In today’s changing market homes are selling in more “nontraditional” ways than in the recent “bubbly” past. The three most common varieties of nontraditional sale are private money (otherwise known as seller financing), lease purchase agreements and installment sales. Brian explains how regulations and laws have rendered seller financing virtually impossible, leaving the other 2 options on the table.
Lease purchase agreements are where a seller agrees to rent the property to a “buyer” for some period of time, with the buyer agreeing to proceed forward with a full purchase subsequently. No equity interest is promised to the buyer until they move forward with the actual purchase or make a down payment.
An installment sale is where the seller and buyer agree to a large initial down payment (nonrefundable of course) followed by additional payments at regular intervals. The buyer accrues equity in the property to some degree as they make payments against the full purchase price.
Installment sale poses more inherent risks, in particular financial risks for both parties, especially if the property is already secured by a mortgage. The buyer is putting down a large piece of change without being able to foresee the future, and the seller is compromising their ownership stake by accepting payments that are partial.
With lease purchases, there is less inherent financial risks but there are definite risks that the buyer or seller will get cold feet or the buyer would damage the property and move out before consummating the sale portion.
For folks with poor or recovering credit and some cash in hand a nontraditional transaction may well be the only option. For sellers with homes languishing on the market, accepting a nontraditional agreement of sale may be the best hope to move on.