In a contract for deed, the purchase of property is financed by the Owner rather than a third-party lender such as a commercial bank or credit union-Mortgage company. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan.

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Facts and features
A contract for deed is when the seller finances the sale of his or her own property. In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying 10 to 20% down of the sale price of the property, while the seller retains the legal title to the property until the contract is fulfilled. The buyer has the right of occupancy and, in states like Minnesota, the right to claim a homestead property tax exemption.

The buyer finances the purchase with assistance from the seller, who retains a security in the property.

The contract for deed is a much faster and less costly transaction to execute than a traditional, purchase-money mortgage. In a typical contract for deed, there are no origination fees, formal applications, or high closing and settlement costs.

Another important feature of a contract for deed is that seizure of the property in the event of a default is generally faster and less expensive than seizure in the case of a traditional mortgage.

If the buyer defaults on payments in a typical contract for deed, the seller may cancel the contract, resume possession of the property, and keep previous installments paid by the buyer as liquidated damages.

Because the buyer in a contract for deed does not have the same safeguards as those afforded a mortgagor in a purchase-money mortgage, the contract for deed may appear to be essentially a rent-to-own arrangement.

However, in a typical contract for deed, the buyer becomes responsible for the obligations of a mortgagor in possession, such as maintaining the property and paying property taxes and casualty insurance.

In the contract, either party may sell his or her interest in the contract.

Homebuyers may be attracted to a contract for deed purchase for several reasons. This method may be especially appealing to homebuyers who do not qualify for a mortgage, such as people who work cash jobs and are therefore unable to prove their ability to make payments.

Since the contract for deed process is significantly shorter than the mortgage-approval process, it may attract buyers who face time constraints or have limited options, such as people who are losing their homes to foreclosure.

First-time homebuyers who lack experience in the market or individuals who are wary of traditional financial organizations may also choose a contract for deed because of the relative simplicity of the buying process.

Buyers with credit issues-Tax issues-divorced-Self employed-Child support-Relocating-debt to income ratios-second home-vacation property are some of the main reason’s buyers will want to purchase a property on a contract for deed.

How do I come up with the price of my property?


The comparables are chosen for their similarity to the site property. Greater weight is given to those properties which have had recent sales, are close in proximity to the site, and those properties with comparable amenities.

When performing a comparable market analysis, the next step is gathering information of properties which are similar to the site. Comparables may be a mix of:

  • Recently sold properties
  • Active, on-the-market properties
  • Expired listings
  • Properties which are “sale pending”

When deciding on which comparable to use, the following should be kept under consideration:

  • Similarity to the site property
  • Proximity to the site
  • Recent sales should carry more weight than older past sales
  • Comparable neighborhood
  • Comparable negative and positive external influences

If a comparable property has more of something, such as the number of bedrooms, is newer, has more amenities, etc., then you will need to deduct dollar amounts from the comparable property. If the comparable has less of something, such as only a one-car garage when the site has a two-car garage, then you would add dollar amounts to the comparable property.


Homes are non-homogenous (each home and the property on which it sits is unique). Here are a few aspects that affect value to consider:

  • Quality and amount of amenities
  • Location
  • External influences such as noise from a freeway, airport, a loading dock, major arterial streets noise, or noise from busses at a neighboring bus stop
  • External influences such as the neighborhood and the condition of surrounding homes
  • Functional obsolescence (example being – not having a bathroom on the main floor)
  • Quality of construction
  • Condition and deferred maintenance
  • Energy efficiency (such as insulated windows or energy-efficient systems such as heating, air conditioning), insulation and energy-efficient appliances
  • Curb appeal
  • Size
  • Number of bedrooms, bathrooms, or garages

Since there is not an exact comparable for each unique property, adjustments will need to be made in order to arrive at a reasonable value for a property.

The adjustments for the differences are always made to the comparable property.

If a comparable property has more of something than the site, then adjustments to the comparable are deducted. If a comparable has less of something than the site, then adjustments are increased.

Steve Vennemann
Owner financing specialist