What are some of the problems with buying land with seller financing?
The most obvious difference between seller and bank financing is the interest rate. Banks offer lower interest rates, and this is one of the negative aspects of buying land with seller financing. If you look at this situation more closely, you will see that the statement is not as true as it sounds. It is sometimes difficult to compare “apples to apples” when comparing seller and bank interest rates. Many sellers will lower the interest substantially if given the same down payment that a bank usually gets. The seller’s rate may match or beat the banks.
Most seller-financed land deals have less than a 5% down payment if any, while bank-financed land deals usually start at 15% down as a minimum, with the average being higher.
Risk of Foreclosure
A common problem that people see when looking at seller financed land deals is the possibility that the seller can foreclose and take back the property, more easily than a bank could with bank financing. It is sometimes difficult to compare “apples to apples” when comparing seller and bank foreclosure practices. Many sellers will be more flexible than banks could ever be, especially given the same down payment that a bank usually gets or being a long term customer of the seller’s.
Most seller-financed land deals allow a buyer certain rights, and options to foreclosure, that give the buyer time to pay while in default, such as deadlines to pay past due amounts, much like banks.
Trust in Seller
One issue that the public sees in buying land in a seller-financed land deal, is the trust in the seller. Will the seller abide by the contract? Will the seller be honorable in their dealings with the buyer when compared to the bureaucratic bank that is the alternative? Many land dealers have thousands of customers, and thus are serious businesses with the capacity to provide service and value in financed land, safely, to the masses.
Most seller financed land deals are made by dealers, and thus the consumer has more trust by dealing with a serious business with the capacity to perform over and over, than just any seller.
Fear of Being Ripped Off
No one wants to be taken advantage of. And when it comes to buying real estate, one of the most important types of purchases most people make, this could not be truer. Will the seller overcharge me? Is my lot as described in the real estate listing? Many land dealers have public reputations, and reviews posted publicly from their customers. These same sellers tend to be rated at the Better Business Bureau and Google and other public venues. Many of these sellers also have written guarantees, allowing buyers some time after the purchase to evaluate the lot and if not satisfied, return or trade the lot.
Most seller-financed land deals made with well known, reputable land dealers, are priced as quoted and the land is as described.