Solving Real Estate Problems Part II: Selling at Any Price

Buyer and Seller

Motivation.  It’s a 2-way street.  Both the buyer and seller have to have a compelling reason to enter into a contract to buy/sell a home.  So does that mean we should assume that sellers that try to get a higher than market price are unmotivated?  It depends.  One of the main reasons I have found a seller might be asking a higher than market price is not only to test the market, but because they don’t have any other source of funds to close the deal.  A seller might either have (1) over mortgaged the property, or (2) overpaid for the property, and in both cases will need a certain amount of money to “untangle” the deal out of their lives.  In this article I am going to focus on sellers, and specifically how to earn a sale with an above average market price.  And the strategy that is the most enticing is known as seller financing.  Seller financing simply stated is a term of the deal that the seller offers to allow the buyer to make payments for the property with minimal underwriting (and sometimes no underwriting) for the buyer to take equitable title to the subject property.  This enticement can usually create an emotional motivation for buyer simply because the buyer now doesn’t have to qualify to obtain a home loan.  Highly motivated sellers will make qualifying to finance the home easy.  Additionally, a buyer who doesn’t have a perfect 800 credit score and can’t qualify for a competitive rate will now have more leverage negotiating an affordable monthly mortgage payment by negotiating with the seller direct, rather than being told how much by a traditional mortgage lender.  For example if the going price for 10 year old 3 bed 3 bath home is roughly $300,000 and the seller’s asking price is $319,000 the extra $19,000 is the cost of getting flexible terms.  Some would argue the extra $19,000 makes the interest and monthly payment bigger, which is true.  So there is a trade off.  The seller wants a higher price for the property so by offering flexible terms the seller motivates buyers who want the house but might not be able to afford the the monthly payment if they use a traditional lender.  Some seller financing terms I have seen are:

  • 30 year amortization, balloon payment due in 5 years.
  • 30 year amortization, balloon payment due in 10 years.
  • 15 year amortization, balloon payment due in 3 years.
  • Interest only, 30 year amortization, balloon payment due in 7 years.

The balloon payment simply means that the remaining loan balance owed is due at the end of the period agreed upon.  Whether a buyer choses a 3, 5, 7, or 10 year balloon payment the financing program structured by buyer and seller should be comfortable for the buyer so they will be able to refinance the property in the future.

If you know someone with a real estate problem or questions feel free to email Paul at his email address at buyorrentmyhomes@hotmail.com.

Paul Krause is a full time real estate professional with Keller Williams in Los Angeles California, DRE #01835890 and CSLB #1029575.

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Avoiding Surprises!

 

It is so easy to fall in love with the “money shot” that it can cause a home buyer to forget how to evaluate a home purchase.  In real estate it is always emphasized that “location, location, location” is what counts.  And there is truth to that.  Which is why I wanted to share this home in my blog.  At first glance the home looks like an impressive compound.  It’s got that elegant “money” look to it.  So thanks to Google Space and Street View technology I was immediately shocked to find the front gate banged up and entrance featuring an old office chair prominently on display.  In addition the seller excluded photo angles that reveal a barren desert dirt front yard, which if I were to buy this property would end up becoming a dust bowl on a windy day – not uncommon for California!  The street view picture across the street is the neighbor across the street –  a home that is quite a bit different in dimension, style and size.  Which would lead me to ask “who would buy this property?”  Honestly there always a buyer for any home at the right price, but it is clear the featured sale property is well overbuilt for this neighborhood and is quite possibly the biggest and nicest in the neighborhood.  So how would that work out if you were currently the owner trying to sell this house?  Would you know someone who is willing to buy this home?  It’s possible.  If you want to avoid surprises one of the questions home buyers need to ask themselves is, if their situation changed would they want to be the one having to sell this house.  Again, there always a buyer for a home at the right price, but being that seller is easier said than done.  In high density city areas we can usually find plentiful comparable sales.  But in my experience the further your travel from urban sprawl the less information will I find for a given neighborhood.   That doesn’t bode well for buyers that need a loan to purchase a home if the bank has to stretch over many miles and calendar months of home sales to determine a fair market value.  A lack of sales data sure will make the sale of a property more difficult to compel buyers.  In this case, this seller might do just fine selling this beautiful home and find themselves having no difficulty finding a qualified buyer.  The point is as a buyer, you have to picture yourself as the potential seller first to ensure there are no surprises as a buyer.  Asking lots of questions about real estate trends in a neighborhood is something a competent and qualified realtor is happy to do.  In my case I even shake hands with the neighbors face to face by door knocking a few times a week just to keep up so that I know what buyers and sellers are not only doing, but where there thinking is so that new buyers get the best possible information to make an informed decision.  Avoid surprises by slowing down, taking a closer look, imagine yourself the owner and potentially seller first – this is a great way to avoid pitfalls and start your home buying process.

To get more information on purchasing a home and home trends feel free to write me at buyorrentmyhomes@hotmail.com.