Tag: purchase agreement

Seller financing of land in Nova ScotiaOne of the most common questions I hear is “How does the seller financing work?” When it comes to purchasing land in Nova Scotia, particularly in rural or undeveloped areas, buyers may find traditional bank financing challenging to secure. This is where seller financing comes in as a useful alternative. In a seller-financed land deal, the seller essentially becomes the lender, allowing the buyer to pay for the land over time, directly to the seller, rather than securing a loan from a bank. 

How does Seller Financing Work?

Here’s how seller financing (sometimes called owner financing) typically works:

  • Agreement on Terms: The buyer and seller negotiate terms such as the interest rate, loan term, and any down payment required. These terms can be more flexible than those offered by traditional lenders.
  • Legal Documentation: A Purchase & Sale Agreement is created, outlining the buyer’s obligation to pay the agreed-upon amount, the loan term, the interest rate, and any conditions on their use of the land during the loan term. This document is legally binding, and both parties can involve legal representation to ensure everything is in order. You can find a sample purchase and sale agreement here.
  • Title Transfer: Typically the seller will retain the title to the property until the loan is paid off, at which point the deed is transferred to the buyer with the help of a lawyer. 

Seller financing can be structured in various ways, depending on the needs of both parties. In my case, I keep it simple:

  • I look at the current interest rates for the big banks and set a similar interest rate for the loan
  • I share a loan calculator (like this one from Lari.ca or this one from The Globe & Mail) with the potential buyer so they can look at the cost of payments over multiple timeframes (3 years, 5 years, etc.). Once they find a loan duration and a monthly payment amount that suits them, that gets recorded in the purchase and sale agreement
  • An initial downpayment is sometimes included
  • The agreement includes the ability for the buyer to make additional payments at any time in order to reduce the loan term
  • All payments are recorded in a shared online document, which also functions as a receipt for the buyer

Advantages of Seller Financing

Seller financing offers a range of benefits for both buyers and sellers, making it a flexible and appealing option for land transactions in Nova Scotia.

  1. Easier Qualification Process One of the biggest advantages of seller financing is that it’s often easier to qualify for than traditional bank loans. Buyers who may have difficulty securing financing through a bank—whether due to a lack of credit history, unconventional income, or other reasons—can still purchase land through a seller-financed deal. 
  2. Flexible Terms Seller financing allows for more customized terms than conventional loans. The buyer and seller can negotiate the interest rate, the size of the down payment, the length of the loan, and the repayment schedule. This flexibility can be particularly helpful for buyers who need creative solutions to make the purchase feasible. For example, a buyer and seller may agree on a smaller down payment or a longer repayment period, making the purchase more manageable for the buyer.
  3. Faster Transaction Because seller financing bypasses the need for bank involvement, the transaction process can be significantly faster. There’s no need to wait for bank approvals or jump through the hoops required by traditional mortgage providers. Once both parties agree on the terms, the deal can close quickly, allowing the buyer to take possession of the land without any delay. 
  4. Potential for Lower Purchase Costs By arranging a financial agreement directly between buyer and seller, the buyer can avoid paying realtor fees, resulting in savings that are typically reflected in the asking price of the land.

How to Structure a Seller Financing Deal for Land

When structuring a seller-financed deal for land in Nova Scotia, there are a few key components to consider. 

  1. Down Payment In some cases, sellers may ask for a down payment as a show of commitment from the buyer. This is negotiated as part of the Purchase and Sale agreement.
  2. Interest Rates In a seller-financed deal, the interest rate is often negotiable. It may be higher than the rate offered by traditional lenders because the seller is taking on more risk by financing the deal directly. However, with negotiation, buyers and sellers can arrive at a rate that is fair for both parties. Interest rates in seller-financed agreements can vary greatly, and they may be influenced by factors such as the size of the down payment and the length of the loan term.
  3. Term Lengths and Repayment Plans Seller-financed land deals often have shorter terms than traditional mortgages. Five years is a common choice, but it could certainly be more or less. Most seller financing agreements involve monthly payments of both principal and interest, similar to a traditional loan.

Seller Financing: Risks and Considerations

While seller financing offers flexibility and advantages, it’s important for both buyers and sellers to be aware of the risks involved.

For Buyers:

  • Higher Interest Rates: Interest rates in seller-financed deals may be higher than those offered by traditional lenders, making the purchase more expensive over time.
  • Default Risk: Most agreements will include wording about how missed payments are handled. That could involve additional interest costs for the buyer. In addition, many agreements will stipulate that if a payment is not received over a specific period (say, 6 months), the agreement is null and void. If you’ve paid off half of the property cost but can no longer make payments, you most definitely won’t own half the land – you’ll have nothing.
  • Lack of Traditional Protections: Without the involvement of a bank, some of the safeguards that typically protect buyers in traditional financing arrangements, such as a thorough vetting of the property through an appraisal process, may not be as rigorous.

For Sellers:

  • Misuse of Land: While a purchase and sale agreement typically includes provisions for how the buyer can use the land during the loan term, it is difficult to cover every scenario. Actions such as harvesting timber, or dumping waste on your land, can reduce the value of your property.
  • Management of Payments: Unlike a bank, the seller is responsible for managing and collecting payments over the course of the loan term.
  • Legal Considerations: A poorly structured agreement could leave the seller vulnerable to legal disputes or financial loss. It’s crucial to draft a well-constructed contract.

How to Find Seller Financing Opportunities in Nova Scotia

Seller financing opportunities may not always be advertised, so it’s important to know where to look and how to approach landowners who might be open to this arrangement.

  1. Working with Real Estate Agents Many real estate agents in Nova Scotia are familiar with seller financing and can help connect buyers with sellers who are open to this option. It’s a good idea to work with an agent who specializes in land transactions, as they will have the most relevant contacts and experience. If you are selling a property via MLS, you can have your realtor include details of seller financing options in the listing. You might need to persist on this point – some realtors very much prefer the ease and speed of the traditional lump-sum cheque that closes the deal.
  2. Online Land Listings and Classifieds Several online platforms specialize in land sales and may offer filtering options to find seller-financed properties. Websites like Kijiji, Facebook groups such as ‘LAND for sale in Nova Scotia’, private land sale websites, or even specialized real estate platforms for rural properties can be helpful.

Additional Costs with Seller Financing

There’s no magic method for avoiding the standard closing costs paid to Nova Scotia real estate lawyers for a real estate transaction. Having the deed transferred and registered involves a cost for both the buyer and seller. In my experience this ranges from $400 to $900 for the seller, and typically costs a bit less for the buyer. Here is what the lawyer provides: Preparation of warranty deed, preparing deed transfer tax affidavit, forwarding Warranty Deed to Land Registry Office, receipt of filed deed from Land Registry Office and delivery of report to client.

Example of a Seller Financing Deal

In this scenario, a buyer wants to purchase a 50-acre plot of undeveloped land in Cape Breton for $80,000:

  • Down Payment: The buyer negotiates a 10% down payment of $8,000 with the seller ($8,000).
  • Interest Rate: They agree on an interest rate of 6%.
  • Loan Term: The loan is structured over 7 years, with monthly payments of principal and interest. The monthly payment amount is $1,051.82
  • Cost of Borrowing: Over the 7-year term, the buyer will pay $16,352.54 in interest. That’s significant, but they will benefit from buying now in two ways: a) they’ve locked in the purchase price and any appreciation over the seven years will add to the value of their investment, and b) they can use the land immediately within the boundaries of their agreement
  • Legal Documents: A Purchase and Sale Agreement is drafted and reviewed by lawyers for each party. Once all payments are completed, the deed is transferred to the buyer. The buyer may use the land during the loan term as long as it’s in accordance to the terms of the agreement. 

This arrangement allows the buyer to purchase the land without going through traditional financing, while the seller benefits from earning interest on the loan over time.

Seller financing is an excellent option for buyers looking to purchase land in Nova Scotia. It provides flexibility, faster transactions, and an opportunity for buyers who may not qualify for traditional bank loans. However, both parties must carefully structure the deal, be aware of the risks involved, and seek proper legal and tax advice to ensure the transaction is successful and beneficial for both sides.

 

Dont forget! While seller financing is a useful means for obtaining funding for a land purchase in Nova Scotia, you’ll still want to follow all of the best practices on this site for finding high-value land. That includes topics such as: 

 

Since launching BuyLandNS.ca, I’ve had several people reach out to me for help in the process of either buying or selling plots of land in Nova Scotia. Most of my advice is captured in the buyer’s guide to buying land in Nova Scotia, but I do get questions on things it doesn’t cover. Many times people are interested in the process of buying land through a private sale agreement between the two parties. There’s good reason for private sales:

  • The seller can usually save at minimum $3,000 in realtor commissions, savings they can choose to share with the buyer through a lower purchase price  
  • The buyer and seller might choose to arrange seller financing, where the buyer pays for the land in installments over time according to the terms of the purchase and sale agreement
  • Vacant land sales are often less complicated than commercial or residential buildings, requiring less of the professional support and advice that a realtor provides. 

I will say this: realtors can offer amazing value on land transactions. I’ve sold both privately and through realtors. Realtors can bring a lot of wisdom to the process, deal with a lot of inquiries from prospective buyers, and potentially get you top dollar for your land through the great reach of MLS listings which appear on sites like Viewpoint.ca and Remaxnova.

If you feel a private sale is right for you, there’s some things you should be prepared to do:

  1. Have a good Nova Scotia real estate lawyer available to review your documents and to complete the closing process. There are steps like deed transfer and title registration that you need a lawyer to help with. In my experience this costs about $600-800 for a typical parcel of land. Also, if your property needs to be migrated, you’ll need their help for that prior to sale – add another $1,200-$1,400 to your selling cost.
  2. Document your sales terms carefully in a Land Purchase & Sale Agreement. This is the most important document and you want to be sure it’s defensible if the deal goes awry. I worked with a good lawyer to create a purchase and sale agreement. On the next property I sold, I added additional terms based on things I’d learned. I’ve included a generic version of that Land Purchase & Sale Agreement below. It also includes a very simple payment schedule for seller financing.

IMPORTANT NOTE: I am sharing this document as a sample only. I am not a lawyer – in fact, 10 out of 10 lawyers agree I am not a lawyer 🙂  This post and the sample purchase and sale agreement do not constitute legal advice, which only your  Nova Scotia real estate lawyer can give.

SAMPLE PURCHASE AND SALE AGREEMENT – VACANT LAND IN NOVA SCOTIA

THIS PURCHASE & SALE AGREEMENT dated the XXth day of (Month), (Year) 

BETWEEN: 

(SELLER’S NAME), of (CITY), in the Province of (PROVINCE) 

(hereinafter called the “Vendor”) 

– and – 

(BUYER’S NAME), of (CITY), in the Province of  (PROVINCE) 

(hereinafter called the “Purchaser”) 

WHEREAS the Vendor is the Owner in fee simple of certain real property known as ADDRESS – LOCATION, also known as PID (insert #) (hereinafter  called the “Property”); 

AND WHEREAS the Purchaser wishes to purchase the Property from the Vendor on the terms and  conditions contained herein (hereinafter called the “Agreement”). 

NOW THIS AGREEMENT WITNESSETH as follows: 

  1. The Vendor agrees to sell to the Purchaser and the Purchaser agrees to purchase from the Vendor  the Property for the sum of XXXX Thousand Dollars ($XXXX.00) of lawful money of  Canada (hereinafter called the “Purchase Price”): 

(a) The Purchaser agrees to pay the Purchase Price for the Property in three separate installments  directly to the Vendor as follows: 

  1. First payment: $XXXX.00 upon signing of this agreement by the Purchaser; 
  2. Second payment: $XXXX within thirty (30) days of the signing of this  agreement by the Purchaser; 

iii. Third and final payment: $XXXX.00 within ninety (90) days of the signing of  this agreement by the Purchaser; 

(b) In the event that the Purchaser fails to provide any of the above-mentioned payments on or  before the deadlines set out therein, the Purchaser shall incur a five percent (5%) interest  penalty on all late payments, calculated monthly. 

(c) In the event that the Purchaser fails to provide the minimum amount of $(FIRST PAYMENT AMOUNT) by  (DATE), (YEAR), then this agreement is null and void. 

(d) The payments made by the Purchaser shall be non-refundable at the absolute discretion of the  Vendor in the event that the Purchaser does not complete the Agreement. 

(e) The payments made by the Purchaser shall be made to the Vendor by method of electronic  transfer (e-transfer), bank draft or wire order to the Vendor. 

  1. Upon the signing of this Agreement and the first payment referred to in Clause 1(a)(i), the  Purchaser shall have the right to enter upon the property to inspect the Property for building or  logging. 
  2. The Purchaser shall have no right to conduct any operations, including logging or obtaining  building permits, on the Property until the Closing Date, unless approved in writing by the  Vendor.  
  3. This Agreement shall be completed on or before ninety (90) days of the signing of this agreement by  the Purchaser (hereinafter called the “Closing Date”), or any other date as agreed in writing between the parties in the event that the Purchaser fails to provide payments in accordance with 1(a) or 1(c). 
  4. The Vendor and the Purchaser agree that they are each responsible for their own separate legal  fees and disbursements. 
  5. The Vendor agrees to migrate the Title to the Property from the Registry System under the Registry  Act to the Land Registration System under the Land Registration Act prior to the Closing Date.  However, if any valid objection to title is made in writing to the Vendor, which the Vendor is  unable or unwilling to remove, and which the Purchaser will not waive, this Agreement shall be  null and void.  
  6. The Property is vacant land and is being purchased as is/where is with the Vendor making no warranties or representations to the Purchaser, except those referred to in this Agreement. 
  7. The Vendor is to furnish the Purchaser with the applicable PIDs for the Property, after receipt  whereof the Purchaser is allowed seven (7) days from the date thereof to investigate the title to the  Property, which they shall do at their own expense. If within that time any valid objection to title is  made in writing to the Vendor, which the Vendor shall be unable or unwilling to remove and which  the Purchaser will not waive, this Agreement shall be null and void. 
  8. The conveyance of the Property which is subject of this Agreement shall be by Warranty Deed,  drawn at the expense of the Vendor, to be delivered on payment of the purchase price on the Closing  Date. The Property is to be conveyed free from other encumbrances, except as to any easements,  registered restrictions or covenants that affect the Property and do not materially affect the enjoyment  of the Property. 
  9. All lands, buildings, fixtures and all other Property being purchased hereby, shall be and remain at  the risk of the Vendor. Pending completion of the sale, the Vendor will hold all insurance policies  and the proceeds thereof in trust for the parties as their interests may appear and in event of damage  to the said Property, the Purchaser may either have the proceeds of the insurance and complete the  purchase or may cancel the Agreement and have all monies theretofore paid returned without  interest. 
  10. Interest, rentals, taxes, rates on the premises and assessments are to be adjusted to the date of closing. The cost of municipal improvements, (including, but without limiting the generality of the phrase  “municipal improvements”, betterment charges and capital charges for utility or municipal services)  completed as of the date of this Agreement, are to be paid by the Vendor on or before the Closing  Date, unless otherwise stated. 
  11. Except as otherwise provided in this Agreement, if this transaction is subject to the Harmonized  Sales Tax imposed in the Province of Nova Scotia, and hereafter referred to as “HST”, then such HST shall be included in the Purchase Price and will be remitted in accordance with the applicable  legislation. If this transaction is not subject to HST, the Vendor agrees to provide, on or before  closing, to the Purchaser, a certificate in a form reasonably satisfactory to the Purchaser, certifying  that the transaction is not subject to HST. 
  12. Any tender of documents to be delivered or money payable hereunder may be made upon the Vendor  or the Purchaser or any party acting for them and money to be legal tender. 
  13. All warranties and representations contained in this Agreement shall survive the closing unless  otherwise stated in this Agreement. 
  14. Time shall in all respects be of the essence in the Agreement. In the event of a written Agreement of  extension, time shall continue to be of the essence. 
  15. This Agreement shall enure the benefit of and be binding upon the parties hereto, their respective  heirs, executors, administrators, successors and assigns. 
  16. This Agreement may be executed in counterparts, each of which when delivered will be deemed to  be an original and all of which together will constitute one and the same document and each party  will be entitled to rely on delivery by facsimile machine or by scanned email of an executed copy of  this Agreement as proof that the original has been executed by a party in the manner shown on the  faxed or emailed copy so as to create a valid and binding Agreement among the parties whose  execution is so evidenced as if such parties had delivered an originally executed Agreement in the  manner shown on the faxed or emailed copy. 
  17. This Agreement is to be read with all changes of gender or number required of the context. 

DATED at (CITY), in the Province of (PROVINCE) on the XXth day of (MONTH), (YEAR). 

SIGNED, SEALED AND DELIVERED 

in the presence of: 

(SIGNATURE)

________________________________________ Witness to (Seller) SELLER’S NAME

DATED at _________________, in the Province of (PROVINCE) on the ____ day of (MONTH), (YEAR). 

SIGNED, SEALED AND DELIVERED  in the presence of: _____________________ ___________________________________ Witness to (NAME) 

 

I hope you’ve found this information helpful. If you’re looking for more on buying plots of land for sale in Nova Scotia, check out our buyer’s guide.