Mrriso,

You are welcome. Any question, let me know. I enjoy to share what I know with other peple.

Andy

Very good information. I have one friend that is an agent, Paul Rodriquez, and another who is an appraiser, Tony Weldon. I think I will pick their brains a little also. Thanks for all of your input.

Mrriso,

Yes, you have to have your own real estate attorney, tax expert and real estate agent. The attorney should have enough experience on contract of sale. There are two kinds of attorneys in every law field. One is called trial attorney. They are good on the courtroom like a gun fighter. Of cause, they will charge you usually $400 per hour or higher. Another is called transaction attorney. They are good on document preparation such as contract, company policy etc. They may charge you lower than trial attorneys may. In San Luis Obispo and Santa Barbra, they ask $200-$300 per hour or by project.

I think I can imagine how your house looks like and where it is. Yes, as what I said, this old couple may have a serious capital gain tax issue. Full cash buying and multi investment on the same location are two of the biggest taboo on real estate investment. I guess they bought brand new houses without any real estate agent and/or tax expert.

I am not sure but through my studying, I guess Zillow has some complex formulas to calculate a price for you. A computer generated price may not be close to your real scenario because no formula can consider all the factors and elements as a real human being. What Zillow does in real estate field is called comparative market analysis (CMA) which is the most difficult skill that a real estate professional has to know. Many agents do CMA without any responsibility to their clients. When you look for an agent, be careful.

Do not use appraisal report. It is incorrect. Real estate principle is mainly different with real estate appraisal principle. For example, an appraiser will not consider how old your appliances are, whether you have dual pane windows, whether your carpet is damaged or brand new, whether you have lawn or trees, whether it is a corner lot or cal-de-sac. When your agent helps you to think about the market value, all the above points have to be considered but he/she will not consider the financial environment, interest rate trend, and any property even next to your house but different elem. school. Not at all, we have many differences. Appraisal report is usually for tax, estate, finance and legal purposes which are the fields out of real estate. Real estate CMA is the accurate one for real estate transactions. Deciding a transfer price by appraisal report is not good for both of you. Yes, three reports may just coat you less than $1,000.

Back to contract of sale, as their inheritors, their children have no right to termite or modify the contract. I have never heard that any real estate attorney or real estate trainer said that a vendee, in contract of sales, buyer is called vendee, will be out after the vender dies. In a contract of sale, both vendor and vendee have no right to sale the property without mutual concert. I am not an attorney. Here, I have to say that please confirm this point with your attorney.

Yes, remodeling and improving will be the most sensitive issue in a contract of sale. What you concern is reasonable but I guess that a good attorney may help to resolve it. In addition, reselling too, typically, no buyer wants to buy a house from a vendee in a contract of sale.

I agree with you. Let them talk with their experts first. Then you may know more about what they plan to do. Good faith is very important between you and the landlord. For you, of cause, traditional transaction with a traditional loan is the best idea. I think you should have someone to represent you in negotiation. On the other hand, you may have to look for a house to be your back up. Remember, with a stable back up, you will have bigger bargain power with the primary one.

I am not a contract of sale expert, I can not be your agent but if you find someone and want to know if he/she is qualified, I think I can help you to think about it.

Andy

The house is 10 years old and 1440 sq. ft. The seller paid cash for the house in 1999 and rented it out to me. He actually bought 4 houses in the neighborhood and rented them all out. He paid $159,000 for the house and Zillow estimates the value at $279,000. I believe the house may appraise as high as $310,000. We will get three appraisals and use the middle one as the selling price. Taxes are an issue for him. He does not want me to go out and get a mortgage form a third party. That is why he suggested a contract of sale. My concerns are what happens when he and his wife dies. He has two kids and I am afraid that they may sell the house out from under me down the road. He and his wife are in their 80's. My plans are to live here for at least 6 years until my youngest graduates high school. After that who knows? We may want to sell and find a different house. I am also planning some renovations to the kitchen, bathrooms and backyard. I do not want to dump money into this house only to build equity I may never see. I guess I should try to talk him into a traditional mortgage with him as the lender. He is meeting with his attorney on June 4th. after that I will have a better idea of what he has in mind. I will be looking for an attorney after that.

Mrriso,

I am not a contract of sale expert. What I can tell you is just a concept, a rough picture. If you really need an expert, I can give you one or two. I met them in the real estate seminar. You can contact them directly.

I am not a tax expert, but as a real estate person, I think your landlord may have a huge gain on his property and he/she doesnot want to buy a new property as the replacement. He/she will pay a big amount to IRS and state as the capital gain tax. We should know more about it. Seller's tax issue may directly influence on the negotiation. Seller financing or called seller’s carry back is simple and good for you but seller may not want it because the tax issue.

From the usage and title aspects, to you, the payment schedule should be as short as possible. To your landlord, the schedule may be as long as possible. It depends on his/her taxable income. Your landlord may have talked with a CPA already and may have a real estate expert also.

May I have a rough image of your house? Is it a single family house? I know some 40-50 years old houses east to 101 and some 10-20 years old communities west to 101. West to them, there are some ranch style houses with big lot. Have you and your landlord had a common idea about the market value? If you do not mind, I would like to go through something with you before you call a contract of sale expert and/or tax expert too.

Andy

Andy, If I do not agree to a "contract of sale" , what kind of terms should I ask for?

Mrriso,

Seller financing and contract of sale are fundamentally different. Seller financing is a situation that simply seller is your lender. You pay your down payment and your lender is your seller. Contract of sale is also called land contract or installment sale. Usually it occurs in a vacant land transaction. In regular residential transactions, it is occasionally. The reason is that the buyers especially vacant land buyers can not find a lender easily.

Legally, the main differences there are the title issue and transferring issue. In a seller financing case, the seller grants the title to the buyer when the deed is recorded. In a contract of sale, the seller grants a split title which is called equitable title to the buyer only. The legal title will be recorded until the whole amount completed. Before you fully pay off, you may not sell it without the seller’s acceptance.

For example, you will pay $600,000 to buy seller’s property. You pay $150,000 and the seller as your lender lends your $450,000 with 5% interest. You have the full rights as a fee title on the property from the recording date. You can sell it or encumber it without seller’s acceptance. If it is a contract of sale transaction, the price is still $600,000, you and the seller should have a payment schedule in your contract. You may pay $10,000 per month in next 5 years. You will receive your full title as a fee title end of the fifth year with your completed payment. During this 5 year, you can not sell it, you can not borrow second loan secured by this property without your seller’s acceptance.

Generally, many experienced real estate consultants do not suggest contract of sales. The seller may have some risks too. We will also face to a lot of tax, liability, insurance, finance problems. You can always see both buyer and seller have to hire real estate agents, CPAs, real estate attorneys, tax experts to involve the cases.

Andy

The seller is meeting with an attorney next week. I was asking about a "contract of sale". From what I understand, the deed stays in the sellers name until the loan is paid in full. I will not be able to sell or refinance the house. What happens if the seller dies and the children take over. Can they sell the house out from under us? The sellers are in their 80's and will not live for the next 30 yrs. Would it be better if the deed was in my name and the seller down as the lender?

Seller financing is basically when the seller in this situation your current landlord becomes the "bank". Instead of you getting a mortgage through xyz bank you draft up mortgage docs with the owner and make payments to him/her each month. Penalties and other things are the same. Stop paying and they can foreclose on you.

Some questions I would ask are:
-what is the life of the loan? 30yr , 15 yr?
-interest rate of? market rate or is he trying to charge you more
-who will draft up the mortgage docs

You can use an attorney to draft up the mortgage docs and also the sale. Or it might be cheaper to hire a realtor to facilitate the sale and have an attorney just do the docs. You will also need to run title on the property which a realtor can handle or the attorney should.

-Sean