Chad makes good outlines of the basic contract for deed deals available.
Contract for deed can be a good way to sell if you have the right buyer.
And with most contracts for deed, all is fine and good as long as all is fine and good.
However, one must also look at the downside;
What happens when they stop paying, for whatever reason (job loss, other financial burden, death of one of the bread winners or even sometimes plain outright scroundrelism)
Before going on, please remember that I'm not a lawyer and this only a quick overview and certainly NOT to be considered legal advice.
My understanding is that there are certain points along the various contracts where a lessor/vendor/buyer (from here out, we'll just say "buyer") attains "equitable interest" and once this buyer has enough "equitable interest" or in some cases, if he has been paying in his contract for a certain period of time, the title holder must go through a formal foreclosure to get the property back. If there is an underlying mortgage on the title holder's property, he is still liable to make those payments even though the buyer is not making his payments.
"So, I still get the house back, right?".....well, yes, BUT I've heard attornies tell me that a simple foreclosure will cost a few thousand dollars, typically. I believe the cost being quoted there are just the legal fees to the attorney.
Most foreclosures are not "simple" or "typical" though. Some of the foreclosures performed by fannie mae, freddie mac and others cost ten and twenty thousand by the time they are finished.
What if the debtor doesn't accept the legal notice and you have to pay to run public notice for a period of time in the legal news? What if he finds some easy ways to delay the process? What about fees to process servers? What about court costs? What about the time needed for court appearances? (which might interrupt your schedule, your work and your paycheck) it doesn't take long for ten thousand or so in fees and other costs to add up.
Which leads to another point, if there is a mortgage on the property now, the language in that mortgage probably stipulates that you are not allowed to sell on contract for deed while that mortgage is in force. What if you sold your house to someone on some contract for deed and then received a notice of default from your own lender informing you that you are now in default of the terms of your mortgage agreement and you must cure that default immediately or they will begin foreclosure proceedings on YOUR mortgage?
Not to mention what happens if the first people who give you some "option consideration" or "down payment" money don't have the means to complete the deal and trash the place before they leave?
What if you sell on a lease option deal, giving the lessees 3 years to pay you off (refinance through a lender) and they gave you several thousand dollars up front for that option to purchase....then for what ever reason they could not get financed and have to move.
Would there be a chance this person would be, let's say, "less than happy campers" at that time?
Sure, sure, many realtors will paint a rosey picture for you in hopes to get your business, but I suggest that one take a deep breath and look at the potential downside as well.
I once read a book written by a Michigan broker who does big business buying and selling houses on various contract sales and she says it takes an average of 3 buyer/lessors before she actually sells a property (the buyer is able to re-finance and pay her off).
Now, when I consider from the tone of your question that this house may not have been purchased as an investment property, but as a home for you to live in, I wonder if your cost basis is low enough to weather these potential storms?
Sure, these deals can and do work, but most of the successful deals are usually either between close family members (where they both are honorable and dependable in their dealings) or done by professional investors who buy the properties at low enough prices to begin with that they can handle the set backs.
Best of luck to you in your situation!