Commercial Real Estate

Determining a True Sales Price with Seller Financing

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real estate true value with seller financing

It wasn’t long ago that I received a portfolio of notes in a part of the country that I am very familiar with.  Having done quite a few transactions  there, I know the only true valuation of properties in that area is true comparable sales in the last six months.  Anything older than the last six months is considered inaccurate and unreliable data. I call it my ‘6-month rule’.  With the onslaught of foreclosures in the last few years and the real estate climate now, the ‘6-month rule’ is valid in most cities across America.  Without a true valuation using the 6-month rule, it’s very easy to misprice your property which will result in a note that has less value in the secondary market ( when you go to sell the note).  True valuations are important in every area of real estate, but no area is more dangerously over-inflated than real estate note sales.

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Selling a property with a seller financed note is a very powerful tool for you, the property owner. It allows you to get a higher selling price on your property and opens the door of homeownership to more prospective buyers. Here's where many sellers fall flat on their face: placing a sales price on the property that's too high for current loan to values in the area.

Here are a few factors to consider when setting your sales price for seller financing so you have  accurate and profitable information:

Use True Valuations: As mentioned earlier, you need to use valuation criteria relevant to your current market. Consider an appraisal on your property to help you determine the current asset value. While you may be shocked at what the appraisal value is, it will give you a non-biased third party accredited value on your property. This will be a key document if you decide to sell your property. You will now have in your file a basis for where you pricing started.

Avoid Bulk Valuation Sites: Sites like are still working on becoming an accurate source of property valuation. Using sites like Zillow as your sole source of valuation puts you in a position where you could sell a property for too much or too little. Both situations cost you time and money in the long run. You can use these sites as a preliminary guideline, but they should only be used for basic analysis, and never used for final property valuation.

Work with an Agent to Get Values: Along with an appraisal, work with a local real estate agent who understands your goals with seller financing. They will be able to look at the MLS system to give you a gauge of what properties are selling for in the area around your property. When you combine their information, the appraisal, and other information you have, then and only then can you accurately determine a true seller financing loan value.

These are but a few tips for assigning a true value to your sales price. This up-front leg work is a huge advantage in creating a seller financed note that works for you, the property seller, and the purchaser. It will also help tremendously if you decide to sell the note down the road to a note buyer.

What are some property valuation procedures you’ve found to be most effective?  Had an experience where a note was valued too high, or too low? Share your experiences and feedback here!

Photo: sloth2048

    Max Sabo
    Replied almost 9 years ago
    Great Points! Depending on the market and availability of comps I would recommend trying to use a 3 month rule for areas with high foreclosure and short sale rates- like Nevada. If you do have to use comps that are 6 months old I would recommend giving more consideration to the listing comps and their DOM. As always a real estate professional can help you make the proper decision in your market.
    Replied almost 9 years ago
    Working with an agent is key. Even if you know the area fairly well, you’re not going to know it like the really good agent who’s on the ground day in, day out.