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John Souerbry's Blog

By John Souerbry | Broker in Palo Alto, CA
  • Real Estate Jargon: “Seller Financing”

    Posted Under: Home Selling, Financing, Property Q&A  |  March 11, 2011 7:33 AM  |  986 views  |  3 comments

    Buyers, sellers, investors, welcome back to another installment of Real Estate Jargon, aka, simple explanations of real estate terms normally not found in nature.

    In the world of real estate, sellers are often categorized in terms of whether they A) won’t sell, B) may sell or C) must sell.  In today’s market, many of the “must sell” sellers are offering significant incentives to get their property sold.  Many are including lots of personal property in the sale, such as lawn and garden tools, pool equipment, high-end barbeque grills, and premium quality household appliances such as refrigerators, clothes washers and dryers, and wine storage units – anything to make their property more attractive to potential buyers.  What else can sellers do, other than asking a reasonable price, to make their property more attractive?

    Seller financing – the grandaddy of all incentives – is making a comeback.  Usually seen when property values are high and sellers have a lot of equity, seller financing is becoming more common in today’s tight lending environment.  Sellers may finance the buyer’s mortgage for several reasons.  Perhaps the buyer is having trouble obtaining a traditional mortgage.  Maybe the seller wants to spread the income from the sale over time for tax purposes.  The seller may also feel the mortgage will provide a better financial return and more security than other investments.

    In California, a seller willing to “carry back” the purchase mortgage will offer a seller financing option in the property listing information.  When an offer is made, the buyer either accepts or negotiates the financing terms offered by the seller and then documents the terms in an addendum to the purchase contract, usually in a “Seller Financing Addendum and Disclosure” (California Association of REALTORS® Form SFA).  Although this form provides a lot of detailed information about financing terms, the seller’s attorney will also prepare a promissory note and deed of trust to file with the county recorder to secure the loan against the property concurrent with closing the sale.  Of course, the seller will require the buyer to provide a complete package of information to qualify for the financing.

    Before offering seller financing, sellers should completely evaluate the risks and benefits.  In addition to drafting a note and deed with an attorney, sellers should also meet with their financial planner and tax advisor to develop financing terms they should offer and to gauge the impacts of seller financing on their complete financial picture.

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    if you have any ideas or questions on this subject.

    If you have questions about real estate jargon or buy/sell/invest strategies, drop me a line!  john@jsrealproperty.com

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  • Buying A Home Is About Planning, Not Qualifying

    Posted Under: Home Buying in California, Financing in California, Rentals in California  |  October 4, 2010 7:41 AM  |  963 views  |  2 comments

    It's often said that a home is the biggest single purchase of our lives.  While this is true for most of us, it is certainly not the only big ticket item we buy in our lifetime.  Purchasing a car, paying for an education (especially at a private college), weddings, and furnishings for our home are expenses that typically require more than one paycheck.  If we plan to retire, much of our income is directed to one or more retirement accounts that we hope will equal more than the value of our home by the time we retire.  So, although our home may be the single largest purchase we make, it is just one of many significant financial obligations we take on.
    Whether purchasing a property as a home or as an investment (possibly both), it's always a good idea to consider how that financial commitment fits into our total financial picture.  Real estate agents are experts in finding properties that fit our needs and mortgage loan officers are experts in qualifying buyers for home loans - but neither is qualified to create a family financial plan for their clients.  This financial plan will determine how much we can afford for our total cost of housing, which in addition to our mortgage will include paying for insurance, taxes, utilities, improvements, maintenance and repairs.  Even with today's tightened qualifying standards, it is still possible to qualify for a mortgage loan amount that exceeds the amount we want to pay when we consider other current and future expenses.
    This is why I recommend that before a home buyer speaks with an agent or a loan officer, they meet with a financial planner to create a family plan.  Only a qualified financial planner can help us develop a roadmap that will tell us how much we can spend on all the major expenses in our lives.
    As a broker, I prefer to see that clients have not just a pre-qualification letter before we start looking at properties, but also a family financial plan that will determine how much they want to spend, not just how big a mortgage they qualify for.

 
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