Land Contracts

A land real estate contract is akin to a private financing contract where real estate – either real property and/or structures on that property – is changing hands.

In this article, learn how a land sale contract works, why they are still used today, who is responsible for paying what, details about deed holders, pros and cons and much more.

What Is a Land Sale Contract and How Does It Work?

A land sale contract, sometimes also called a sale to land contract, is a written record detailing a transaction wherein land is bought and sold using seller financing rather than a traditional mortgage.

This type of real estate contract outlines key specifics about the land trading hands as well as the details of the financing agreement between seller and buyer.

Both the buyer and the seller must sign the land sale contract indicating they are in agreement with all the terms of the exchange and the financing required for it.

Why Are Land Sale Contracts Used?

There are mutual benefits to both buyers and sellers to opt for a land real estate contract over a traditional mortgage arrangement.

After the great mortgage crash in 2006 and the subsequent 2008 financial crisis, traditional mortgage loans became much harder to obtain. Not all land buyers have the requisite credit history and credit score to qualify for traditional big bank mortgage loans.

When a buyer cannot be approved for a traditional mortgage for these or other reasons, a land sale contract offers two interested parties another viable way to conduct the transaction.

Sellers also reap some potential benefits by agreeing to a land sale contract rather than stipulating a traditional mortgage loan agreement. For starters, sellers often find they have access to a wider pool of potential buyers by offering a land sale contract option.

Sellers may also enjoy greater bargaining power, including a higher purchase price, by offering interested buyers who cannot qualify for a traditional mortgage the option of a sale to land contract instead.

In some cases, sellers may also require buyers to make a larger initial down payment (called an “option to buy”) as a part of a land sale contract agreement.

Who Pays Property Taxes on a Land Sale Contract?

A land sale contract puts the responsibility for paying property taxes on the shoulders of the land buyer.

Not only does the land buyer need to pay the property taxes, but the buyer is also responsible for paying interest and insurance premiums as well as any other fees stipulated in the contract for deed agreement.

As a perk for paying the property taxes, the land buyer can also write this off on their annual tax filing as an expense.

Who Holds the Deed in a Land Sale Contract?

A contract for deed agreement transfers the deed to the property from seller to buyer little by little. This is called having an “equitable title” and it offers some valuable protections to both seller and buyer.

For the buyer, the presence of the land sale contract and its equitable title effectively prevents the seller from re-selling the property under agreement to a third party before the transaction is complete.

This equitable title also prevents the seller from placing any kind of undue financial burden (such as a lien) on the property in the process of being re-deeded.

For the seller, retaining the majority of rights to the deed (legal title) is a protection in the event the buyer does not complete the payments required to receive the final property deed.

In this way, with a sale to land contract, the deed to the property remains in the hands of the seller until such time as the contract is satisfied and payment is made in full.

Only at that time does the contract for deed on the property finally transfer to the land buyer.

Land Sale Contract Pros and Cons

A land sale contract offers benefits and drawbacks to both buyer and seller.

For the seller, this type of real estate contract offers a way to sell land when a buyer is not able to obtain traditional mortgage financing. The seller can also assess an option to buy up-front payment (similar to a mortgage downpayment) as a cushion against future land devaluing or buyer default.

Another benefit to the seller of entering into a land sale contract is that they can stop paying property taxes on the land under contract right away. However, the seller also loses the option to write off that cost on their annual tax filing.

For the buyer, the benefit occurs in reverse – that extra tax write-off now transfers to them, along with the responsibility of paying the property taxes on the land under contract.

For the buyer, a land to sale contract offers a way to purchase land after being declined for mortgage financing. It also gives the buyer a built-in exit strategy in the event property values decline or circumstances change to the point the land purchase is no longer desirable.

In most land to sale contracts, the buyer’s right to make modifications to the property under contract is limited until the agreement is paid for in full. This is also a valuable protection for the seller in the event the buyer defaults and the land goes back on the market.

Because a land sale contract is a private financing agreement, there will be no big bank mortgage lien holder watching over the process or vetting the legality of the agreement. This can be a major drawback for both buyer and seller, so it is important that both parties have the contract reviewed by a real estate attorney prior to executing the agreement.

Both buyer and seller also take risks in brokering a real estate sale through a land to sale contract rather than a traditional mortgage lending agreement. Both risk devaluation of the property or its resale value over time. Both also bear the risk of a potential default that could have negative financial consequences on each end.

One drawback the buyer typically bears is that the purchase price under a land sale contract is often higher than it would be with traditional mortgage financing. Choosing to use a land sale contract means the seller is free to set a higher valuation on the property without having to justify the purchase price to a mortgage lender.

What Happens If the Buyer Fails to Make the Land Sale Contract Payments Due?

It sometimes happens that the buyer’s circumstances change and renders them unable to make the contract payments as they fall due. When this occurs, it is called “defaulting” on the sale.

If a buyer defaults on the land to sale contract, the seller can then move to what is called a contract forfeiture. A contract forfeiture allows for the seller to retain all the land payments the buyer has made to date and also extinguishes any existing equitable title the buyer holds on the property.

This means the seller can then enter into a new agreement with a new buyer to sell the land, keep the land in their possession or something else. All ties between the buyer in default and the land seller are now null and void.

Having the option of a contract forfeiture is an important protection to the seller, but also to the buyer in the event circumstances prevent further payment towards ownership of the land.

By understanding how a land sale contract works, what it is used for, the pros and cons of such an agreement and what occurs if the buyer defaults on the agreement terms, it becomes possible to know if this is a viable method to conduct a real estate transaction.

Emblements: Who Do They Belong To?

What are Emblements in Real Estate?

In real estate these are crops that are planted and taken care of by tenants, and remain the property of the tenants even after they lose possession of the land. When tenants are leasing property that has a farmland on it they may have an opportunity to plant crops on the land. If they do cultivate the land, plant the crops, take care of the crops and then their tenancy is terminated they still have the right to access the land to harvest the crops at harvesttime. And the harvested crop are considered the tenants’ property.

What is the Doctrine of Emblements?

This is a doctrine where it is agreed that if a tenant cultivates land, plants crops and takes care of the crops on a piece of land during their tenancy, and then they lose possession of the land, they still have the legal right to enter the prior leased land to harvest and remove the crops that grew because of their efforts. This is a belief that is adhered to and agreed upon between landowners and tenants that are leasing a property to grow crops on.

Are Crops Personal Property?

Crops are considered personal property when they are separated, harvested or picked from the soil in which they grow. Crops that are still planted in the soil are considered real property or the property of the owner of the land. When crops such as corn, soybeans, wheat and other vegetables are still growing in the ground they are considered real property of the landowner. However, when they are harvested, or taken out of the ground, they become real property.

What Does Fructus Industriales Mean?

Fructus Industriales has the same meaning as emblements. These are crops that are planted annually on land. They are planted by people and require labor to cultivate the land, labor to plant the crops and labor to take care of the crops until it’s time to harvest them. It takes work, time and energy for the final product to be a successful harvest of vegetables, wheat or whatever has been planted. Because it takes work and labor fructus industriales are considered the “fruit of the work.” In the case where tenants of the land cultivated, planted and cared for the crops they get to reap the rewards of their labor.

Economic Obsolescence

In the process of determining the value of residential real estate, much of what you will evaluate will be within the property lines. You will start by answering a host of questions about the property itself, such as:

• How many bedrooms does it have?
• How many bathrooms does it have?
• How many square feet is the house?

Of course, this is always context dependent. The very process of estimating the value or sale price admits this by using comps, or similar properties within the same neighborhood.

If they aren’t within the same neighborhood, they are no longer considered comparable, even though they may have the same number of bedrooms, bathrooms and other details. Two homes that are identical in every other way can have a very different valuation if they are in different neighborhoods.

So we implicitly know that there are factors off the property that will impact its value tremendously. This is why we have the famous real estate phrase “Location. Location. Location.”

What is Economic Obsolescence?

Economic obsolescence is depreciation of the property due to factors in the surrounding neighborhood which impact its economic utility. This is also termed external obsolescence because it occurs outside the property lines of the piece of real estate in question, yet impacts the value of that property.

What is an Example of Economic Obsolescence?

A rise in neighborhood crime can negatively impact the value of the neighborhood and the properties therein. A wave of foreclosures that leaves behind vacant and derelict properties can also seriously impact the value of the rest of the homes.

One potential cause includes too many people moving away who are college educated. The book The Tipping Point indicates that there is a point past which a loss of a few educated locals can so seriously damage the fabric of the neighborhood that crime skyrockets thereafter.

A change in zoning may also lead to external obsolescence. This can fundamentally change the character of the neighborhood in negative ways. For example, if it becomes legal to run a bar or similar in a previously straight-laced area.

Is Economic Obsolescence Curable?

The short version is “No.” If you own a property in a deteriorating neighborhood, there is probably not much you can do to fix it because the problem is external to your property, hence the term external obsolescence.

You don’t directly control what goes on in the surrounding neighborhood, so you have limited ability to resolve the kinds of problems to which this term applies. Plus, because they occur at the neighborhood scale, these tend to be expensive problems that take a long time and a lot of effort to resolve, if they can be resolved at all.

But sometimes people do fight external obsolescence. Jane Jacobs became famous for her writing precisely because she was involved in fighting such trends in her own neighborhood. If you are unable or unwilling to move, her writings may be of interest to you. But do keep in mind that external obsolescence is so hard to remedy that most sources simply state “Nope, there is no cure for it.”

Economic Obsolescence vs Physical Obsolescence

Another kind of depreciation is physical obsolescence, sometimes called functional obsolescence. These are factors directly on the property, but in some cases they are a liability only because of upgrades to surrounding properties.

A simple example that is clearly and obviously physical obsolescence is if the house is in an older neighborhood, so it has a one car garage but you are a stereotypical modern two-car family. If there is also no street parking and a narrow driveway, you have a serious problem.

A less clear situation is if your house lacks a Master Suite, you have lived there for years and Master Suites have become all the rage in the neighborhood. One assessor might say this is physical obsolescence because the lack of a Master Suite is something on the property itself. Another might say this is economic obsolescence because it only matters due to changes in the surrounding neighborhood.

Bilateral Contracts

What is a Bilateral Contract?

Contracts are an integral part of everyday life! Many times, people don’t even know they are participating in a contract. A bilateral contract is an agreement between two people or two groups of people. It can also be a contract between a company and a person or group of people. Basically, it as a legal agreement between two parties. Bilateral contracts don’t have to be in writing. For example, if a person is dining at a sit-down restaurant they can expect that the restaurant personnel provide them with service and get their order right in return for payment. Or a contract can be in writing such as a written lease for when a person leases a house to live in. The lease is between the landlord and the tenant.

What is the Difference Between Unilateral and Bilateral Contracts?

A unilateral contract is where one person or group makes an agreement or promises to do something. And a bilateral contract is an agreement or promise between two people or groups of people. For example, a unilateral contract would be if a woman loses her engagement ring, she might place an ad for a reward if someone finds it and returns it to her. She is the only person obligated in this case, thus it’s unilateral. If someone finds her ring and returns it to her, she must fulfill the obligation to pay them the reward she promised in her ad. An example of a bilateral contract is a contract to purchase a house. A seller agrees to sell the house to a buyer for a certain price and for other specific terms which are written in the contract. A buyer is obligated to meet these terms and close on the property. Both parties made contractual promises and are legally obligated to fulfill them.

Is a Lease a Bilateral Contract?

A lease is considered a bilateral contract because it involves two people or two parties making a legal agreement with each other, the landlord or landlords and the tenant or tenants. A lease is a legal agreement that specifies the rent amount, the dates the rent is due, the dates the lease begins and ends, and other stipulations. The tenant must fulfill the terms of the lease, and the landlord provides the property for them to live in, and fulfills other obligations that the lease states he is responsible for.

Is Employment a Bilateral Contract?

Employment is definitely considered a bilateral contract. The contract is between two people or parties, the employee and the company the employee works for. The company or employer promises and is obligated to pay the employee a certain amount of money to perform certain work. The employee must perform his or her duties and other terms of the employment agreement in order to get paid. The pay can be by the hour or by an annual salary, for example.

Examples of examples bilateral contracts in every day life

Sales contract for a vehicle – you’re buying a car from someone else.

Sales contract for a house – once again, one party is buying from another party.

Buying a bag of chips – You are giving Walmart $ for a bag. This is another great example.

Key Takeaways

Check this out for a full list of real estate terms.

Check this out to read more about bilateral contracts.

Appurtenances Real Estate

What is an Appurtenance?

An appurtenance is a noun and means something that is a part of and belongs to something else, such as a piece of land or a house. It is a smaller or more subordinate item that belongs to a larger or principal land or building.

What is an example of appurtenances?

Some examples are light fixtures, built-in appliances, unattached garages, built-in swimming pools, and fences, because they appertain to the house or the land.

What is an Appurtenance in Real Estate?

In real estate, an appurtenance is something that is installed in or sits on a property. It is something that is considered a part of the property, is sold with the property, and it is passed on to the new owners. It can be an object that is tangible such as a tree, shed, barn, furnace, or hot water heater. Or it can be something intangible like an easement, which is shared land or the right to use someone’s land for a legitimate specific reason. An example of an easement is the piece of land in someone’s yard that a utility box sits on. If a utility company needs to come repair something on or around the box, they have the right to be on the land and do so.

What is the Difference Between Appurtenant and Appurtenance?

The difference between these is that the former is an adjective and the latter is a noun. An appurtenant is an adjective that describes the attached object. For example, a buyer might ask if the chandelier in the two-story foyer is. And the real estate broker should reply that because it is attached to the ceiling, and if removed will cause damage to the ceiling, it is and so it remains in the home. An appurtenance is a noun, the name of the item that is on the lad or belongs to the property. Examples of appurtenances real estate are shared driveways, barns, landscaping bricks, built-in microwaves, chandeliers and other fixtures.

What is an Appurtenant Easement?

This type of easement is a piece of one person’s land that another person has the right to use for a specific reason. It can be a shared driveway where the only way to get to both houses is by driving on the shared driveway. It can also a piece of land on someone’s property that another person has the right to cross for a legitimate purpose. For example, if a property is landlocked, the land that gives access to the street is the easement.

For a full list of all the terms that will be on your real estate exam, click here!

How Much Is My House Worth?

Just how much is my house worth? I hear it all the time. Getting ready to sell your house (or just wanting to know how much equity you have) sounds like a simple calculation but in fact, it does not have a simple answer.

In this article, I will show you how appraisers and real estate agents get close to the number, but at the end of the day, it’s whatever the market will pay. I’ve bought houses for 50% of their value and turned around a sold them for 100% of their value (making tens of thousands in the process) knowing some of the skill and resources you will find in this article.

On the flip side, not knowing this information can destroy your net worth quickly as more educated buyers (such as myself) can take advantage of you. I would know, I retired at 30 years old taking advantage of the fact that 9 times out of 10, I knew what a property was worth more so than the person selling it to me.

After spending 10 years as a real estate appraiser, 3 years as a real estate agent, it is truly mind blowing how little people know about real estate values. I will be going over Before I show you how to find this number on your own, it’s important to understand that a home valuation is not a fact, it is an opinion. Any real estate professional will tell you the same and if they don’t, run in the other direction because they are full of $***.

In this article, I’m going to answer all the FAQs I have gotten over the years as well as show you how to get a general value of your home. This information should only be used to satisfy your curiosity and should not be used to buy or sell a home (unless you are paying for an appraisal). Understanding how to lock down a property’s value can make you tens of thousands of dollars and if you don’t understand it, it can cost you the same. This should be taught in school.

Ok, let’s get started.

Is Zillow accurate for home values?

It’s important to understand what Zillow is and what they do. Per the Zillow website,  “Zillow receives information about property sales from the municipal office responsible for recording real estate transactions in your area. “

Ok. So the accuracy of their data really depends on if your State gives them the sales data. In many States, this is legal. In many, it is not. If you live in one of these disclosure states, chances are Zillow can give you a pretty good indication of your homes value.

What is the most accurate websites for home values?

What is the best way to use online websites to know how much is my house worth? The most accurate website for home values are going to be searching the local appraiser websites and paying them for what they specialize in. As mentioned, the websites such as Zillow, Trulia, etc are only as accurate as the data they are legally allowed to mine. In disclosure States, we think they are actually pretty good (but not exact). Let me repeat, all of the online sources can get you in the “ball park” but they will not be 100% reliable and using them could cost you BIG TIME.

How do I find the value of my house?

You have a few options to nail down the value of your house. Deciding on which one really depends on your personal needs and your budget.

• Your local tax assessor – Almost all of them have home valuation data online for free. Just google your local county + your state + tax assessor and see what you can find. Here is a snapshot of typical valuation data that is public record.

• A real estate appraiser – This will be the most accurate answer as appraisers are trained for years. They understand all the dynamics of the real estate market. You should not pay for a full appraisal just to know the value of a property. You can ask for a “restricted appraisal” which should be about 75% cheaper than a full appraisal and the number will be the same. Full appraisal reports are much more time intensive due to banking and lending regulations. Search here for a great appraiser in your area. He will always know the answer to how much is my house worth.

• An experienced broker – A local broker can perform what is called a “brokers price opinion (BPO)” for about $50 – $100 for you. These BPOs are free if you promise to list with the broker.
• Websites – As mentioned, Zillow and other similar websites will give you a rough idea. Not perfect, but free is free.

Final Thoughts

We hope that you understand the value of a great real estate education. Understanding real estate terms and applying this knowledge them to value your property will make you or break you when it comes to retiring with a high net worth.