The Pros And Cons Of Selling On Contract Vs. A Deed Of Trust

Q: I have a house to sell. Could you please tell me what the pros and cons are of selling on a contract vs. a deed of trust?

A: When you sell a property on a real-estate contract, you provide the financing and the actual title remains with you until the property is paid off, explains Billie Rose, associate broker in Windermere's Mercer Island office. Until that payoff date, the buyer has what's called an equitable lien.

With a deed of trust, the buyer often gets a loan from an outside lender, like a bank or mortgage company, and the actual title to the property is conveyed from the seller to the buyer right away.

Assessing the pros and cons of each depends on whether you're a buyer or a seller. "From a seller's perspective, if there's a default (most likely: The buyer stops making payments), a real-estate contract forfeiture will be faster than a deed-of-trust foreclosure and it will be less expensive," Rose says.

From a buyer's standpoint, having a contract could make it hard later on to get a second mortgage from a lender. A buyer might also have trouble eventually getting title to the property if the seller has died or become incapacitated.

The bottom line, Rose says, is this: No matter which you choose, "you should seek the help of a knowledgeable realtor or a real-estate attorney because you're entering into a binding contract" - a contract that should be drawn up professionally.

Q: We have the opportunity to buy a 99-year lease on federal land on the Olympic Peninsula for $20,000. The property has a septic tank and hookup for electricity; we'd put a recreational cabin on it. The annual lease fee is about $400 a year. We don't know much about leasing property. Is this a good or a bad investment?

A: "The first thing this person needs to do is talk to a local real-estate broker and see if what's being offered to her is usual or unusual in the neighborhood," offers Chris Wronsky, a Counselor of Real Estate, appraiser and real-estate consultant.

If other people are buying into such deals, a stable community is being built and no problems are being reported, these are good signs.

Wronsky also recommends you talk to a local lender or two. "If (they're) accustomed to people buying these leaseholds, they may have a program established for how to make a construction loan."

Also inquire about what would happen should you add a cabin, then want to sell. Could a qualified buyer easily get financing?

Finally, it's always advisable to review beforehand all documents on the property. They may reveal restrictions or obligations that could make the deal less than appealing.

Wronsky says that purely from a financial point of view, vacation cabins often aren't a good investment. However, the psychic rewards of having a getaway can make such a purchase worthwhile.

Q: When you buy a home or a townhouse in a new development, is the price negotiable?

A: We turned to the new edition of a swell book, "Home Buying for Dummies" (IDG Books; $16.99) for an answer.

According to authors Eric Tyson and Ray Brown, developers generally are loathe to lower prices up front because they need to protect the value of the unsold properties in the same development. They also need to "sustain appraised values for loan purposes." That doesn't mean that you can't negotiate for a better deal, however. As Tyson and Brown point out, "developers bargain with you by throwing in extras without charge or giving you upgrades (that is, more expensive grades of carpet or better appliances) in lieu of a price reduction."

If you do happen to find price discounts, the authors offer this caution: "A developer who cuts prices is warning you that the project is floundering."

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