If you are willing to be a little creative and you have some flexibility, I will show you how you can sell that home now for even more money than you are currently asking.

Seller financing, or owner financing as it is sometimes called, is when the seller of a property agrees to provide the financing for all or a portion of the purchase price. Instead of cash at closing he agrees to take a promissory note (a legal term for an IOU) for this amount. This is generally done when for one reason or another, the purchaser is unable to obtain full financing from a traditional mortgage lender or financial institution. For example the bank may only be prepared to lend up to 80% of the purchase price yet the buyer only has 5% to put down. So if the vendor doesn’t need the money right away he could agree to receive the remaining 20% in the form of a note. The note would specify the terms of the repayment including the length of time and the interest rate to be paid.

So why would a seller do this? The seller may do this when he doesn’t immediately need all of the cash from the sale at closing.

If the real estate market has slowed down, seller financing may allow the owner to sell his home more quickly than it otherwise may have sold. The owner also opens up his property to a much wider group of potential buyers. By providing these terms he can also ask for more money.

This is a good investment option for the seller’s equity. As the vendor is not a lending institution, and often takes the riskier position of a second mortgage, it is common and acceptable to charge a rate of interest that is higher than the going market rate for first mortgages. The rate that the seller will be earning on this deal is very likely much higher than they would earn had they invested the money in more traditional savings vehicles. This could be an ideal arrangement for retirees selling their home and looking for a regular monthly income stream.

There may also be an opportunity for tax benefits allowing the seller spread to the gains made over a number of years.

Aren’t there risks?

There are risks and that is why it is critical that the seller perform his due diligence via credit checks and other investigations. There is the risk that the purchaser could default on the loan. It is therefore also highly recommended that the seller have the agreement drawn up by a competence real estate attorney. You want to ensure that there is adequate protection afforded in the contract to all parties involved. If the loan does go into default, that could ultimately end up being beneficial for the seller. The seller would be entitled to keep any down payment as well as the principal that had been collected in the monthly payments. After pocketing this cash, the seller could then turn around and sell the home all over again.

So if you have a home for sale that isn’t going as quickly as you would like it to, consider offering seller financing. Adequate due diligence and the assistance of your local real estate attorney can reduce the risk to an acceptable level enabling you to sell your home for more than your asking price while simultaneously providing a healthy rate of return on your equity.

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