FSBO Land Sale - First Time Seller - Need some help
Bealeton, VA · Member since 2016 · 52 posts · 14 votes
I am selling a piece of vacant land in an urban area that can be used to build a single family home. I got an offer on the property, but the buyer said they could do 15% down and pay off the rest in 8 months. I am not really clear how that works out. I'm guessing they need to build the house on the land and then use the money from the profits of the sale to then pay me the rest. Is this standard practice? Is there any questions I should be asking like should I get any interest for those 8 months. Thanks for any help you can give.
Well, it could work a few different ways, 3 of them below.
1) Seller Carry
You can sell it to him for 15% down and YOU carry (loan him) the 85% difference. If you have no loans on it, then you just decide what terms you want (interest rate, interest only or amortized over a specific time period, etc.).
Example 1:
Purchase price - $100k
Down Payment (from Buyer to You) - $15k
Seller Carry (You loan him your equity to purchase the house) - $85k @ 4%/year, interest only payments, balloon payment in 12 months.
2) Contract for Deed
You can sell it to him on an Installment Sale Agreement/Contract for Deed
Basically, you are selling them the property under an agreement that they pay you in installments (at an agreed upon payment amount and terms, etc), until the total agreed upon amount is paid, then title transfers to the Buyer.
The basic difference is that in #1 title transfers immediately to the Buyer and #2, title transfers to the Buyer only when the final payment is made (at a later date).
For you, as a Seller, #2 makes more sense and is safer. Check with an attorney for the specifics and legalities, etc.
I would ask them specifically what their specific plans are with the property. what are they planning on building, etc. You want to be assured that whatever they are going to do is going to add value to the land and not cause you an issue to deal with, should you have to take back possession of the property.
Whether and how much interest to charge them is totally up to you and what you want to make. If you want to be nice, you can just give him 8 months to pay with no interest, or you can charge him 10% annualized interest, with a balloon payment for both the remaining principal and interest in 10 months. It is totally up to you. In many cases, that type of scenario would command a higher than market price, since it is to the Buyers benefit.
3) Partner
You can also partner with them by having them build an sfr and you supply the land, and then the completed sfr gets sold and you split the profits with them.
Example
You contribute the land worth $100k
They build the house for a cost of $100k
The house sells for $300k
You get $100k for the land, they get $100k for the build cost and you split the $100k profit however you want (50%/50%, 60%/40%, etc)
You would just make sure to have an attorney write up a good agreement, so if they don't come through with their part, you get a partially improved lot, worth more than the original $100k value.
As to your question, All these are standard in some markets. You need to decide how desirable the land is, are you willing to sell it, would be difficult to sell now, etc. And then you craft your deal to suit your desires.
@Brad S. Incredible information. Thank you so much. That's why I love this community. The buyer sent me an offer that was for 15% down and then 8 monthly payments for the remaining principal after that. No interest included into the 85% balance. I have to pay 3% buyer realtor fee. I'm not sure if they could have just went with a lawyer to do this transaction to save some more money. This is the first offer I got and people usually say the first offer is the best offer. I'm thinking of asking for more to get compensated for having to wait 8 months.
@Brad S. Incredible information. Thank you so much. That's why I love this community. The buyer sent me an offer that was for 15% down and then 8 monthly payments for the remaining principal after that. No interest included into the 85% balance. I have to pay 3% buyer realtor fee. I'm not sure if they could have just went with a lawyer to do this transaction to save some more money. This is the first offer I got and people usually say the first offer is the best offer. I'm thinking of asking for more to get compensated for having to wait 8 months.
Yes, it is customary to get more money for those terms. Basically, in a deal, you have 2 main concerns, price and terms. You can get/or offer a higher price for buyer preferable terms (lower interest rate, interest only payments, longer time period to pay , etc) and/or a lower price for seller preferable terms (all cash, quick close, etc.).
So, that might look like:
1) $110k purchase price
0% down pmt
seller carry 100% for 3 years, 2% annual interest, interest only pmts and a final balloon payoff
or
2) $90k purchase price
All cash, 10 day close, no contingencies
Same deal, different objectives. This goes back to the creative real estate days, typically when it is a buyers market or motivated seller. Not so much in the current market. The really good investors (back in the day) solved sellers issues, while getting a profitable deal. This seems to be a lost art lately, or at least not as needed in the most recent market environments.
Anyway, It does sound reasonable for you to ask for more money in order to agree to those terms. I would also probably do it as a Contract for Deed/Installment Sale so you keep control until you get fully paid. You should be able to have a title company or attorney help with that. Or you can try and partner with them, if their goal is to build and then sell. they they theoretically would be improving the property by doing the construction and if anything happened where they couldn't complete it, you would have a more valuable property, at least theoretically - depending on at what stage they stop.
Does it make sense for you to develop it yourself?
What are the numbers (i.e. value of vacant lot, value of typical developed properties in the neighborhood, etc.)?
Thanks @Brad S.. I'll have to definitely give this to a lawyer to review. They sent a contract over and under additional terms it says, "Seller to owner finance. Buyter to put $13,500 as down payment. Balance of $76,500 to be divided into 8 monthly installment payments of $9,52.50. Monthly payments to be made by buyer the 5th month and begin April 5th, 2022.
Seller to pay a 3% commission"
There is no language in there about penalties for late payment of failure to make final payment, which I believe should be in there.
Yes, the other thing I have been wrestling with that you mentioned is developing the property myself. I believe I can make a good profit from building a spec home on it, but the negatives are having to risk the $250k into build it and dealing with volatile building costs. I do have my Builder's license, but it would be hard for me to be on-site as it's far from my home. I have talked to some builders and they are quoting me $150/sq ft - $200/sq ft. If I was the builder, I could probably do it for $125/sq ft. as I would cut out the intermediary. But that extra cost might be worth it to avoid headaches. I suppose this is a good problem to have.