Disadvantages to Selling a Home on Contract

Just like anything, selling real estate on contract ALSO has its downfalls. Following are a few thoughts I’d like to share with sellers considering selling on contract:

1. Remember: You can ONLY sell a home on contract IF you hold the title to the home free and clear with no liens, mortgages, etc. This usually limits the quantity of people who are able to sell a home on contract. I have heard of people who “sold” real estate (I parenthesized because you can’t sell something you don’t own) to unsuspecting buyers who for whatever reason chose not to do a title opinion. Avoid this situation, both as a buyer and as a seller. It is better for everyone.

2. As a seller of a home sold on contract, you risk the chance that your buyer will default on his loan. Generally, the house will be the collateral for the seller, but what happens if the house is trashed? As you can see, there is a certain element of risk here for the seller. The higher the deposit put down by the buyer, the less concern this risk should cause.

3. Last, and perhaps most obviously, you will not receive your money all up front as if you had sold the house the traditional way. For many people however, this is not necessarily a disadvantage. Consult with a qualified accountant to determine the pros and cons.

These are just a few pieces of information, but you can find plenty on the web. Do your homework and decide if selling a home on contract is the right decision for you and the buyers.

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