The Buying Process

Some of the common misconceptions with purchasing land from the internet have to deal with the buying process itself.  Many individuals may become apprehensive based on the fact that the process takes a bit of time, rest assured one must be patient and understand that paperwork preparation and recording of the deed take some time.  Purchasing land isn’t merely a “click and its yours” process.   In the next section we will begin to go through the actual buying process in order to gain a better understanding of the process and approximate times associated with each step. We will pretend for a moment you are purchasing property in Port Charlotte, Florida.  Please note that these figures are more for a reference, they will vary depending on a number of factors.

The two basic ways to purchase land are to pay in full or obtain some kind of financing.  Many land sellers offer some sort of seller financing.  The terms and options will be different, but the process is generally the same.

Paying for the property in full

1. Initial verbal agreement is made between the buyer and the seller.  This verbal or email agreement is in no way a legally binding contractual agreement, it just serves as an informal agreement to get you to the next step.

2. The seller will generally ask the buyer to put down some sort of good faith deposit. This should never usually be a sum over a couple hundred dollars. A lot of sellers wish to have money in hand before they prepare any documentation. This is not uncommon business, it protects the sellers from preparing paperwork for a buyer who later will just back out. As a buyer you are less inclined to back out of a deal if you have money on the table. Be very wary if someone asks you to put a substantial amount down on the property, 10% in most cases is the absolute highest you will want to put down before any sort of contract. Anything more than that and you need to begin to wonder why the seller would ask for so much down so early in the process.

3. The seller will then prepare a legally binding contact.  The contract is a written form of the verbal agreement.  The contract must be signed by both parties in order to be legally binding. This document basically outlines all of the points of the deal, purchase price, closing date, deposit money etc. Pretty much anything that has been agreed to should be in this document! If for some reason the seller agrees to give you their 1976 Ford Pinto as part of the deal , it is imperative it be in the contract, because odds are it will not hold up unless it is in the contract!

Once the initial contract is signed, you will either go through a title company or pay the seller directly for the property.

Title Company

This method of payment is more expensive than paying the seller directly.  There are fees involved but also distinct advantages over just purchasing off of the seller direct. Below are the steps assuming a title company is involved:

1. The seller is usually responsible for turning the contract into the title company, although there is nothing that states this; it has just become common practice over time. Don’t be afraid though to speak up if you wish to use your own title company, as a buyer. The deposit you gave to the seller in the previous step should be accompanied with the contract when it is given to the title company. The title company acts as a neutral third party in the whole process.

2. Once the fully executed copy of the contract and the escrow money is given to the title company, they will take the property in question and begin a title search on the property. You see with a title insurance company you get exactly that, a title insurance policy! As with any insurance company they want to make sure everything checks out before they go and insure anything. So if they go back in the chain of title and find out one of the deeds from 3 owners ago was invalid, they WILL NOT issue a title insurance policy on the property. Rather, they will require that this deed is fixed before they will insure the property. So rest assured, when you receive your title insurance policy, your land is most likely free and clear without any issues, or else you would not have obtained the insurance! If however something does go wrong a couple years down the road, you are covered for the duration you own the property, for the amount you purchased the property for.

3. When the title commitment is complete and all of the other closing statements are complete, they will issue the documents out to both the buyer and the seller. Forms vary from title company to title company, but generally you will received a HUD statement, which basically is a breakdown of every penny involved in the transaction and where it is going. Everything must be on the HUD statement, from the fees to the title company, to the net proceeds to the seller, down to the property taxes. Many title companies will also have you sign a few documents ranging from tax proration agreements, which basically say if they made an error in the proration of the taxes, you agree to pay the portion you owe. Many of these documents are used to protect the title companies interest. And of course the deed will be a part of the closing packet, which will need to be signed by the seller, but not the buyer. Think of it like the title of a car, the seller must sign over the title to the buyer.

4. Once the balance of funds is turned in, the title company will disperse the funds to the appropriate parties and record the deed with the respective county.

5. As a buyer you will receive a copy of all of the closing statements and the title commitment right away. The commitment is not the final policy but just a commitment stating you are insured. You will receive the recorded deed and title policy 6-8 weeks after the transaction is closed. It takes some time for the deed to get recorded and sent back to the title company and then back to you. You own the property from the second you close on the property, so just because you do not have the deed in hand does not mean you do not own the property.

Paying the seller direct  

Although this method is generally cheaper than going through a title company, it also leaves you open to a lot of errors. If you persist on saving a couple bucks now to skip a title company, it may cost you 10 times that amount in the future, or potentially your entire investment! It is too easy for an uneducated buyer to purchase a piece of property, receive a deed, and only find out 3 years later, that property either does not exist or the seller never owned that parcel. Someone could hand you a deed to the Empire State Building, but if they are not the rightful owner of the Empire State Building, then you just paid handsomely for a piece of paper that otherwise means nothing! We are not saying that you should not do this method at all, but you must be extra careful that you fully trust the company you are dealing with. Even honest sellers may not know about prior title problems from 50 years in the past, and if you sell the property 10 years down the line and cannot transfer title, you may be hard pressed to find the person who sold the property to you!

1. The seller will usually request the buyer to put down a certain sum of money. Since you are NOT going through a title company, this is where you want to be EXTRA careful that you do not put a sizeable amount of money down. A simple scam is to request $1,000 in “escrow” and then never hear from the seller again! Do your homework on the parcel in question, check with the property appraiser, check public records, ask questions!

 2. Also much like going through a title company you will receive a contract for the property. Once again this state’s all of the particulars about the transaction. Remember, if you’re getting three apple pies with the property, those pies better be somewhere in the contract!

 3. This is where the transaction starts to differ from using a title company. Instead of title searches, commitments and the whole nine yards, the seller will simply sign a deed, pass it on to you. Main things that must be in the deed are the LEGAL DESCRIPTION of the property, not the property address, but the actual LEGAL description. For example if you were to purchase Charlotte County real estate from our company, a typical legal description would be Port Charlotte Section 95 PB 21 PG 23 Block 3842 Lot 2. The address can be in the deed in addition to the legal description, but not in lieu of the legal description. Addresses can change, legal descriptions cant! Also the sellers name, granting the property to the buyers name. The deed must be signed AND notarized by the seller, along with two witnesses NOT related to the seller.  If you have these things, then you have a valid deed. Usually the seller will give this to you once you pay them in full, then it will be up to you to record the deed with the proper county. You own the property the second the deed is handed to you, but to further protect your interest, record the deed.

4. To record the deed, look up the Clerk of Court for the county in which the property resides in, and ask them for the procedure to record a deed.  Many counties have different recording procedures. For example you can visit the Charlotte County Clerk of Court's Website here.

Financing the Property

1. Like buying the property cash, there is an initial verbal agreement  made between the buyer and the seller.  This verbal or email agreement is in no way a legally binding contractual agreement.

2. Once again the seller will request that the buyer place some form of deposit on the property. The only difference is that this money is usually the down payment on the property. You can however place a smaller amount than the requested down payment and chose to pay it at the final signing of the documents. Example, if your down payment is $1,000 you can negotiate instead of paying the $1,000 up front, to put up only $500 in good faith and come up with the other $500 once the deal is finalized. This will help limit your exposure and how much money you have out early on in the transaction.

3. The seller will then proceed with the agreement. It is important to note, there are 2 different ways a buyer and a seller can set up the agreement. One way is to use a contract for deed, which you can read more about below. Another way is to use a mortgage. The main difference is a contract for deed involves you having to generally make all of the payments before you receive title to the property, much like a car loan. During the time you are making payments, you can use the property as if it was your own, because it is! But the actual deed to the property will not be signed over to you until all of the payments are made for the duration of the loan. The other method is just to have a seller hold a mortgage on the property, also known as “holding paper”. This method, the deed to the property is in your name, but there is a mortgage attached to the property. This protects the seller because unless there is a satisfaction of mortgage filed then the property cannot be sold without paying the loan in full.

4. No matter whether you are doing a contract for deed or a mortgage, in the next step which ever instrument you are using is to be sent to the buyer to be executed. Requirements vary from seller to seller but generally expect to notarize either document, and payments are usually set up to begin 30-45 days after you execute the document. A lot of times a seller will request a copy of a driver’s license and some references. Once again this is another point in which you need to make sure you are dealing with a reputable company, as you are sending very private information to a company.

5. The buyer will return the instrument back to the seller. Either the seller would have sent two copies or will send a copy of the original in the mail back to the buyer for their records. The seller will then keep a copy of the contract/mortgage in their file. If you bought via a mortgage you can expect the mortgage to be filed with the clerk of court with the deed, a lot of times a seller will also record a contract for deed in the county. This helps protect the buyers interest in the property as there is public record of your interest in the said property.

6. Like purchasing in cash, if you used a mortgage to purchase the property, you can expect to get the deed back from the county in 6-8 weeks. You will be getting the deed straight from the county because this time there was no title company involved, therefore it does not have to be sent to the title company before it comes to you. If you bought via a contract for deed, you will get a copy of the contract for deed back from the county in 6-8 weeks ONLY if it was recorded. Once you pay for the property in full, you will then receive a copy of the deed from the seller for yourself to record. Sometimes you can make an agreement and receive a deed after making 75% or even 50% of the payments.

If you still are a little confused as to exactly what a contract for deed is, below is a brief summary of what a contract for deed is. We are assuming you have been involved in the purchase of a home or car loan in which a conventional mortgage does not differ much from those, so we will not explain it here.

What is a contract for deed?

Land contracts are generally used when an owner of a property will offer the financing upon the sale of real estate for the buyer (instead of relying upon bank financing). Land contracts are common throughout the United States. In some states, they are called Trust Deeds, Contract for Deed, Deeds of Trust, Notes, or (privately held) Mortgages, but they all represent the same thing: a way of selling property, where the buyer borrows from the seller rather than paying cash up front or borrowing from a bank. 

During the term of the contract, the buyer possesses and occupies the property.  As compared to bank financed transactions, a land contract can permit a buyer, who may not have access to a large down payment, to purchase a property with the future prospect of ownership when all payments have been made under a contract. This is due to the fact that most seller financed transactions have less stringent requirements including smaller down payments. Further, certain fees and costs associated with a bank loan are not required.