.
The majority of home sales will involve a realtor who will use the standard contract for the sale of real estate in the Missouri county where the property is located. Since each contract differs depending on the location, you must read the terms and pay particular attention to the time frames set forth in the contract.
When parties miss contractually obligated time frames, it’s more than just an inconvenience. You could be stuck with certain terms of a contract you did not want. Worse, a contract could fall through completely.
It’s important to consult an attorney for real estate law when you don’t understand the terms of a real estate contract. Consider consulting with a real estate law attorney if you have a situation requiring complicated wording changes or additions to the standard real estate contract.
Buying Real Estate When a Buyer Can’t Obtain a Loan
Nearly two-thirds of American homeowners (61.5 percent) have a mortgage on the home they own. Around 12% of mortgage applicants were rejected in 2023, which was lower than the previous year.
Many people would like to buy real estate but cannot qualify for a loan. Common reasons include having a foreclosure or bankruptcy on a credit history report. However, many of these people with rejected mortgages might have a steady income source and can afford to make the payments.
In an increasingly competitive real estate market, sellers may be willing to offer more flexibility with how they sell their properties in order to find a buyer. For example, if the property is paid in full by the current owner, the seller may wish to deed the property to the buyer and then carry the loan. This strategy is called a “seller carry-back.”
This method isn’t very popular because most sellers still have a loan on their property when they put the property on the market. Plus, the seller would be on the hook for the loan if the buyer can’t pay. Then there’s the length of the loan. A seller might not be alive for the duration of a 30-year seller carry-back, but the heirs would be. Some sellers still prefer a seller carry-back because they no longer own the property and have no liability for anything occurring on the property.
Two Most Popular Ways to Buy Property Without a Loan
The two most popular unconventional ways to sell property are by a contract for deed or through a lease-purchase.
A contract for deed is similar to an installment loan to purchase the property. Traditionally, a general warranty deed from the seller to the buyer is held at a title company, and then the deed is released to the person who pays off the mortgage after it’s paid in full. Similarly, a quit claim deed from the buyer, which fully releases any interest in the property, is held by a neutral third party, such as a title company (called “in escrow”) to be released if the buyer fails to make timely payments. The contract for deed was very popular for many years. But it was riddled with contract disputes, often led to lengthy litigation, and began to fall out of favor.
Lease-purchase agreements have become a more popular option compared to contract for deed arrangements. They consist of a standard lease agreement as if you are renting a property. Some portion or all of the monthly lease payment is applied to the purchase price if the buyer ultimately follows through with purchasing the property.
An option-to-purchase agreement accompanies the transaction. This document details the terms for the buyer to purchase if they exercise their rights under a lease-purchase agreement.
A lease purchase is usually the best for sellers since it is the easiest way to evict the buyer from the property if they fall behind on payments. It can also be good for buyers due to the lack of a large down payment, and the buyer expects to have better credit in the future to obtain a traditional loan.
These agreements can be complicated, particularly if the seller and buyer are not versed in real estate transactions. Hiring an attorney with real estate law experience is a prudent course of action to protect your interests.
When Should I Hire a Real Estate Attorney?
There may be instances when a realtor will not be involved, and it will be necessary to hire an attorney to prepare the real estate contract. Homes for sale by owner (FSBO) accounted for 7% of home sales in 2023. This is one common instance when a real estate attorney would be helpful during the transaction.
It is important to understand that the attorney will represent the best interests of the party who hired them. This means both the buyer and seller would be wise to seek legal advice from their own separate attorneys.
Additionally, the economy, higher interest rates, and tight mortgage standards have created more situations where people are entering into non-traditional sales of real estate. Instead of selling a property to a buyer who obtains a traditional loan from a lending institution, owners are willing to find alternative solutions for buyers.
There are multiple considerations involved in determining which documents to prepare when going through non-traditional home-buying methods. Most buyers and sellers choose to either have the seller deed the property to a buyer and take a lien against the property, sell the property under a contract for deed, or create a lease with an option to purchase. Each of these solutions has pros and cons depending on whether you are the seller or the buyer. Proper wording of the documents is essential to avoid any ambiguities between the parties.
There are many factors to consider, and which option is best for you will depend on the particular circumstances of the transaction and will differ depending on whether you are the buyer or the seller. Consulting with a real estate attorney is a viable option to make sure your interests are covered.
Contact Our Real Estate Attorneys for More Information
If you have questions about our services for real estate law or would like to schedule a consultation with our real estate attorneys, please give us a call at 417-887-4170. We would be honored to assist you.
If you have questions about these services or would like to schedule a consultation with our attorneys, please give us a call today. We would be honored to assist you.