Real Estate Contracts: Pros & Cons
A real estate contract is an alternative mechanism for buying and selling real estate that does not involve a promissory note and mortgage or deed of trust. Instead, a contract is used to create the buyer’s obligation to pay the seller and the seller’s obligation to convey the land to the buyer. Both buyers and sellers should thoroughly consider the advantages and disadvantages of using a real estate contract.
For some buyers, a real estate contract may be the only feasible mechanism to purchase the property. This is often because the seller, who is usually financing at least part of the purchase, may be more flexible with credit restrictions or payment arrangements than traditional lenders. Unfortunately, this can also lead to an increased likelihood of default and less protections preventing the buyer from losing the home. Also, a buyer should carefully evaluate the terms of the contract and what rights the buyer has in the event of default. Though few people anticipate foreclosure, circumstances can change and all buyers should consider their rights and responsibilities in the event of foreclosure. In Washington, the foreclosure process in a real estate contract is called “forfeiture” and is governed by a specific statute. See RCW 61.30.
For the seller, a real estate contract can increase the likelihood of selling the property as well as increased profits from the sale. Because the sale is seller financed, the seller may earn interest on the sale. However, Sellers should recognize that with the increased reward (interest) comes increased risk (possibility of default).
Both buyers and sellers involved in a real estate contract may benefit if the contract is well drafted and takes the many variables into consideration. Land improvements, property destruction, reconveyance, change in zoning, condemnation, and many other issues may develop during the term of the real estate contract. A well drafted contract can help keep the rights and obligations of the parties clear and identifiable and avoid contentious litigation in the future. Any buyer or seller should find a Spokane real estate attorney who can assist in drafting a contract to avoid costly litigation. The attorneys at Wolff, Hislop & Crockett have experience with real estate transactions and can advise clients regarding a wide array of real estate issues. Contact us today for a consultation.