Buying A Farm on Contract
Smith, Robert S.
A land contract is a written agreement whereby one party agrees to convey land to another party for a certain agreed price, the title to the property to pass to the buyer, and the deed to be delivered at some future date, as stipulated in the contract. This arrangement is commonly called a purchase contract, or contract of sale. When used to convey farms, it frequently includes the sale of the personal farm property as well as the real property. Under this agreement, the buyer contracts to purchase the farm, and begins making periodic payments on the stipulated price. He has the use of the farm, and the security of ownership provided by the contract. The seller retains the deed to the farm and title to the personal property. Commonly, the buyer is given title to the personal property after paying on the contract for some time, and later may be given the deed before the full purchase price is paid. In legal terminology, while paying on the contract the buyer has equitable title to the property but the seller retains legal title. The purchase contract offers one avenue by which a young man with little capital can get possession of a going farm business. This method of transferring farm ownership has been used in all farming areas of the State, and on all types of farms. It is probably most popular in the dairy areas of central and northern New York. It has often been used successfully for the transfer of farm ownership from father to son in an equitable and businesslike manner. Its use, however, is by no means restricted to family transactions. The sale of a farm on contract is a business transaction which should be entered into with caution by both buyer and seller. Buying a farm on contract is definitely not an easy way to farm ownership for all the young men who think they would like to get started in farming. Only a limited number of farm owners wishing to sell are willing and financially able to sell on a contract. A limited number of young men are capable of paying for a farm in this way. Contract sales which can be pointed to as successful involve efficient and productive farm units transferred on fair and reasonable terms.
Charles H. Dyson School of Applied Economics and Management, Cornell University