I’ve been getting emails from sellers anxious to sell their properties.  It usually comes down to price in situations like this, but what about the people who don’t want to lower their price any further, and in some cases have already made lots of improvements to their property. What’s left? You can give a cash bonus to the buyer or the buyer’s agent, but if you really want to stand out, offer seller financing.

Buyers can save several thousand dollars in lender fees with seller financing, and on the seller’s side, seller financing has always been a way to get a higher rate of return for your investment. If you put $100,000 in a savings account, you’d earn about 5 percent. But if a buyer sets up a 15-year mortgage at 6.5 percent, you’ll earn a higher rate of return on your money. And, since the buyer will be paying you principal and interest, you’ll have a very healthy cash flow.

If you’re going to consider seller financing, there are several different types from which to choose:

Purchase money mortgage (PMM):
A PMM is a standard mortgage in which the buyer makes monthly principal and interest payments according to an amortization schedule. If you’re financing the entire amount of the purchase, you are the primary lender. Only a federal income tax lien or a real estate lien (for unpaid real estate taxes) would take a higher priority over the primary lender.
 
Articles of Agreement:
Also known as an “installment sale” or “installment purchase,” the net effect is that you’re allowing the buyer to purchase the property a little bit at a time. The buyer receives an interest in the house, but you hold title until the buyer has paid off the loan in full.

Second mortgage or home equity loan:
Often, a first-time buyer can qualify for a loan but doesn’t have enough cash for the down payment required. So you make up the difference between the first loan and the sales price of the home.
 
Buying down the rate on the buyer’s mortgage:
While this isn’t seller financing, it is something you might decide to offer in order to increase the odds that you’ll sell your home quickly. If the interest rate on the buyer’s loan is 7 percent, and you want to buy down the interest rate for three years, you would pay the difference in interest between what the buyer would owe at 7 percent and whatever interest rate you think would be meaningful. Often, the interest rate in a buy-down situation would be several percentage points less than the going rate. So, you might buy down what would normally be a 7 percent interest rate to 4 percent for three years, or you might step it up and buy down the rate to 4 percent for year 1, 5 percent for year 2, and 6 percent for year 3. In the fourth year of the loan, the rate would go back to 7 percent.

This week’s Real Estate Insight:

If you decide to offer a purchase money mortgage or sell your home through an Articles of Agreement, or installment sale, you must have paid off all or most of your mortgage If you haven’t, your lender could find out and call your mortgage, which means you’ll have to pay off your loan in full immediately or risk having your home go into foreclosure. In your mortgage is a “due on sale” clause, which means that the entire mortgage must be repaid if the property changes hands. And most importantly, if you’re going to offer any form of seller financing, be sure to work with a competent real estate attorney who can draft financing documents that will protect you.

Anywhere I see people, at parties, shopping or out to lunch with friends, I’m constantly barraged with questions about the real estate market. Everybody wants to know where the market is heading, whether it is a good market or a bad market.

I know a lot of buyers who think this is the best market ever. And they’re right. Prices are coming down and deals are being made, which means sellers are selling. Buyers and sellers need to employ different strategies.

No single marketing method is best, so smart sellers employ a number of marketing techniques in hopes that one will attract that motivated buyer. Buyers are getting concessions that were impossible to hope for last year. Interest rates are attractive, too, and new loan programs are being rolled out that favor first-time home buyers. If you’re buying in this real estate market, it could definitely pay to consider these market strategies.

1: DISCOVER WHY THE SELLER IS SELLING:

It’s critical for smart buyers to know the seller’s true motivation for selling. If the seller asks, “Why do you want to know why I’m selling?” the best answer is “Because I want to make you a purchase offer that will meet your needs.”

In other words, negotiate with sellers who really want to sell. Signals of serious motivation to sell include job transfer, unemployment, pending foreclosure, divorce, birth or death in the family, financial problems, purchase of another home, and retirement.

A good question for a buyer to ask the seller (and/or the neighbors) is, “What do you like best and least about this home?” Then keep quiet and let the other party talk. Listen carefully to discover if that home is right or wrong for you.

When a seller has the attitude, “If I can get my price, I’ll sell; if not, I won’t sell,” it’s usually a waste of the buyer’s and agent’s time to negotiate with that seller unless the asking price is very reasonable.

However, just to be sure, if you want to buy a particular house, make a realistic written purchase offer anyway and see what happens. Some sellers act like they don’t really care, but they do. When the seller makes a counteroffer (as all sellers should do in today’s slow buyer’s market), that indicates at least some sales motivation.

2: FIND OUT THE SELLER’S PURCHASE PRICE: 

Before making a purchase offer, ask how much the seller paid for the home and when it was purchased. If it was bought last year at the top of the market, there is probably zero room for negotiation unless the seller has a very high motivation to sell.

However, if the home was bought more than 10 years ago, there is probably lots of seller equity with which to negotiate.

If the purchase price can’t be determined from the public records, and the seller refuses to tell you their purchase price, an experienced real estate agent can usually make a reasonably accurate estimate based on the purchase date.
 
For this reason, it is important for home buyers to always work with a buyer’s agent who knows the community.

3: FIND OUT THE SELLER’S DEADLINE TO SELL:

When a seller is motivated by a deadline, such as a job transfer date or the scheduled closing date on another home, such a deadline can be powerful motivator.
 
However, if the seller has no specific deadline to sell, negotiation with that unmotivated seller can be very difficult.

4: BEFORE MAKING A PURCHASE OFFER, ASK YOUR BUYER’S AGENT TO PREPARE A COMPARATIVE MARKET ANALYSIS (CMA):

The most important reason home buyers need their own buyer’s agent is, before a purchase offer is made, the buyer’s agent should prepare a CMA.
 
Although the seller’s agent probably prepared a CMA for the seller at the time of listing, the local home sales market might have shifted in the several months since then so the buyer’s up-to-date CMA is a very important negotiation tool. It shows why the buyer’s purchase offer is reasonable and should be accepted (or at least counter offered) by the seller.

This Week’s Real Estate Insight:

Conditions are poised to give buyers more homes at lower prices as motivated sellers are more open to negotiations. Buyers don’t quite yet hold all the cards, but with a little strategy, there are great deals to be made.