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Seller Representation
Tuesday
May032011

Contract for Deeds: Why Should a Seller Prohibit Buyer Improvements?

Do you want your buyer to determine what is an improvement?

4.5.11

By: Stephen J. Nash
Nash Law Firm
nash@nash-law.com

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A seller on a contract for deed should strongly consider limiting the buyers right to construct an improvement on the property without the approval of the seller.  Many ask why a seller would want to restrict the buyer from improving the property.  The following are three reasons why this is a good idea.

First, what a buyer considers an improvement are not always considered an improvement by the seller.  While the buyer may love the idea of having a swimming pool, the seller may say that a pool would actually make the property harder to sell if the seller has to take the property back.  A seller would not want an "improvement" that does not increase the value or marketability of the property.

Second, does the buyer have the ability to pay for the improvement?   A half built improvement is no improvement.  A fully built but unpaid improvement also is not a situation that a seller wants to deal with.

Third, who is constructing the improvement.  As a seller, the quality of the work is extremely important. Does the seller want the buyer to construct the improvements by themselves?  Does the seller want the improvement to be constructed by a contractor with a poor reputation?  Obviously, the Seller has a vested interest in the property and would only want a quality improvement.

The seller can protect his/her interest by having a clause drafted in the contract for deed that any improvement to the property must be approved in writing by the seller.  The seller than will have the opportunity to review the proposed improvement, look at whether the buyer has the money needed to build the improvement and make sure that the improvement is going to be constructed in a quality manner.  If the amount of money is high enough, the seller may want to consider having the money escrowed and the construction costs be paid out of the escrow in exchange for a sworn Construction Statement and proper Lien Waivers.