Buying real estate property is one of the biggest investments that people make in their lives. As such, there are many different formalities required to complete the sale of property, whether a house or a parcel of land. These are to protect the interests of both buyers and sellers.
The acquisition process when selling vacant land begins with an agreement between two parties, reflected in what is called a purchase contract. This important document lays down everything involved in the transaction, from the land title to the costs. Only when the terms of the purchase contract are met and successfully completed can the parties move forward to closing the deal.
In this article, we lay down everything you need to know about the acquisition process when buying vacant land. This includes the purchase contract and its different types all the way to closing the sale.
The Two Types of Purchase Contracts
Purchase contracts can function for both cash sales and terms sales.
Cash Sale Purchase Contracts
In a cash sale, the purchase contract states that the seller will receive the whole purchase price of the property at closing. Although digressing from its name, the buyer does not necessarily need to pay the price of the land in cash but can settle it through a check, wire transfer, or if agreed upon, cryptocurrency. In most cases, the buyer engages the lending services of a mortgage lender to pay the full amount.
Terms Sale Purchase Contracts
Purchase contracts can also lay down guidelines for term payments. In this type of sale, the purchase price of the property is settled in installments and can be referred to as a seller-financed sale or an owner-carry sale. The purchase contract in a terms sale will state that the seller allows the buyer to make payments in arrears for a specified period of time.
Terms sale-purchase contracts are very common in land transactions because it’s harder to get approved for a loan for vacant land. Many land sellers offer financing options for their buyers.
What Happens in Closing
Closing is the last step in the acquisition process of buying land and happens only when the terms of the purchase contract have been satisfied. It is at this phase that the seller transfers ownership of the land to the buyer and marks the point when the latter can use the land as they please.
The closing phase can be done in either one of two ways. The parties can either close with an escrow company or directly with each other. If they engage an escrow company, this third party to the sale will hold the funds until all the stipulations of the purchase contract are met.
Come closing time, the company will then release the funds to the seller if everything goes according to the deal. If not, the company will refer back to the purchase contract to determine how the funds should be disbursed.
Engaging an escrow company is helpful to protect the funds involved in the sale but is not as common in land transactions. Instead, vacant land sellers and buyers usually transact directly because there are fewer movable properties involved compared to home selling. Land transactions are more straightforward, which means closing is faster and easier.
Staying informed about the land buying process will help you make the right decisions for your big investment. If you know what to expect with the acquisition process, you can better navigate your way through purchasing vacant land.