How Much Money Down Contract for Deed

(My Original Blog Post: http://timemyself.com/time/financial/invest/real-estate/contract-for-deed/money-contract-deed/)
How much money is needed for  a down payment on a contract for deed? There is no one answer for this question, let me explain.  The down payment needed for a contract for deed is determined by so many factors, some of those would be: How many agents are involved in the deal, what size is the house, what is the seller's comfort level, what is the buyer's credit like, how do the terms look, where are you finding the contract for deeds, what's the location and condition, what are the seller's reasons for selling.  One of the biggest misconceptions I hear about contract for deeds is that their just isn't any c/d's available out there, or they are too hard to find.  My response to this comment is that it's because not enough people know what they are, so they don't get advertised that often.  If I call sellers and present the idea to them, they are likely to be open to it, especially with a sizable down payment and especially so, in this slow housing market and economy.  I find getting the sellers for contract for deed's one of the easier parts of the equation, it's finding buyers with a sizable down payment that want to take it as a serious purchase, those buyers are a little harder to find, so  let's discuss how we arrive at the down payment amount that is needed for these contract for deeds:

How many agents are involved: Most houses that buyers are looking for are listed on the MLS.  What this means is that their is a listing agent who has typed up all of the information, which does take a lot of the listing agents time. This listing agent also has this property under contract exclusively with this seller, in most all cases.  This listing agent is working for the interest of the seller to help them sell the house to a new buyer.  Almost every seller wants to sell with a new buyer that has financing, so that they can completely cash out of their existing financing.  When they completely cash out, in most cases, hundreds of thousands of dollars come from the new buyer's lender to pay off all existing loans, seller's, listing agents, buyer's agents, etc.  Everyone gets paid, and everyone is happy.   When their is a house listed on the MLS, what you will need to understand as a buyer is that the listing agent often needs about 2.5% commission for him or herself, and the buyer's agent usually likes to get 2.5-3.0% commission also for working with the buyer, writing up the paperwork, helping with the closing, searching for properties, showing houses, etc.  Buyer's need to fully understand that this can be up to 5.5-6% in total commissions, even though the seller customarily pays for it.  This is the part that buyer's need to understand better that they don't yet.   As a contract for deed buyer you are asking the seller to give up a lot of tax write-offs.  In addition, the seller has to give up ownership, and let someone move into their house.  The seller is giving up a lot of their rights to let someone move in and become the new owner.  The reason you need to keep this in mind is that the seller needs to pay out nearly 6% in real estate commissions to get all agents paid for putting the transaction together and closing it.  Also the seller needs a pretty sizable down payment to make it worth their time and efforts and the risk and costs involved.  You can see why so many seller's ask for 10-20% down payment from a buyer as a minimum.   Can a buyer get a contract for deed with $4000 down payment, in other words like only 2%?  Sure you as the buyer can, you just need to contact a seller directly and know what you are doing, and a lot of legwork and time is involved.  Don't underestimate though how much time, and future heartache and potential problems can be avoided by having an experienced agent put together the transaction together for you.  You may put together the paperwork on your own today, but after thousands of dollars and years realize how big of a mistake you made because you didn't hire an agent to help you.  Agents had to take years and a lot of hours of practice to learn what's best for you with different scenarios.