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.

California August 2016 Home Sales Report

August 2016 breakdown – California sales were down, median prices up = TIGHT SUPPLY!  Anyone searching for a new home or searching for a rental keeps hearing this tune over and over; inventories are low.  Additionally frustrating purchases might have also been talk of an increase in interest rates by the Fed in the Fall.  We have continued to purchase homes at a steady pace but nowhere near our peak three years ago.

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California July 2016 Home Sales Report

June, July and August are considered peak sales months for real estate so it is a surprise that sales cooled in July of this year.  As VERY strong demand in rentals persists, this might be an early sign of buying demand weakening by California house consumers.

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California April 2016 Home Sales Report

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Take a look!  Home pricing is getting MORE expensive!  The median price of a home has now reached over $500K statewide!  What is driving the growth in pricing?  Take a closer look!  Sales of single family homes DECREASED from last year and the previous year!  From my conversations more homeowners are staying put, making housing more scarce and driving prices of existing homes higher.  Many homeowners are taking advantage of lower property taxes by holding onto what real estate they have instead up trading up or down.  Questions?  Email me for more assistance on how to buy or sell a home in this market!

California February 2016 Homes Sales Report

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California December 2015 Home Sales Report

Sales and prices spiked in December, shaking off the market flattening in November.  With housing prices continuing to climb higher, renters should expect increases across the board in most major markets; Los Angeles, San Francisco, Sacramento and San Diego.

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California November 2015 Home Sales Report

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Homes Sales fell in November while pricing was relatively unchanged.  On the other hand, house rentals were strong, especially in the Antelope Valley.  We rented almost ALL of our available inventory!  My conversations with home buyers seemed to indicate home loans were taking longer to approve.  What was your experience?