Understanding Purchase Agreements with Seller Financing

Seller financing is a popular alternative for buyers who may not qualify for traditional bank loans. In this arrangement, the seller acts as the lender, allowing the buyer to make payments over time directly to them. Below are three diverse examples of purchase agreements that incorporate seller financing, illustrating different contexts and use cases.

Example 1: Residential Property Purchase Agreement with Seller Financing

In this scenario, a couple is purchasing their first home. Due to various factors, they prefer seller financing to avoid the lengthy bank approval process.

The following is an example of how such an agreement might be structured:

Buyer: John and Mary Smith
Seller: Jane Doe
Property Address: 123 Maple Street, Springfield, IL 62701
Purchase Price: $250,000
Down Payment: $25,000 (10% of the purchase price)
Financed Amount: $225,000
Interest Rate: 5% per annum
Term Length: 30 years
Monthly Payment: $1,207.85

The buyer agrees to make monthly payments of $1,207.85 over a 30-year term, with the seller holding the note. The contract specifies that if the buyer defaults on payments, the seller has the right to reclaim the property.

Notes:

• This agreement includes a provision for property taxes and insurance to be paid by the seller until the buyer secures traditional financing.
• A due-on-sale clause is included, allowing the seller to call the loan if the buyer sells the property without the seller’s consent.

Example 2: Business Purchase Agreement with Seller Financing

A small business owner is selling their local bakery. The buyer, a longtime employee, is looking to take over without the upfront capital required for a bank loan.

Here’s how their purchase agreement could be structured:

Buyer: Sarah Johnson
Seller: Michael Brown
Business Name: Brown’s Bakery
Purchase Price: $150,000
Down Payment: $30,000 (20% of the purchase price)
Financed Amount: $120,000
Interest Rate: 6% per annum
Term Length: 5 years
Monthly Payment: $2,330.30

The buyer will pay the seller $2,330.30 each month for five years, with the seller retaining a security interest in the business assets until paid in full. The agreement includes a personal guaranty from the buyer.

Notes:

• The seller agrees to provide training and support to the buyer during the transition period.
• There is a clause stating that if the buyer defaults, the seller may reclaim the business assets without going through court.

Example 3: Agricultural Land Purchase Agreement with Seller Financing

A young farmer is looking to purchase a piece of agricultural land. Traditional financing options are limited, so the seller agrees to provide financing.

The purchase agreement is as follows:

Buyer: Tom Wilson
Seller: Emily Miller
Property Address: 456 Oak Avenue, Ruralville, IA 50001
Purchase Price: $400,000
Down Payment: $40,000 (10% of the purchase price)
Financed Amount: $360,000
Interest Rate: 4.5% per annum
Term Length: 20 years
Monthly Payment: $2,266.77

The buyer will make monthly payments of $2,266.77 for twenty years, with the seller retaining a lien on the land as collateral. The contract specifies the use of the land for agricultural purposes only.

Notes:

• The agreement includes a clause that allows the buyer to prepay the loan without penalty.
• There is an environmental assessment requirement included to ensure sustainable use of the land.

These examples highlight the flexibility of seller financing in different contexts, providing both buyers and sellers with options to facilitate transactions that might otherwise be hindered by traditional financing limitations.