Using a Land Contract to Buy Land for Sale in Washington
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 10/10/23.
Real estate is all about location, and premium pricing always follows location. Looking at land for sale in Washington proves this point.
One way to profitably scoop up land for sale in Washington is through a well-constructed land contract. This is a win-win for both buyer and seller on several levels, which we'll cover in this guide.
What's the Average Cost Per Acre of Land for Sale in Washington?
In the last few years, prices on commercial land for sale in Washington have swung wildly due to economic forces, not just demand. The area is looking at lower crop yields across the board and reconfigurations of scale. Larger properties are becoming a thing of the past, with small and medium-sized parcels becoming much more popular.
The COVID-19 pandemic also played a role, with farm laborers impacted by the pandemic. Labor shortages have dragged down farm production times, making it more difficult for farms to compete in the marketplace. Farm business and land prices are deeply connected.
The average price per acre of land for sale in Washington can run as low as $2,000 to as high as $600,000, and some areas in the state are naturally higher than others.
What Is a Land Contract?
A land contract is an agreement to purchase land, with a bit of a twist compared to traditional financing from a bank. Instead of getting the lump sum from a mortgage company and making payments back to the lender until it is paid in full, you are making payments directly to the seller until it is paid in full. The seller keeps the title to the property until the land contract is paid in full.
If buyers have had struggles in purchasing land for sale in Washington due to foreclosure or not meeting conventional requirements, land contracts present a pathway to real estate acquisition that's customized for the desired property.
A land contract spells out the agreement in full, including the total purchase price of the land. From there, the monthly payments and the interest rate are listed. Some land contracts allow for the interest rate to change, but the change has to be fully detailed. Most interest rates will be fixed instead of variable.
The Solution for Hard-to-Sell Land
Given the nature of these contracts, it might sound odd that a seller would ever agree to accept payments instead of just selling the land traditionally for a lump sum. The reality is that just as there are motivated buyers, there are absolutely motivated sellers.
A land contract can turn a piece of property that's hard to sell traditionally into something that has value to a buyer. The buyer may not wish to get the banks involved for one reason or another, and the seller may want to have the freedom to set terms that are more enticing to get a piece of property off their hands. After all, location affects the value of the land and the type of land in question.
How a Land Contract Benefits Both the Buyer & Seller
A land contract has benefits for both the buyer and seller. When looking at whether or not a land contract fits your needs, consider the following benefits:
- The seller gets ongoing income for a property that provides a boost to monthly cash flow.
- The buyer gets to pick up property, even if they don't qualify for a traditional mortgage.
- The seller can often set a higher, longer-term for payments, guaranteeing a certain amount of incoming cash flow.
- The seller gets a buyer that's truly motivated to close a deal, even if it means getting a slightly less favorable deal on interest compared to conventional financing.
- The buyer gets to define the terms they're willing to take, often having more room to negotiate than when they approach a mortgage lender.
A land contract is open to customization like other contracts between two parties. It is important for both parties to consider what they really want and work out terms that build a win-win situation for all parties involved.
Transferring the Land's "Equitable Title"
When it comes to land contracts, there are two titles that matter: the legal title as well as the equitable title. The legal title may sound straightforward, but what is an equitable title? Equitable title is the financial interest in the property, a claim to equity.
This is far different from the legal title, which is true property ownership. When you enter into a land contract, the payments you make to a seller become what sets the equitable title. After the seller receives all payments, the land contract should stipulate that legal title to the property is transferred to the buyer at that point.
Risks Involved with Land Contracts
Given that these land contracts are specifically between a buyer and seller, there are some obvious risks that are not present in traditional financing. First and foremost, the terms of the agreement have to be drawn up from scratch, as every transaction is a bit different. If you do not negotiate fair terms for your purchase, there is little recourse other than to continue to make payments until the contract is closed.
Next, you could pay too much for the land versus a more traditional financing path. The seller may ask for a higher monthly cash outlay than you were anticipating.
Keep in mind that the seller takes on risk with selling land via a land contract as well. If the payments stop at any point, they have to take legal action to get the rest of the funds.
Risks for the Buyer
The buyer must also ensure they are fully aware of what they're getting into. If they have to stop making payments for any reason, they will not be able to get a true legal title to the property. If they don't work on getting the true title, it can easily become a glorified rental contract, with payments higher than what a lease would demand.
Land contracts aren't typically secured by other collateral, nor does the buyer face any adverse issues on their credit report if the contract isn't paid in full. Having a potential land contract reviewed by a real estate attorney with extensive experience is important.
If a land contract isn't handled properly, it can give rise to title disputes. These are not only complicated to resolve, but they can also become extremely costly to resolve legally. A real estate attorney can review the agreement and walk you through what you would have to do if the legal title becomes a point for dispute.
Browse & List Land for Sale in Washington for Free on MyEListing.com!
Get started listing and browsing land for sale in Washington for free on MyEListing.com. Create an account to sign up for customized property-type alerts and access to accurate market intelligence.
Other recent articles
Article Search
Share
All Article Categories
