Seek advice on offering seller financing when selling raw land

[jodelino]

We have some raw land that we bought about 15 years ago with the intention of building, but for a variety of reasons are not going to do that, and no longer need to hold this property. We are listing it for sale and our realtor asked if we would be willing to consider financing a sale. Someone has expressed soft interest in 50% down, and a 5-10 year payment period. We don't know if that offer will materialize, but the inquiry got us thinking about seller financing. We don't need the cash out of this sale now, and payments with interest could be OK for us. We've read that it can be hard for buyers to get bank loans on acreage and that seller financing can help make a sale work. We are wondering what the potential pitfalls are. Foreclosing on the unimproved property might not be so terrible. But what if the buyers start construction, run out of money, and we foreclose on a partially-completed project? What if they build, and move in, and then we have to foreclose on an eyesore and evict a family?

We welcome any advice as we consider offering this option.

[Duke03]

My uncle did a land deal like this.  He ended up selling it 5 times before someone actually paid it off....  Funny thing was he was so mad when the last person actually paid it off because he made a killing.  Each time someone would offer 25% to 40% down and to make payments.  They'd pay a couple years then get behind and others would walk away or he'd repo it and put it back up for sale.  He claimed when it was all said and done he made about 4x what the actually property was worth when you add up all the down payments, monthly payments, plus interest lol.

[jodelino]

Wow! That is a crazy story! Thanks for that!

I wonder if you can do a seller-financed land deal that stipulates that the buyer cannot begin construction until the property is paid off? We wouldn't mind someone drilling a well and leaving that behind. But having someone walk away from a foundation or shell of a house would not be good.

[SwordGuy]

If someone could come in, harvest all the trees on it for a bunch of cash, then default and make a profit, I wouldn't sell it on those terms.

Otherwise, why not?

A half-built house is less expensive than a fully built house to finish (assuming you can finish it), so that's a win.  If not, then it might be a problem.

[Milspecstache]

If someone could come in, harvest all the trees on it for a bunch of cash, then default and make a profit, I wouldn't sell it on those terms.

Timber is difficult to make money on unless you have >10 acres.  Takes a good bit of cash flow to move the equipment onto the land.  Good way to avoid that would be to specify that any money made off land would go towards the purchase price.

[jodelino]

I appreciate these comments!

But there is no timber (or other natural resources) on our land. It's about 15 acres in a beautiful location for building a home--but the kind of place where everyone who builds has a vision. I'm not sure one person's half-finished house would fulfill the next person's vision. So I worry that one abandoned project would make the property unappealing to anyone who might follow.

[TMB]

Take this for what you paid for it:

What Duke03 talked about sounds like a contract for deed.  Historically, with a contract for deed a buyer and seller enter into a contract where the buyer has a right to possession and pays off the property over time but only obtains title once the full contract price is paid.  Also historically, if the buyer breached, the seller could take back possession and keep all previous payments.  This is contrasted to seller financing where title is actually transferred at sale and the seller would simply be a creditor (presumably with a lien on the property). 

You would need to see what rules/restrictions apply to a contract for deed in your state.  Given that historically, regardless of how much the seller paid, if s/he defaulted s/he would lose the value of all payments, there may be limitations on this option due to the potentially harsh outcomes from the viewpoint of the buyer.

[jodelino]

Thank you very much for that clarification, TMB. I did not know about the distinction between seller financing and a contract for deed. We will look into that.

[Fishindude]

I wonder if you can do a seller-financed land deal that stipulates that the buyer cannot begin construction until the property is paid off? We wouldn't mind someone drilling a well and leaving that behind. But having someone walk away from a foundation or shell of a house would not be good.

Sure you could.
It's your ground and your deal to make.   Any decent lawyer could whip up a contract incorporating those terms and anything else you wanted.

[katsiki]

This may be state-specific but I think this is also called a "bond for deed" in some locales.

[jodelino]

Thank you, Fishindude & Katsiki--very helpful!

[theoverlook]

Is there a difference between "contract for deed" and "land contract?" In Ohio, it looks like you can't do land contract for bare land - there has to be a structure on it. And the repo can't wipe out the buyer's equity if they have over 20% equity. Interesting stuff.

[jodelino]

It is interesting!

We just heard from our realtor that the buyers interested in the property had a promising meeting with a bank, and think they may get a loan that would cover the land purchase & the construction cost. We haven't seen an offer yet, but if that materializes, that makes it easy.

Very much appreciate all the help in thinking through this, though.