A contract for deed, also known as a land contract or an installment sale agreement, is a pretty simple concept to understand. It is essentially a purchase that is financed by the person making the sale. Okay, that was a pretty short sentence, but it’s easy to understand how it can be confusing. So think of it this way: a contract for deed is an arrangement that allows for a purchase to be financed because the person doing the selling is making the loan to the purchaser! In other words, it’s a way a buyer can make payments on a piece of property to the seller and will be obligated to keep those payments up by law. It’s an interesting way to transfer property and may even be a way for you to either buy or sell what you’ve wanted to buy or sell for a while now.

A contract for deed typically refers to real estate - in fact, any time you see the legal word “deed,” there is often a good chance that you’re referring to real estate. And since real estate purchases are typically large and require some form of upfront financing, a contract for deed is something that many people who are considering buying real estate will want to be aware of. Of course, a mortgage agreement typically means simply going to a bank and finding a loan for a certain amount of interest. But when it comes to contracts for deed, a different type of real estate is often involved. For example, buying a piece of undeveloped land can be something that comes with a contract for deed, even if banks will make those types of real estate loans as well. Other types of development property, including business property and rental property, can also be contracts for deed.

Why would a contract for deed work for some people? Well, in some cases, it’s a great way to ensure two sides have interest in making sure a transaction is completed. In other words, when a seller is helping with the financing of the purchase, they have an interest in making sure all of the payments come in on time, and that the buyer is able to make them. The buyer, for their part, have an interest in it as well because they might find a contract for deed that represents a better overall “deal” than they were able to find in other loan agreements.

Many people go their entire lives without having the need for a contract for deed. But there are many people who use them not only once in life, but many times. And if it the concept seems foreign to you, consider that many retail stores that offer financing on sales pretty much are offering a “contract for deed” by helping to finance the purchase you’re making. Since you make the payments to the seller directly, you might already be aware of just how this agreement takes place. In many cases, it’s a quick and painless way to leverage your money.