Tennessee Realtor State Practice Exam

When two parties agree that the seller will finance part of the purchase price, what type of agreement is this?

1. A mortgage

2. A purchase agreement

3. A land contract

4. A lease-option

The correct answer is: A land contract

When two parties agree that the seller will finance part of the purchase price, this typically involves a land contract. A land contract is a specific type of agreement used in real estate transactions where the seller retains the title to the property until the buyer has paid the full purchase price, usually through installment payments. This arrangement allows the buyer to take possession of the property and start using it, while the seller provides financing for some or all of the purchase price. The land contract serves as a legal mechanism that protects both parties: the seller has a secure interest in the property until the buyer fulfills their payment obligations, while the buyer gains the benefits of property ownership without needing to secure a traditional mortgage from a bank. This makes land contracts particularly appealing in situations where buyers may struggle to obtain conventional financing, offering a flexible solution for real estate transactions. In contrast, a mortgage is typically a separate agreement between a buyer and a lender, where the lender provides funds to purchase a property and retains a security interest. A purchase agreement is simply a contract that outlines the terms of sale, and a lease-option refers to a lease agreement that provides the tenant the option to purchase the property later.