seller financing presentation- davies company real estate

Know anyone who has completed a seller-finance

transaction?

In SLO County, as reported to our Multiple Listing Service, over past 6 years, only 6.5% of

sales involved likely seller financing.

Copyright © 2012 Davies Company Real Estate

Seller Financing

Definition

When the seller of a property accepts a

note and trust deed as part of the

purchase price. The buyer owes the

seller the amount specified in the note.

Seller Financing Players

Buyer

Seller

Escrow

Real Estate Broker

The Deal Example

Seller has no loan on the property (free & clear title).

Buyer wants property

Buyer’s loan options are limited or undesireable

Buyer has resources to pay payments (income)

Seller prefers or will accept payments instead of the full

purchase price

Buyer makes promise to pay, seller accepts

Sale closes escrow

Buyer makes payments

Seller Financing Math

Example

The Variables:

$500,000 Property Value

$100,000 Buyer’s downpayment

$400,000 Seller Carries Back Financing

$40,000 Estimated Closing costs paid by seller (8%)

$60,000 Net cash to seller at closing + Buyer’s

promise to pay the balance of $400,000.

The Seller

The Seller …to payment

collector! From property

owner…

Benefits to Seller

Income Taxes

Return on Investment

More Buyers

Faster Transaction Closing with Less

Decision-Makers

Note and Trust deed are Marketable

Structure Customized to Their Situation

Seller Considerations Include:

• Do we want to risk owning this property again?

• Do we have confidence that our loan is well-secured?

• What kind of interest rate can we get on our cash in the bank?

• Credibility of the Buyer?

• What would we do with the cash proceeds from the sale, anyway?

• Could we use a monthly payment?

• How long are we willing to wait for the proceeds?

• What are credit, legal, and tax implications of our decision?

Should Some Sellers Avoid

Seller Financing? Yes

If you have no equity or are

pursuing a short sale If you need the cash immediately

from the sale

The Buyer

The Buyer

…to homeowners! From renters…

Benefits to Buyer?

All Terms Are Negotiable

Credit Score is Less Important

Down Payment Flexible

Can Use Other Collateral

No Cosigner Needed

Terms Can be Renegotiated

Closing Cost Savings

Property Value More Important Than Buyer’s Qualifications

The Escrow

Company

The Escrow Players

Private Escrow

Companies, too.

What documents are

required?

Note (Detailed terms of repayment)

Trustdeed (recorded in public domain at County Clerk Recorder’s Office)

Reconveyance (when loan is paid off)

Purchase Contract & Escrow Instructions

Amortization Schedule for Payments

The Note

The Trust Deed

The Reconveyance

The Real Estate

Broker

Real Estate Broker Reality

Listing broker must be director with the strategy,

and monitor information to parties.

Manage buyer expectations- if buyer’s agent

Manage seller expectations- if seller’s agent

Become educated in seller financing matters and

benefits to the parties

Expect transactions with inexperienced agents

Have professional resources to refer to, like

CPAs and attorneys, and trust deed buyers

In my experience, over 85% of active

agents have never participated in a seller

financing transaction.

Real Estate Brokers (Insider Secret)

The Real Estate Broker as seen by Buyer & Seller at Successful

Close of Escrow in a Seller Finance

Transaction

Davies Top 5 Tips

for Seller Financing

Or how to be a smart investor, with any kind of transaction, including seller

financing.

Copyright © 2012 Davies Company Real Estate

Tip #1

Anticipate the fears of all

parties

Tip #2 Know the math

What does the seller need to make the transaction be acceptable & lowest-risk

to them?

Tip #3 Be responsive to the other

party, keep calm

Tip #4 The Terms of the Seller Financing

Can Increase the Benefits in

Transaction to Both Parties

You can create more opportunity and

more value in your property by offering

seller financing.

Tip #5 Buy real estate.

And use what you have to get what you

want.

DaviesCo.com

twitter.com @dawnadavies

linkedin.com/in/dawnadavies

facebook.com/dawna.davies

slideshare.net/DawnaDavies