will be able to spread his capital gains profit out over time rather than receiving all of it during one year. The tax advantages are considerable. With the recent liberalization of installment sale provisions by the IRS, sellers have great leeway in how contracts are set up for maximum tax benefits. A competent tax accountant can spell out the detail.

The advantage to the buyer is that he does not need to come up with a large cash down payment. Frequently a moderate amount down will close the deal. In addition, the interest rates acceptable to sellers are usually far below conventional market rates for new financing.

In practice, a contract sale is bandied by an escrow company, which holds the pre-executed deed from the seller in favor of the buyer until the latter satisfies the terms of the contract. Generally the escrow or title company will also hold a quitclaim deed made out by the buyer in favor of the seller, which is to be released to the seller in case of default. It is in the best interests of the buyer if the escrow company is making the payments on the underlying loans before disbursing the balance to the seller. That way the buyer can be assured that his money winds up in the right places.

An alternative form of the “contract wrap” technique is the situation where a buyer takes title subject to the existing financing (agrees to take over the seller’s obligations) or goes through the formal procedure of assuming the existing financing (qualification, credit checks, transfer of title). The buyer then signs a contract with the seller for the equity above the existing loans and makes payments according to a mutually agreeable schedule. A note secured by the property itself covers the seller’s equity. The usual term for this arrangement is “owner carry back”. The term refers to the fact that the seller carries back paper to cover the unpaid equity on his property. Terms on the paper are negotiable and vary from case to case.

Technique No. 5 Raise the Price, Lower the Terms

Seller financing has already become a convention for real estate transactions in the decade of the 1980’s. Currently nearly two-thirds of all home sales involved contract sales or assumptions with owner carry-back second mortgages. Tight money conditions always foster seller financing of this type. Yet even though the concept of “seller as lender” is no longer foreign to the American way of real property transfer, there are variations to the game that give creative buyers the advantage over the competition.