The Deal ExampleSeller has no loan on the property (free & clear title).Buyer wants propertyBuyer’s loan options are limited or undesireableBuyer has resources to pay payments (income)Seller prefers or will accept payments instead of the full purchase priceBuyer makes promise to pay, seller acceptsSale closes escrowBuyer makes payments
Seller Financing Math ExampleThe Variables:$500,000 Property Value$100,000 Buyer’s downpayment$400,000 Seller Carries Back Financing$40,000 Estimated Closing costs paid by seller (8%)$60,000 Net cash to seller at closing + Buyer’s promise to pay the balance of $400,000.
The SellerFrom property …to paymentowner… collector!
Benefits to Seller Income Taxes Return on Investment More Buyers Faster Transaction Closing with Less Decision-Makers Note and Trust deed are Marketable Structure Customized to Their Situation
Seller ConsiderationsInclude:• Do we want to risk owning this property again?• Do we have confidence that our loan is well-secured?• What kind of interest rate can we get on our cash in the bank?• Credibility of the Buyer?• What would we do with the cash proceeds from the sale, anyway?• Could we use a monthly payment?• How long are we willing to wait for the proceeds?• What are credit, legal, and tax implications of our decision?
Should Some Sellers Avoid Seller Financing? YesIf you have no equity or are pursuing a short sale If you need the cash immediately from the sale
Benefits to Buyer?All Terms Are NegotiableCredit Score is Less ImportantDown Payment FlexibleCan Use Other CollateralNo Cosigner NeededTerms Can be RenegotiatedClosing Cost SavingsProperty Value More Important Than Buyer’s Qualifications
The Escrow Players Private Escrow Companies, too.
What documents are required?Note (Detailed terms of repayment)Trustdeed (recorded in public domain at County Clerk Recorder’s Office)Reconveyance (when loan is paid off)Purchase Contract & Escrow InstructionsAmortization Schedule for Payments
Real Estate Broker RealityListing broker must be director with the strategy, and monitor information to parties.Manage buyer expectations- if buyer’s agentManage seller expectations- if seller’s agentBecome educated in seller financing matters and benefits to the partiesExpect transactions with inexperienced agentsHave professional resources to refer to, like CPAs and attorneys, and trust deed buyers
Real Estate Brokers (Insider Secret) In my experience, over 85% of activeagents have never participated in a seller financing transaction.
The Real Estate Brokeras seen by Buyer & Seller at Successful Close of Escrow in a Seller Finance Transaction