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) wonâ€™t sell, B) may sell or C) must sell.Â In todayâ€™s market, many of the â€œmust sellâ€ sellers are offering significant incentives to get their property sold.Â 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 â€“ anything to make their property more attractive to potential buyers.Â What else can sellers do, other than asking a reasonable price, to make their property more attractive?
Seller financing â€“ the grandaddy of all incentives â€“ is making a comeback.Â Usually seen when property values are high and sellers have a lot of equity, seller financing is becoming more common in todayâ€™s tight lending environment.Â Sellers may finance the buyerâ€™s mortgage for several reasons.Â Perhaps the buyer is having trouble obtaining a traditional mortgage.Â Maybe the seller wants to spread the income from the sale over time for tax purposes.Â 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 â€œcarry backâ€ the purchase mortgage will offer a seller financing option in the property listing information.Â 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 â€œSeller Financing Addendum and Disclosureâ€ (California Association of REALTORSÂ® Form SFA).Â Although this form provides a lot of detailed information about financing terms, the sellerâ€™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.Â 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.Â 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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