Although Buyer activity in the market continues to improve and recover, Sellers are finding that any means of property differentiation is very much to their advantage in a crowded marketplace. After all, if one is a Seller in today’s environment, the name of the game is achieving “top of mind” status among Buyers and Buyer agents. That is, when a Buyer (or his/her agent) is searching for property, one must land on the short list of those that the Buyer wants to see (or the agent wants to show).
Price is the obvious “go to” differentiator and is a great choice if one’s property is languishing in a sea of competitors. Price, however, is not the only game in town for increasing what I call a property’s Signal above Noise Factor.
A terrific option to consider is to offer seller financing, if possible. If a Seller owns his or her property free and clear of any loans or mortgages, he or she may allow the Buyer to pay some of the purchase price of the property in the form of a promissory note.
Every transaction is unique, and there are no hard and fast rules around how to structure a seller financing deal. Like everything in the transaction, terms are negotiable. For example, a Seller may request 20% of the purchase price as a down payment, and may finance for the Buyer the balance over a 5-year period, (with payments amortized over 30 years), at an interest rate of 6%.
Why would offering financing be of benefit to a Seller?
1. Larger Pool of Buyers. Anytime a Seller can edge out the competition by increasing the number of potential Buyers interested in his or her property, the better his or her chances are of finding a match that results in a closing. Statistics show that almost 40 percent of the American population is unable to qualify for traditional bank financing. Many Buyers now have extenuating circumstances that do not render them great candidates for a mortgage from a traditional bank. In fact, many have stellar credit and proof of income, but, for example, may own a property elsewhere that they are trying to sell. They currently cannot qualify, then, for a traditional loan, but are comfortably able to put down a percentage of the purchase price and make monthly payments.
2. Reduced Time to Closing. A closing involving a third-party conventional lender can take six to eight weeks, while closing a seller-financed transaction through a reputable title company can take as little as two to three weeks. This is due to the reduced paperwork and less restrictive Due Diligence process.
3. Interest Income. Sellers can reap the benefits of having their property continue to work for them after they sell by offering owner financing. Further, many times, the return on their money via seller financing trumps other returns gained from other investment vehicles.
Today’s real estate marketplace requires constant ingenuity, agility, and innovative approaches to garner precious attention from Buyers overwhelmed with choices. Offering owner financing offers Sellers one path to attracting Buyer focus and investment commitment.
If considering seller financing, be sure to consult with a qualified legal professional to properly document the transaction and to gain insight on appealing terms and structuring techniques. Utilizing the services of professional lawyers, real estate agents, and tax experts with experience in owner financing will help ensure your transaction will proceed smoothly toward a successful closing.