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Unless paying cash, most buyers go
through the traditional methods of
getting financing from a lending
institution, and have some money either
saved or made from the sale of a prior
home to use as a down payment. Once a
buyer has made an offer that the seller
has accepted, the buyer typically needs
to get a loan for the agreed upon price
of the property.
An important item that a seller
and/or their Realtor ® should try to
determine is whether the buyer has been
pre-qualified for the price of the
property they are considering. It's not
uncommon for buyers to look at
properties out of their price range.
This can waste everyone's time, and
possibly even influence the likelihood
of other offers being made by other
prospective buyers. Although a buyer is
typically obliged to furnish the seller
with some form of “conditional loan
approval” early in the contractual
process, sometimes an early
determination of affordability (actually
an implied responsibility of the buyer's
agent) can help avoid lost time and
marketing opportunity. In any case, a
buyer's ability to qualify for financing
the purchase is critical to the seller's
interests.
There are alternative methods to
homeowners who are anxious to sell, who
are not in need of all of the proceeds
from the sale, and who are willing to
consider seller financing. This type of
financing can be done by taking on a
second mortgage, or even by financing
the entire purchase if the seller owns
the house free and clear.
Seller financing differs from
traditional loans in that the seller
does not give the buyer cash to complete
the purchase. In essence, the seller
becomes the lending institution for the
buyer. This loan involves extending
credit against the purchase price of the
property while the buyer executes a
promissory note and trust deed in the
seller's favor. As in loans from lending
institutions, a deed to the property is
created, but in seller financing, the
seller holds the deed, until the buyer
has made the last payment.
When the terms are worked out between
buyer and the seller, the title or
escrow company prepares the necessary
paper work. As part of this process,
it's important that the seller check the
buyer's credit rating. The seller needs
to be confident that the buyer is able
to make the required payments in a
timely manner.
Why consider seller financing? There
are many reasons, and a variety of pros
& cons for both buyers and sellers, but
a few of the greatest benefits to the
seller are: (a) it opens the doors to a
much broader pool of prospective buyers,
(b) it greatly increases the likelihood
that a sale will result quickly, (c)
it's highly likely that a sale will be
at or very near the listing price, (d)
in the event of default, the seller can
reclaim the property, retain all monies
paid by the buyer, and sell the property
again, and (e) over the term of the
note, the principal & interest earned
can yield net proceeds greater than
would have been realized with a
“straight sale”.
Sometimes, getting “creative” with
financing can make all the difference in
encouraging offers, qualifying buyers,
closing smoothly & quickly, and yielding
the best possible results for the
seller. Your High Valley Real Estate
professional can be instrumental in
assisting with financing issues, as part
of the listing process, and as
prospective buyers materialize. Finding
ways to make your property affordable
for that marginal buyer who “really
wants it” can make or break a deal, and
ultimately provide the best result for
the seller, sooner rather then later.
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