Seller Financing: How It Works in Home Sales
Seller financing — when the seller gives the buyer a mortgage — can help both home buyers and sellers. Need Professional Help? Talk to a Lawyer. Zip Code: Get Started By Broderick Perkins Share on Google Plus Share on Facebook Seller financing can be a useful tool in a tight credit market. It allows sellers to move a home faster and get a sizable return on the investment. And buyers may benefit from less stringent qualifying and down payment requirements, more flexible rates, and better loan terms on a home that otherwise might be out of reach.
Sellers willing to take on the role of financier represent only a small fraction of all sellers — typically less than 10%. That’s because the deal is not without legal, financial, and logistical hurdles. But by taking the right precautions and getting professional help, sellers can reduce the inherent risks.
The Mechanics of Seller Financing In seller financing, the seller takes on the role of the lender. Instead of giving cash to the buyer, the seller extends enough credit to the buyer for the purchase price of the home, minus any down payment. The buyer and seller sign a promissory note (which contains the terms of the loan). They record a mortgage (or “deed of trust” in some states) with the local public records authority. Then the buyer pays back the loan over time, typically with interest.
These loans are often short term — for example, amortized over 30 years but with a balloon payment due in five years. The theory is that, within a few years, the home will have gained enough in value or the buyers’ financial situation will have improved enough that they can refinance with a traditional lender.
From the seller’s standpoint, the short time period is also practical — sellers can’t count on having the same life expectancy as a mortgage lending institution, nor the patience to wait around for 30 years until the loan is paid off. In addition, sellers don’t want to be exposed to the risks of extending credit longer than necessary. A seller is in the best position to offer a seller financing deal when the home is free and clear of a mortgage — that is, when the seller’s own mortgage is paid off or can, at least, be paid off using the buyer’s down payment. If the seller still has a sizable mortgage on the property, the seller’s existing lender must agree to the transaction.
In a tight credit market, risk-averse lenders are rarely willing to take on that extra risk. Types of Seller Financing Arrangements Here’s a quick look at some of the most common types of seller financing. All-inclusive mortgage. In an all-inclusive mortgage or all-inclusive trust deed (AITD), the seller carries the promissory note and mortgage for the entire balance of the home price, less any down payment. Junior mortgage. In today’s market, lenders are reluctant to finance more than 80% of a home’s value.
Sellers can potentially extend credit to buyers to make up the difference: The seller can carry a second or “junior” mortgage for the balance of the purchase price, less any down payment. In this case, the seller immediately gets the proceeds from the first mortgage from the buyer’s first mortgage lender. However, the seller’s risk in carrying a second mortgage is that he or she accepts a lower priority should the borrower default. In a foreclosure or repossession, the seller’s second, or junior, mortgage is paid only after the first mortgage lender is paid off and only if there are sufficient proceeds from the sale. Also, the bank may not agree to make a loan to someone carrying so much debt.
Land contract. Land contracts don’t pass title to the buyer, but give the buyer “equitable title,” a temporarily shared ownership. The buyer makes payments to the seller and, after the final payment, the buyer gets the deed. Lease option. The seller leases the property to the buyer for a contracted term, like an ordinary rental — except that the seller also agrees, in return for an upfront fee, to sell the property to the buyer within some specified time in the future, at agreed-upon terms (possibly including price). Some or all of the rental payments can be credited against the purchase price. Numerous variations exist on lease options.
Assumable mortgage. Assumable mortgages allow the buyer to take the seller’s place on the existing mortgage. Some FHA and VA loans, as well as conventional adjustable mortgage rate (ARM) loans, are assumable — with the bank’s approval. Getting Professional Help Both the buyer and seller will likely need an attorney or a real estate agent — perhaps both — or some other qualified professional experienced in seller financing and home transactions to write up the contract for the sale of the property, the promissory note, and any other necessary paperwork. In addition, reporting and paying taxes on a seller-financed deal can be complicated. The seller may need a financial or tax expert to provide advice and… Learn more click below
Become a listing agent How and why to make the big shift happen for you
by Tim & Julie Harris
We get lots of inquiries from agents looking for a change — they’re tired of buyer leads, tired of doing the same things hoping for a different result. One of our clients, Bart, just arrived after a decade in a referral-type coaching program, and his results are starting to drop. He doubts himself, but what’s actually happening is that his training is outdated. Think about all the change in real estate over the last decade — shouldn’t your strategy have changed along with it? Wouldn’t any policy that hasn’t changed be at risk of becoming outdated?
Charles Schwab once said, “When the going gets tough, the smart leave,” so don’t assume that what you were doing yesterday will work the same way in the future. Real estate is a constantly changing business, with seasonal shifts and a rapidly fluctuating marketplace. You cannot go through your career with blinders on, being complacent, assuming that you don’t have to change and grow along with the market. Is it time for you to leave behind what used to work but no longer produces results?
One of the biggest challenges for agents these days is the belief that they can’t become a listing agent — or a perception that they’re not “ready” to take listings. This idea is perpetuated by listing agents themselves because they don’t want the competition. Another issue is simply that many agents lack the training to take listings effectively, and many brokerages lack a good “listing agent boot camp” to get them started. This is an issue we’re addressing in detail below on Real Estate Coaching Radio: Buyer burnout: When it’s time to become a listing agent.
Why focus on listings versus buyers?
1. Think about the motivation of the client. Give me an example of a buyer who has to buy. There’s no such thing — they can always rent. One reason buyers are frustrating is because they can always back out and decide to rent for a few months if they run into any challenges. If you focus on buyers, you’re focusing on the end of the business where there is the least amount of client motivation. What about a “have to” versus a “want to” seller”? Ask yourself the question, “Is keeping the house an option?” For most sellers, it’s not. Relocating executives, divorce decrees, new children in growing families … there are lots of reasons that create “have to” sellers. When you look at seller motivation, 90 percent of the time it’s based on a “has to sell” motivation. The reason we focus on sellers — specifically “have to” sellers — is because they are motivated. As a listing agent, you must focus on “have to” sellers.
2. Listings create leverage. When you get down to it, when you have a house with the right seller, and you list that house in the MLS, it’ll sell itself. As a rule, one single listing-side transaction is almost always equal to two transactions because it puts you in contact with buyers and helps you generate spinoff business.
3. Listing agents don’t have to purchase buyer leads. When you have a listing, even if it’s not the best, you will generate buyer leads for it. You will not have to spend thousands of dollars purchasing those leads from Zillow or Trulia — they will arrive as a response to the listing you’ve already posted. 4. Being a listing agent gives you more freedom. Listing agents have regular working hours, along with more stability, more predictability and more time. You’re not running buyers around, and you’re not spending all of your time generating leads. You’re not spending all your time driving buyers around, either. You have consistent cash flow, which means you can do regular financial planning.
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Trust in your real estate broker is the foundation of home buying, selling By Ilyce R. Glink and and Samuel J. Tamkin November 29, 2013
I bought a house for a bit under $2 million in Los Altos, Calif., (about average for around here). The seller and I were both represented by (different) agents from the same local branch office.
I was encouraged by my agent to bid aggressively for the house as “several disclosure packets had gone out” and the situation was supposedly very competitive.
After my offer had been presented (and accepted), I learned that in fact my bid had been the only one presented to the sellers — there were no other competing bids presented at the offer deadline.
When I pointed this out to my agents, they said their realty office would provide me $10,000 “toward closing costs,” apparently out of the goodness of their hearts. No release of liability was required. Was I lucky to get such nice real estate brokers, or should I be considering legal action? For later tax assessment purposes, is there any precedent for claiming the house sale price was actually $10,000 less than recorded, due to this agency payment?
We hate to point this out to you, but you always need to work with a real estate broker you can trust. While we don’t know if you ever considered this real estate agent’s trust in the equation of buying a home, the issue of trust is of utmost importance. Were you lucky? We don’t know. The information you received is not unlike what we hear our readers tell us when their brokers pressure them into putting in an offer on a home or increasing the amount of an offer during negotiations.
Not all brokers will pressure their clients, but certainly some do. Your letter doesn’t say that your broker told you that other buyers were bidding on the home. You were told that other buyers were given information or packages about the home. The brokers could have given you correct information, and either you took it to mean that you were competing with others, or your broker might have intended on giving you a sense of urgency to buy the home. In either case, the real question is whether the brokers did something wrong. California law tends to pioneer issues like this, and you could seek legal advice about your situation. The real estate broker has offered to pay $10,000 toward your closing costs once you brought up this issue.
You might have found a really good broker who feels bad for you and would rather keep you happy than have you feel bad about the deal. Your broker may be entirely correct. Your broker might have thought other people would come in and bid against you and thought that this home was the best home for you at the time. Whether you’re buying a home for $2 million or $200,000, the psychology of buying is the same. If you’ve been working with a reputable and good real estate agent, that agent may believe, after working with you for some time, that the home you’re bidding on is the right home for you. If that agent has a sense of what home values are in the area, he or she may also encourage you to make an offer to avoid having you walk from the deal. For many home buyers, this process works well.
The buyers end up buying the home they like and they move on to close on it. It’s possible you wound up with the right home at the right price. You might have initially bid less if you had known no one else was bidding on it, but you might have come up in the counteroffer or even lost the home if your agent didn’t push you to buy it. It’s quite hard to say where things would have ended up and how low the seller would have gone. But if the broker did nothing wrong — and perhaps the agent didn’t do anything wrong — the agent is making a fair amount from your purchase of the home. Your agent would rather that you buy the home, be happy in the purchase and make future referrals to him or her than have you feel bad about the purchase. It’s quite hard to second-guess what happened with your deal.
You’d know better as to whether the broker had dealt fairly and well with you during your entire home-buying process. If you feel that he or she was fair with you, you might give the benefit of the doubt and move on. On the other issue of the purchase price, we don’t think that the agent’s contribution toward your closing costs will adjust the purchase price one way or the other. Your lender will still consider the contract price to be the price you are paying for the home, and all of the closing documents will show the purchase price as what is stated in the contract, without regard to your agent’s contribution of $10,000 to your closing costs.
Legendary real estate trainer, Mike Ferry released a report in August of 2014 suggesting agents pick one side of the transaction.
“I believe the skill set of an agent who works with buyers is completely different than the skill set of an agent who works on listings. Yes, they both have fundamental skills that all salespeople need … the ability to manage your time, the ability to follow up on leads, the ability to prequalify, the ability to present, etc.”
Mike Ferry went on to state:
“… The skill set of a listing agent and buyer’s agent are different from that point forward, meaning the ability to present in a fashion that causes a buyer or seller to sign a contract. … I (have thought) for years that when an agent gets their license they should have to actually declare, ‘I want to work with buyers’ or ‘I want to work with sellers.’ The majority of agents do not have the total package of skill sets to do both and, in most cases, aren’t willing to learn them because they are so vast and … if they chose one and learned it well and practiced it … they could, then, possibly in the future learn the other one.”
Real Estate coach Bernice Ross had this to say, “Sadly, the majority of agents lack the skills to do either job well. Every year hundreds of thousands of licensees fail to close a single deal. In some areas up to 80 percent of new agents fail to renew their license on their first renewal date. In fact, as early as 2001 the National Association ofRealtors was reporting that 7 percent of the agents were conducting 93 percent of the business. Even today, the best estimates indicate that 10 percent of the agents are still conducting about 90 percent of the business.” -Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books.
Contact us right now to learn about opportunities in your area.
Steve Schappert 203-994-3950
HOW TO BECOME A GREAT LISTING AGENT Written by Dirk Zeller on Thursday, 29 July 2010 7:00 pm
Close More Deals – Qualify homebuyer leads fast and free When we analyze an agent’s business, we have to look at the break down of their listing transactions versus buyer transactions. Better than 90% of agents do far more on the buyer side of the business than the listing side. Once we understand and accept that fact, the question is why. I have met few agents who wouldn’t like to dramatically increase their inventory of listings.
Most agents really want to close more business on the listings side. When you compare the listing side versus the buyer side, a couple of questions come to mind. Which one is really tougher? Is it easier to find a listing prospect or a buyer prospect? For me the choice is obvious. It is far more challenging to find a listing prospect than a buyer prospect. Buyer prospects are relatively easy to find. That is why most agents work with more buyers than sellers. They often take the leads that are presented to them, and what are presented at a higher rate are buyers. Who makes the most money in your marketplace: a great listing agent or a great buyer’s agent? Who has more time off with their family? I know that the answer in both cases, when done well, is the listing agent. In the final analysis, it’s harder to become a great listing agent because it takes more skill.
There are, in fact, a series of skills that must be mastered or perfected to become a great listing agent.
1. Discipline: To be a great listing agent takes more discipline. Nothing of consequence is ever accomplished without first developing and mastering the skill of discipline. Too many agents view discipline in a negative mindset. Discipline is really a positive skill and attribute. Webster’s defines discipline in a number of ways, but here are a few of my favorites: “an activity, exercise, or regimen that develops or improves skill”, “behavior in accord with rules of conduct”, “to bring to a state of order and obedience by training and control”. All of these describe discipline as a behavior, act of will, or action. That is exactly what discipline is in sales.
To be successful as a listing agent, we must be more disciplined in our prospecting, lead follow-up, sales process, and sales skills. There will be many days that you won’t feel like doing what is necessary to create the listings you want. It will be easier to give yourself a pass for the day. Discipline is the mindset and skill that will not allow that to happen.
2. Mastery of Scripts and Dialogues: Being able to deliver compelling arguments and reasons for a prospect’s need to meet with you or list with you separates the marginal performers from the Champion Performers. You must know what to say exactly in all situations. You also need to have the correct delivery, pauses, inflections in your voice, and persistence.
When your skills are at the Champion level, it will increase your focus. It will increase your intensity in the moment of competition. Mastery skills will lead you to better preparation and, ultimately, a better attitude. With a stronger attitude of your expected success, you will be more prepared to weather the rejection that will come your way.
3. Control of Your Schedule: Maintaining your pre-determined schedule leads to more business. The prospecting and lead follow-up segment of your business is challenging enough for most agents. The vast majority of agents are trying to work those activities somewhere in their schedule only to find that, at the end of the day, they haven’t completed them; and now they are too tired to do them regularly.
The only way to consistently secure listings is to prospect consistently. The only way prospecting can be done consistently is through time management and effective scheduling. There is no other way, so stop trying to find it or invent it.
4. Hard Work: I will be the first to clearly state that becoming a great listing agent is harder work than going along with your buyer business. I have never been one to suggest that the easy path is the right path. Too often, we select the easy path hoping we can avoid the harder trails of success. You will know you are on the road to success when things become more difficult.
The road to success is uphill, not down hill. Beware of the men trying to sell you the road to success he has found that is down hill all the way. Too often, we don’t use that little voice inside us that says, “If it sounds too good to be true, it probably is too good to be true.” Expect to work harder to become a great listing agent than a buyer’s agent. The real question is, is it worth the effort? As an Agent who ran his business both ways, I will say there is no question that being a great listing Agent is worth all the investment of time, effort, energy, practice, and skill development. In the end, the time to change is now. What is your first step? What do you need
Published on Jun 26, 2014 Timing is critical when buying a new home while selling your old one. Learning whether you can afford to carry both mortgages simultaneously will help determine how the process needs to play out. In most cases, buyers need to plan for living accommodations should the old home sell before finding and closing on the new home. Key Takeaways • If the old home sells before the new home closes, buyers can choose to stay with relatives temporarily, find a short-term rental property or negotiate a rent-back period with the buyers of the old home. • If the new and old homes are scheduled to close on the same day, it’s important to let your lender know ahead of time. • Work with your lender and real estate agent to determine key dates and deadlines to ensure one transaction doesn’t hold up the other. Videos are for informational purposes only and represent the opinions of the speakers. Chase does not warrant the completeness, timeliness or accuracy of the content. ______________________________________________________ VIDEO TRANSCRIPT Jenny: This is our second home. So our first house we lived in for… Eric: Seven years. Jenny: Yeah, seven years. Eric: We kind of out grew the house. Amy: If a homeowner is in the process of wanting to sell their home, and then purchase another property, the first thing I do of course is tell them talk to your lender because they need to determine and figure out are they able to purchase without selling. Most aren’t willing or able to do that. Jenny: We had two options: we could find the new house and move into a new house or we could we were thinking about finding a place rent for a few months. Until we found the right house. Eric: And then we found this house. Called a realtor to make it happen. Amy: So we just got busy. We started figuring out what their house would sell for. Jenny: We had to get our old house ready. Kinda had to, we had a lot of stuff. Amy: I think I also had a stager meet them to just go room by room and boss them around a little bit. Telling them how to get the house ready to sell. Just de-cluttering. Putting things into storage. Doing any minor repairs or maintenance work at the house that needed to be done. Eric: To sell the house there was a few bumps you could say. We actually sold our house four days prior to us buying this house. Greg: There is nothing more stressful then a consumer or anybody that’s selling a home and on the same day they’re having to close on their new home. I call that stacked. You know, there stacked transactions. Amy: Clients get very nervous when they start to talk about the realities of how do they make that happen. How is the timing going to work? Greg: We do our very best to stay on top of our closings where if we’re ten day out from that closing, and especially if it’s a stacked closing like that, we’re going to do all hands on deck. Eric: In working with the finance guy also helped us determining when was the last day we could get paperwork in. They were willing to kind of speed things up. Amy: And they were just wonderful. They worked so hard. They did everything right and that’s really important when you’re trying to get your house ready to put on the market.
“In dual agency, the agent represents two parties in the same transaction. Dual agency requires equal loyalty to two different principals at the same time – a high burden that means neither principal has the full, undivided loyalty of the agent. Dual agency arises, for example, when a real estate broker is the agent of both the seller and the buyer. The broker’s sales associates as agents of the broker, also have fiduciary or statutory responsibilities to the same principals. The challenge is to fulfill these fiduciary obligations to one principal without compromising the interests of the other. While practical methods of ensuring fairness and equal representation may exist, it should be noted that a dual agent can never fully represent either party’s interests because the duty of undivided loyalty cannot be shown to both principals at the same time. Similarly, it is impossible to maintain both confidentiality and full disclosure to parties whose interests are in opposition.
Because of the risks inherent in dual agency – ranging from conflicts of interest to outright abuse of trust — the practice is illegal in some states. In those states where dual agency is permitted, all parties must consent to the arrangement, usually (and always preferably) in writing.” – Modern Real Estate Practice 19th Edition Dearborn Real Estate Education
Local Agents and Brokers Laughed At Me, when I said I was going to exclusively represent buyers. But then NBC put me on TV for free through out the tri-state area and Woman’s Day Magazine recommended to home buyers across the country to call me…I smiled and laughed alot!
“Sellers Trust is founded on one simple principal, make a promise and keep it.” – Steve Schappert. The big advantage to agents is the ability to stand above the crowd, by doing the right thing and making more money by specializing. Regardless of your market your competition is typically hundreds, if not thousands of other agents. You can be the expert and take a stand in your community.
Published on Mar 9, 2015
This week mike is talks about how to stay highly productive.
Mike says, “Start every day at zero, get up in the morning and pretend that you have no, leads, listings, appointments and money, make yourself go into a hungry and driven mindset.”
Raise your level of enthusiasm and commit to increase your productivity each day.
For more information on real estate coaching and training go to www.MikeFerry.com or call us at 800-448-0647.
If you’re on the selling side of today’s real estate market, these tips will help you sell your house, stat!
By Tara-Nicholle Nelson from readersdigest.com
We’ve all heard about how “bad” the real estate market is. But what’s bad for sellers can be good for buyers, and these days, savvy buyers are out in spades trying to take advantage of the buyer’s market. Here are 13 thing you can do to help sell your house.
1. Audit your agent’s online marketing. 92% of homebuyers start their house hunt online, and they will never even get in the car to come see your home if the online listings aren’t compelling. In real estate, compelling means pictures! A study by Trulia.com shows that listings with more than 6 pictures are twice as likely to be viewed by buyers as listings that had fewer than 6 pictures.
2. Post a video love letter about your home on YouTube. Get a $125 FlipCam and walk through your home AND your neighborhood, telling prospective buyers about the best bits – what your family loved about the house, your favorite bakery or coffee shop that you frequented on Saturday mornings, etc. Buyers like to know that a home was well-loved, and it helps them visualize living a great life there, too.
3. Let your neighbors choose their neighbors. If you belong to neighborhood online message boards or email lists, send a link to your home’s online listing to your neighbors. Also, invite your neighbors to your open house – turn it into a block party. That creates opportunities for your neighbors to sell the neighborhood to prospective buyers and for your neighbors to invite house hunters they know who have always wanted to live in the area.