People ask me about Seller Financing all the time, so I thought I’d share why it can make a lot of sense – for everyone.
- Buyer gets a property at today’s low price.
- Seller gets the property sold and a higher return on his proceeds – the interest he will receive on his money usually is higher then he would get by putting it in a bank, CD, etc..
- Escrow has a better chance of closing on time – if everything else is in order. (Note: After 20+ years in real estate, I’ve found that as long as Buyer, Seller, Escrow Officer, Agents and anyone else involved pays attention there isn’t any reason why it escrow shouldn’t close on schedule.)
Well that is the perfect scenario.
Why Seller Financing Now?
For Homes and Land – Financing used to be a granted with Proof of Employment, AAA Credit scores, Bank Statements showing Required Reserve Funds and 20% down could almost guarantee a loan. Not anymore.
In fact, financing a home even with “lender pre-approval” is currently one of the biggest hurdles to overcome. The next are “undisclosed issues” such as dry rot under new paint, plumbing issues etc. . Financing a vacant lot is even more difficult.
Often it isn’t the Buyer who doesn’t qualify for the loan, but rather the property doesn’t qualify. We have seen so many Short Sales, REO’s (Bank Owned Properties), and Foreclosures in the market, many of the comparable sales that the appraisers use today are from these distressed property sales. This practice will tend to reflect “below market value” for homes. So for desirable homes being sold “at market”…cannot get financed “at market”. Bottom-line: Lenders base their loans on the current appraised value.
Buyer Options when a property doesn’t appraise high enough for financing? Buyers have to go to Plan B, C or D .
- Plan B – put more money down
- Plan C – negotiate with the seller to reduce an already very low price – if he won’t, then the Buyer either accepts the price and puts more Cash down
- Plan D – Buyer walks away from the sale.
This is where Seller’s Financing can help a Seller achieve “market value” for their property.
Seller Financing Overview
The Purchase Money Mortgage is nothing new here in Hawaii, or across the country.
There is an Agreement of Sale, where the Buyer assumes financial responsibility for the property but the Seller stays on Title. (Most real estate professionals recommend the Purchase Money Mortgage Agreement.)
The Buyer still has to qualify for the loan, credit history must be acceptable to the Seller, reserves in place, usually a larger than average down payment.
The terms and conditions are pretty much the same as a mortgage from a bank. After terms and conditions are agreed on between the Buyer and Seller, an Attorney draws up the Mortgage. Recording the Mortgage is recommended at the close of escrow.
Also, when buying a home with Seller financing, you have the time (3-5 years & sometimes longer) to shop a new loan and refinance your home.
As for a vacant lot that you are going to build on within the next 3-5 years, Seller financing can prove to be very good for both Buyer and Seller. If the Seller isn’t planning on reinvesting his proceeds from the sale right away, then collecting a higher interest rate on his funds by “carrying” the loan would make sense. This gives the Buyer time to get his plans in order, permits approved and a contractor lined up before getting a construction loan.
What happens if the Buyer defaults on the loan? The property goes back to the Seller – just as it would to a bank if Buyer defaults on a loan to the bank.
Would I ever provide Seller Financing on one of my properties? Yes I would and I am currently holding a Mortgage on a home here in Hawaii. 11/2011
For more information on the Purchase Money Mortgage, visit to uslegal.com
Larry Baird a local West Hawaii Appraiser said “I’m still seeing prices being reduced. Until we see less of that, we still haven’t found bottom.”
Baird said he’s also aware of foreclosed homes being held by banks, some for as long as a year. He described those homes as “shadow inventory,” and said it’s difficult to predict what impact the eventual listing of those properties will do to the market. Because not all seized properties have been listed, getting an accurate foreclosure count is also difficult. “We have had a lot of activity. That’s been going on for about a year. There’s adequate demand. …There’s positive indicators but there’s still a lot of cloud hanging over.” -West Hawaii Today 10/18/2011
Some Key Points for Kohala Area:
- North Kohala (from Kohala Ranch, Kohala Waterfront to Hawi ) – Sales are up 7.3% from this time last year.
- South Kohala (Mauna Kea, Mauna Lani, Waikoloa) – Sales are up 33% from this time last year.
- Cash is driving more than half of the purchases in both North and South Kohala.
- Home Loans continue to be challenging.
Today’s real estate market has proven to be volatile, unpredictable and unstable, way beyond the predictable time frame. Foreclosure, REO’s, tighter loan restrictions, and loss of value has brought our Real Estate Market here in Hawaii to a crawl. While I don’t have a crystal ball, after 20 years in real estate I do agree with market analysts that our local housing prices are not going to rocket upward any day soon.
That said, properties are bought and sold on the Kohala Coast everyday. This area of the Big Island offers both primary and secondary homes in such diverse communities that Buyers come from the local area, the Mainland and Internationally.
NOTE: Over 90% of Home Buyers start their home search online. With internet sites like trulia.com, zilllow.com. and realtor.com – Buyers are well-informed of market pricing and supply. Long gone are the days of the traditional fancy brochure and print ads strongly influencing people in their purchasing decisions. Today, it’s about savvy research that is readily available 24/7.
3 Types of Sellers
#1 “Have to Sell” Sellers. The economy and the financial crisis have unfortunately put many property owners in a position that they need to sell. Facing a possible foreclosure or needing to liquidate a vacation home is a difficult situation. Knowing that the market value of real estate has declined significantly since the market peak in 2006, doesn’t help.
Many times these Sellers will logically position their properties somewhat below current fair market value to get a fast sale. Now, some “Buyers” will see the list price below market and feel the best course is to make unreasonably low offers in the off chance that the Seller is that desperate. To those offers, Sellers many times won’t even respond.
Reality – those “dream property steals” are few and far between. Mostly, they will be seen in the “short sale” arena and that is a competitive and time-consuming under-taking in which…the property price is bid up.
Bottom-line to Buyers: If you sincerely want to acquire a property, recognize a good deal when you see it and be prepared with financing because these good deals are selling everyday.
#2 “Unrealistic Sellers” These Sellers list their homes unrealistically over the Broker Price Opinion (current market value). They will describe their situations as “We’re not in a hurry” , “We’re not going to give it away” or “We’re Thinking of Selling and would like to ‘test’ the market”.
This philosophy may have made some sense in the mid-2000s when the market was falsely rising 10-20+% per year. Today however, the real estate market is not rising and experts feel price appreciation in the next 3 years will be very modest if at all.
By positioning homes over the current market, Sellers can sit and wait 1 year- 2 years, and longer! A home languishing in the MLS for years is having it’s marketability degrade over time. Realtors won’t waste their clients’ time showing these unrealistic properties.
Reality – Accepting where the market value for your home is these days can be difficult for Sellers. Unfortunately, the REO”S and Foreclosures prices in the Kohala region, like the nation, have had an enormous impact on the overall market value of properties. Knowing that values have fallen somewhat – is very different than actually seeing the pricing of homes that are selling vs. those that are languishing on the market.)
Bottom-line to Sellers: When you want to SELL your home – the property should be realistically positioned at the current market value with careful adjustments made for location and home condition. If you are not ready to sell – do not put the property on the market.
#3 “The Serious Seller”. These Sellers have a plan mapped out and know where they want to be and when. They know the market. They know that the Broker Price Opinion is based on the evaluation of current sales in the area. They position their properties AT market. (NOTE: In a professional Broker Price Opinion, the Broker will evaluate current relevant housing information from your competitive market area, your specific property and then recommend a list price. Typically, the list price that is recommended if correct, will fall within 10% of the final selling price.)
Bottom-line to Sellers: By realistically positioning your home at current market value and working with your Real Estate Agent through the marketing of the home, your property should have success in this market above your competitors.
Reality – Homes are being sold & bought everyday in the Kohala Coast area. From multi-million dollar properties on the ocean, to condos on golf courses, to homes in Waikaloa, Estates Homes in Mauna Kea and to charming cottages & lots in Waimea. It’s all a question of finding the true current market value of the property.
Do you know the value of your property? You should – it just makes sense. Contact Cook Walls Inc. for a No Obligation, Free Brokers Price Opinion.
808 882-7760 | Email cwi@livekohala
July 12, 2011 – The Hawai‘i Association of REALTORS® has announced that Real Estate Licensees are now able to charge fees to prospective sellers for Broker Price Opinions (BPO’s).
Cook Walls Inc. has elected to NOT charge our prospective sellers for BPOs as a matter of providing service to our clients. Do you know the value of your property? You should. Contact us for a No Obligation. Free Brokers Price Opinion.
If you would like to learn more, the following information was provided by the Hawai‘i Association of REALTORS®. You are advised to seek and retain your own legal counsel for any legal advice or interpretation of the law.
Real Estate Licensees Are Permitted to Prepare Broker Price Opinions (BPO’s) for a Fee.
House Bill 320, S.D.1 was signed into law on July 11, 2011, as Act 212, and took effect upon approval.
Why could I previously not prepare a Broker Price Opinion for a fee? According to the Hawai‘i Real Estate Appraisal Division, it interpreted the appraisal licensing rules to provide that if a real estate licensee performed a Broker Price Opinion (“BPO”) and received compensation other than the normal fee rendered in connection with the sale of the property, the real estate licensee may have been performing an appraisal.
What does the new law do? The new law exempts a real estate licensee from the requirement for licensure as an appraiser subject to certain conditions. Thus, a real estate Continue reading “Update: Broker Price Opinions (BPO’s)”
Real Estate on the Kohala Coast is really the experience of this place. The walk to your favorite beach or 5 star restaurant. The perfect sunset from your lanai. An expansive ocean view with Maui in the background. The sunrise over the mountains or listening to the whales in the still of the night. A quick swim in a crystal clear pool just steps away from your condo as evening falls.
The location as always is the main driver of value in real estate-followed by property condition and terms offered.
Today, we have noticed that both Buyers and Sellers are confused about today’s changed marketplace. Sellers tend to hold fast to yesterday’s pricing and Buyers tend to put in offers that are so low -they make no logical sense. Result: Sellers don’t sell and Buyers don’t buy. Both lose.
It comes down to a question of value and having a realistic approach to real estate.
- If you are a buyer that is looking for a rock-bottom deal on distressed property, expect competition and bring your checkbook because those deals-while out there- are few & far between.
- If you are a Seller, the competitively priced properties do not stay long on the market, while the overpriced homes languish. Buyers are savvy and they do their homework well.
As this market evolves, Seller’s and Buyer’s need to seek out the true current value of properties. While “Location” still reigns, “Value” is right up there with it. Click here for a complimentary property valuation.
Well, we’ve gone years working with referral clients, MLS, VRBO, Homeaway, Trulia.com, Realtor.com etc. We are happy to now have our own website to share with our clients, Kohala neighbors and now new friends.
Bob and I have lived in Kohala for almost 10 years now and before that we were down in Kona right on Alii Drive. We work out of our home office in Kohala Ranch which embraces our lifestyle. Casual relaxed and surrounded by interesting wonderful people from all over the world. We love it here and look forward to sharing Kohala with you.
More to come – Kimi