Seller financing opens your home up to an entirely new segment of prospective buyers, and the more buyers view your home, the quicker you will find that one qualified buyer. Specifically you will attract more buyers who don't want to or would have a problem getting a bank loan, or those who want a quicker closing or more flexible payment plans than banks offer. Such buyers include the self employed who may be great candidates but are not viewed as favorable by banks as are W-2 employees. Also those with credit blemishes, who may be going down the long road of credit repair. Real estate investors are another large group, since they may own many properties with mortgages, which makes it difficult to get another mortgage from a bank.
Banks typically take 30 days to close a loan, but with seller financing, YOU make the decision and this can be done much quicker, thereby removing a buyers contingencies faster and in effect leading to a much faster home sale. Regardless of whether you are selling FSBO (For Sale By Owner), or with a real estate agent, make sure you use "Seller Financing" in your marketing and advertising, be it in newspaper ads, flyers, or in the MLS description.
Other Ideas to Sell Your Home Faster
Number 1: PRICE IT RIGHT ! Not too high, not too low, check comparables and local agents to get the right number, if you are not getting any action after a week or two, you probably have it priced too high.
If you will be selling FSBO, use a flat rate MLS open listing. For under $500 you can get listed in MLS with no frills, check the newspaper or call agents to find one who offers this. It will give you much broader exposure and is advertising well spent. Also strongly consider offering a buyers agent commission of 2-4% depending on how quick you want to sell and how hot your local market is.
Put up lots of signs around the neighborhood, especially on weekends, hold regular open houses, prepare your house for sale, keep it neat & tidy and remove the clutter.
Sell Your Home for Full Price
1. Normally a seller will accept a lower price (below market) for an all cash no contingency fast closing.
2. It will sell for market price if the buyer needs 30-60days to close escrow and will need to qualify for a loan at a bank and do a home inspection.
3. You as a seller should charge even more (above market) if you will be giving seller financing terms, maybe 5-10% higher than Case 2, or more depending on the terms.
A Good Investment
Taking back a note can be a very good investment since you will be making interest on your money which is usually better than CD's, money market rates. In fact you can select the interest rate you want! This is especially appealing if you have no need for the money right now.
In fact it is such a good investment, that many investors buy seller carry-back notes. If you have no interest in holding a note, it is common for a home seller to carry-back a note and sell it at the same time as the home closing occurs. This is called a simultaneous closing.
We Buy Real Estate Notes and can facilitate simultaneous closings, call for more info on this. We can also help in setting the terms of the note so you get the best price.
Tax Benefits
When selling a home, under current tax law, if you lived in your home for 2 of the last 5 years, your capital gains will be exempt up to $250,000 (twice that if married). Otherwise, your capital gains will be taxed in the year that you collect the capital gains. If you will have significant taxable capital gains on your home sale, it may be very good for your tax situation to take back a seller carry-back note and spread your sale proceeds over several years, or postpone it for several years. Talk to your tax adviser.
Steps for Successful Seller Financing
1. Pull the prospective buyers credit report. You will need their permission, but always review a credit report on each borrower, it is a small expense.
2. Can they afford the home, job, income. If they cant afford it, or have a shaky job or income situation, a foreclosure will be much more likely.
3. Use a professional to draft the paperwork. Each state has many laws regarding real estate sales, contracts, and mortgages. Use an experienced attorney to draft the promissory note and mortgage or deed of trust.
4. Down payment - Sellers usually ask for 10-30% down payment to protect themselves in case the buyer stops making payments and the seller has to foreclose on the loan, and take the property back. The larger the down payment the more equity protection you as the seller have. The buyer will also consider how much money he has put down if he is in foreclosure and cant make the payments and wants to walk away from the house. Zero down is very little encouragement for a buyer, should he hit a rough patch.
5. 1st position or 2nd position - A first position note is much safer for the seller than a second position note.
6. Set the interest rate above current bank rates, to encourage the buyers to refinance down the road.
Also Read this Article: "Tips for Creating a Seller Carry-back Real Estate Note" at http://www.jmacfunding.com/articles.htm
Other Alternatives to Seller Financing
1. Land Contract / Contract to buy
2. Lease Option
This information can be useful to:
Home Sellers, Home Buyers, Note Buyers, Attorneys, Accountants, Financial Advisors, Real Estate Agents, Business Brokers.
Disclaimer:
I am not an attorney, nor a tax accountant, laws vary from state to state, and any advice implied by this paper should be checked with an attorney and/or tax adviser.
About the Author
James MacArthur is a real estate broker licensed in the State of California as well as an investor of real estate and debt instruments. We buy real estate notes and real estate contracts nationwide and make private and hard money loans on real estate in California. Feel free to contact me with any feedback, or if you are contemplating selling a real estate note.
