I have received several inquiries about selling on contract from horse owners who need to get rid of their surplus and still want to make a profit or at least break even. In this time of slow market conditions, supply greater than demand and many horse breeders who are dispersing their stock, one should be looking for different ways to market their product. Offering to sell on contract may work for you if you act in a business-like manner and do your research.
Selling on a contract can be profitable if you follow some simple rules. It is important to get everything in writing. You can use the sample contracts you find in books on horse businesses or procure one at your local office supply to act as a guide. You should check with your attorney about the laws in your state before you begin or have him do it for you. You would want to have the attorney review it before presenting it to the prospective buyer.
Get a credit check upfront. You should ask the prospective buyer to sign a credit application, (available at most office supply stores), so you can legally look into his references and check with his creditors. You can check their credit with one of the credit reporting bureaus using the information provided on the credit application. Credit reports are available online for a small fee.
The contract should have some very specific language in it. It should have the buyer’s address, phone number, closest relative and their address and phone number, and where the horse will be stabled, (address, city, state). The seller’s address, phone number should be in the contract.
A complete description of the horse(s) that are being sold, such as height, weight, color, age, registration number, health certificate, etc. Take photos of the animals on all four sides. Give one set of photos to the buyer and keep one set for your records.
The contract should state the down payment, length of time involved, the interest rate, who pays if you have to repossess the horse, type of insurance required by seller and a security clause.
The down payment can be any amount that you want but is typically 20 to 25%. It should be a sufficient amount to insure that the buyer has a monetary interest in the horse. A low down may move your horse faster but may work against you. The buyer may not feel responsible to make any payments beyond the down. The buyer should be made to feel that it is in his best interests to make the payments. The contract should state what happens to the down payment if the buyer does not make the payments or defaults on the contract for any reason.
Every contract should have an interest rate. You are loaning money that you could use for other things. Charge the going interest rate for loans. The buyer may pay off the loan earlier to avoid paying the interest. In addition to signing the contract, you should have the buyer sign a promissory note so there is not any doubt that he owes you money.
The contract and the promissory note should include the length of time involved in paying off the amount. It should state the interest rate, amount of payment, late charges and be signed both by the buyer and seller.
From my personal experience, a security clause or a separate page containing the security phrasing is most important. It states that you have a financial interest in the horse until he is paid for and you release your interest in the horse. Lack of such documentation means that if the buyer defaults, you have to go to court and prove that you have a financial interest in the animal. This expense is often the reason that sellers do not pursue legal action. You should not assume that you could just go and take the horse without legal documentation giving you permission to do so.
Insuring the animal is not different from insuring your vehicle. It is the buyer’s responsibility and the seller is the named beneficiary until the horse is paid for. Mortality, accidental death or anything that renders the animal unusable for the original purpose intended is to be considered. Sellers should be adamant about this as they don’t have control of the horse or it’s surroundings. If something happens to the horse, the buyer often feels that his contract to pay for the horse is over. In order to prevent this; insure the animal for the sale price. You can always reduce the amount owed the seller by the payments made and the buyer can keep the residual amount.
The contract should spell out in very specific wording what is expected as to maintenance of the horse during the course of the contract. Worming, shots, general care of the animal are items that are seldom addressed in contracts and are often the cause of seller remorse. If it is important to you, either as the seller or buyer, have it put into the contract before you take sell or take possession of the animal.
I find that sellers of horses on contract seldom file an UCC (Uniform Commercial Code) with the state when they sell the horse. An UCC effectively puts on notice to the public that you have a financial interest in the horse. The cost is small in relation to the selling price and should be done immediately upon closing the sale. If the horse is to be domiciled in another state, you should file a UCC in that state as well as the state where the sale took place.
Leases with option to buy contracts are similar to a sale contract. The same criteria should be used with the addition of the lease period and amount to be paid for the lease. The period of the lease should be reasonable. Forty five to 60 days should be sufficient for the prospective buyer to evaluate the horse and its suitability to the buyer’s purpose. The lease payments can be applied to the down payment in full or part if the option is picked up. If the option is not picked up, then all lease monies should become the property of the seller.