FSBO Land Sale - First Time Seller - Need some help

[Jimmy Nguyen]

I am selling a piece of vacant land in an urban area that can be used to build a single family home.  I got an offer on the property, but the buyer said they could do 15% down and pay off the rest in 8 months.  I am not really clear how that works out.  I'm guessing they need to build the house on the land and then use the money from the profits of the sale to then pay me the rest.  Is this standard practice?  Is there any questions I should be asking like should I get any interest for those 8 months.  Thanks for any help you can give.  

[Brad S.]

Well, it could work a few different ways, 3 of them below. 

1) Seller Carry
You can sell it to him for 15% down and YOU carry (loan him) the 85% difference. If you have no loans on it, then you just decide what terms you want (interest rate, interest only or amortized over a specific time period, etc.). 

Example 1:
Purchase price - $100k
Down Payment (from Buyer to You) - $15k
Seller Carry (You loan him your equity to purchase the house) - $85k @ 4%/year, interest only payments, balloon payment in 12 months.

2) Contract for Deed

You can sell it to him on an Installment Sale Agreement/Contract for Deed 
Basically, you are selling them the property under an agreement that they pay you in installments (at an agreed upon payment amount and terms, etc), until the total agreed upon amount is paid, then title transfers to the Buyer.

The basic difference is that in #1 title transfers immediately to the Buyer and #2, title transfers to the Buyer only when the final payment is made (at a later date). 

For you, as a Seller, #2 makes more sense and is safer. Check with an attorney for the specifics and legalities, etc.

I would ask them specifically what their specific plans are with the property. what are they planning on building, etc. You want to be assured that whatever they are going to do is going to add value to the land and not cause you an issue to deal with, should you have to take back possession of the property.

Whether and how much interest to charge them is totally up to you and what you want to make. If you want to be nice, you can just give him 8 months to pay with no interest, or you can charge him 10% annualized interest, with a balloon payment for both the remaining principal and interest in 10 months. It is totally up to you. In many cases, that type of scenario would command a higher than market price, since it is to the Buyers benefit. 

3) Partner

You can also partner with them by having them build an sfr and you supply the land, and then the completed sfr gets sold and you split the profits with them. 

Example
You contribute the land worth $100k
They build the house for a cost of $100k
The house sells for $300k
You get $100k for the land, they get $100k for the build cost and you split the $100k profit however you want (50%/50%, 60%/40%, etc)

You would just make sure to have an attorney write up a good agreement, so if they don't come through with their part, you get a partially improved lot, worth more than the original $100k value.

As to your question, All these are standard in some markets. You need to decide how desirable the land is, are you willing to sell it, would be difficult to sell now, etc. And then you craft your deal to suit your desires.