How to best make a land contract offer to a home owner as a tenant.?

Asked by AB6296, Bowie, MD Tue Jan 4, 2011

I moved from Michigan to MD after a bad house fire where I lost everything. I currently live in a rental home & have to purchase a home by Dec 2011 as required by my insurance settlement. I'd like to buy the home that I'm in but not sure the owners are interested considering the current market. I want to make an attractive land contract offer but need help figuring out a few offer structure ideas. Their 2010 property assessment was $410,000. I need to purchase a home for at least $365k per my insurance. At the time of the fire I had no plans to move due to credit & financial setbacks related to a soured investment property & job transition. Thus I feel I'm only a candidate for a land contract. Im due approx 95k at closing from insurance for a dn pymt. Can anyone provide suggestions for an attractive offer to the owners of my current rental homey? Also, is there a way to find out how much they currently owe on the mortgage or other info that may make my offer well-informed? Thank you.

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Lucy Kessler, Agent, Gaithersburg, MD
Tue Jan 4, 2011
Ditto What Don said - perfect advice. I am from Michigan and know that the land contract is common there, not so here and frought with a number of negative possibilities for you. With $95K to put down it would seem that you have other options. Don gave you very good advice. I sugest that you follow it.
Lucy
0 votes
Alqamar Malik, Agent, Largo, MD
Tue Jan 4, 2011
Home Buyer, I would strongly urge you to seek legal counsel and/or advise with a reputable real estate agent who is familiar with homes in the area of the home you'd like to purchase. There are TONS of factors involved in negotiating a land contract and if you're not experienced, I suggest you NOT attempt to do it yourself...You could potentially lose THOUSANDS of dollars trying to handle this very complicated transaction yourself without any experience under your belt. Much success to you!
Web Reference:  http://www.alqamarmalik.com
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Sanford Coll…, Agent, Prince George, VA
Tue Jan 4, 2011
As mentioned previously, seek an attorney for guidance on using a land contract.

In regards, to how much to offer, this is based on two things: 1) the current market value of the home and 2) what the owners will accept. If you're serious, I suggest you approach the owners first to see if they would even consider selling. If the answer is yes, then any good local Realtor can provide you with a comparable market analysis of the home to show you the fair market value. You may have to pay a small fee for the service if you will not be using the Realtor to represent you in the transaction.

Good luck!
Sanford Collins, Realtor, CPA
http://www.SanfordChrisCollins.com
0 votes
Don Tepper, Agent, Burke, VA
Tue Jan 4, 2011
You've got a lot of questions. Let's take them one at a time.

First, the property assessment means nothing. Absolutely nothing. It's totally worthless as a gauge of the house's value. To determine its value, you either need to get a Realtor to perform a CMA (competitive market analysis)--that's free--or pay an appraiser (probably $300-$400) for an appraisal. I'd recommend a Realtor.

Second, check with a good lender to determine whether a land contract is your only option. I personally like land contracts (and lease-options and lease-purchases, the latter being more common in this area than land contracts). But before determining that you're unable to purchase, check to make sure.

Third, what the owner owe on the mortgage perhaps can help you structure your offer, but shouldn't affect the amount of the offer. It's pretty easy to determine. Check the tax records (you can probably do it online) to see when the owners purchased. Assume it's a 30 year loan. If they bought between 2004 and 2007, assume they put down 0%-5%. Before that, assume 10%-20% down. The tax records will show you what they paid. Subtract the downpayment, then use any online calculator to determine the paydown. That should give you a pretty good number . . . unless they bought and then refinanced. A Realtor can pull up the past sales information and perhaps give you a better figure. But, as I said, this should not be your guiding element in making an offer. What the house is currently worth should be.

As for how to approach the owners: First, have a Realtor pull up the property history. Look to see whether the owners have tried selling in the past. If they have, but were unsuccessful, they're probably open to selling now. Even if they haven't tried selling in the past, they may well be open to it. And here's the script. (Modify it based on what you find out above.) "Hello, Mr. and Mrs. Owner. I've really enjoyed renting this house from you, and I hope you've found me to be a good tenant. In fact, as you may know, because of my circumstances I'm very interested in buying a home. And your house is really just what I'm looking for. So, I don't know if you've considered it, but I'd like to suggest that I purchase your house. Because you're renting it, you probably wouldn't need the full amount right away. I've got a large downpayment, and would pay you the remainder over a period of time. If I didn't, you'd keep the downpayment and be able to evict me. So there really isn't much risk . . . and you know that I do pay on time and that I keep the house in good condition. And the real estate market looks like it may be a bit messy for years to come, so especially if you've thought about selling any time soon, selling now--on your terms, to someone you know--may be a very good option."

That's just a crude outline, but you get the idea.

Make sure you have a good Realtor assisting you. And certainly consider using a real estate lawyer as well.

Hope that helps.
0 votes
Jessica Hood…, Agent, Gambrills, MD
Tue Jan 4, 2011
Contact a local real estate attorney or title company for guidance. This isn't something you want to take on yourself!
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