Looking stupid negotiating a seller financing option

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

4y

I'm under contract for a property with a seller that may entertain carrying (all not part)

This would be my first attempt at this type of deal. I'd like to make an offer that makes sense and is beneficial for all parties as to make it go through but not look stupid in the process with a bad offer or getting an offer accepted that's bad for me.

General description:

1967 Duplex, Brick, crawl space, half acre, detached garage, 2100sq ft. 10 year old roofs, One unit renovated on the interior, other side original. Tenants in place leased for one and two years.

Prior to inspection, deal they accepted was 225k with only appraisal, financing, and inspection contingencies. Appraised for 220k. Inspection revealed it needs a variety of repairs. The most concerning is mold in attic and crawl space. Other repairs are several but more straightforward. Seller bought a year ago, renovated one unit in that time. I think anywhere from 10-25k can resolve what was found in inspection. rough estimate.

My understanding is, the seller wants to sell due to having more properties than they can handle, they don't want to deal with repairs, want full price despite appraisal and even want to challenge it. Sounds like they're leaning away from having to reduce the price much for repairs. I'm not paying over appraisal or full price and have to do a bunch of repairs.

I suggested seller finance as a compromise.

Seller benefit:

Get full price or more, despite appraisal

Not be responsible for repairs or concessions therefor (except mold, I said they need to remediate that because they have to anyway sale or not because mold can be greater than what meets the eye)

Achieve the benefits they intended originally with the buy and hold strategy, minus landlord duties

Buyer benefit:

Less down payment than the 25% required by lender in exchange for taking on repairs (frees up cash to rehab)

Fewer challenges qualifying that come from conforming lender

Possibly lower rate negotiable for taking on project and for paying over ask

I would enjoy reading your ideas for an offer to make in terms of down, price, rate, and other terms. If any of you have done a seller financing deal, please share. Thank you!

Sounds like a deal.

Since the stated reason for selling is too many projects going on and they don't want to deal with repairs (I bet there is more going on than that, but let's use what they've stated)

1. Describe their problem to them. Remind them that if they were to sell for $225,000 on the MLS they would have to fix the mold and fix the property and have $13,500 in realtor fees and have to pay capital gain taxes on their profit. The final number for profit would be pretty small. More houses are hitting the market, existing listings are dropping their prices and delay will probably mean less price. (See Redfin and put in "Reduced last 30 days"

2. But, you can save them from all of the cost and time of repairing and listing on the MLS by taking over their financing, make the payments for them and take care of all repairs, for their asking price minus the cost of fixing the mold in the attic, this will be the best offer they get. (Called Subject To) They will not find a buyer on the MLS "As Is" and if they did, they face a $13,500 cost in realtor fees and also have capital gains tax. That will give you a dollar amount of their perceived equity. For instance, if it is $5,000 either pay that if you have it or make a promissory note of $5,000 to them at 0% innterest for 5 years for a payment of $83.33 per month.

I believe that prices ae leveling off and falling, so be careful about assumptions of value going forward.

2. If they need money out, you need to know if they bought the property with cash or if they financed it. If they paid cash, you will need to figure out the minimum Cash they will take and then the rest on a seller contract at 3% for 360 months with no prepayment penalty.

3. If they used hard money to buy the property, your choices are much more limited and you need to find private money to replace the hard money.

3 Reply

Dom Cassissa

Staten Island, NY · Member since 2021 · 26 posts · 19 votes

4y

I haven't done any seller financing so take my comment with a grain of salt. But what I'm suggesting is what if you can work a deal with seller, be willing to pay full price BUT ONLY if seller is willing to hold a very favorable interest rate. I'm not sure what you're being offered by lenders but we can all agree it's going to be probably 5%-5.5% at the very best right now. Would this deal make more sense to you if you can get him to agree to maybe a 2.8-3% rate that he holds?

3 Reply

Rodney Sums

OP

Laveen, AZ · Member since 2016 · 584 posts · 528 votes

4y

Quote from @Account Closed:

Quote from @Rodney Sums:

I'm under contract for a property with a seller that may entertain carrying (all not part)

This would be my first attempt at this type of deal. I'd like to make an offer that makes sense and is beneficial for all parties as to make it go through but not look stupid in the process with a bad offer or getting an offer accepted that's bad for me.

General description:

1967 Duplex, Brick, crawl space, half acre, detached garage, 2100sq ft. 10 year old roofs, One unit renovated on the interior, other side original. Tenants in place leased for one and two years.

Prior to inspection, deal they accepted was 225k with only appraisal, financing, and inspection contingencies. Appraised for 220k. Inspection revealed it needs a variety of repairs. The most concerning is mold in attic and crawl space. Other repairs are several but more straightforward. Seller bought a year ago, renovated one unit in that time. I think anywhere from 10-25k can resolve what was found in inspection. rough estimate.

My understanding is, the seller wants to sell due to having more properties than they can handle, they don't want to deal with repairs, want full price despite appraisal and even want to challenge it. Sounds like they're leaning away from having to reduce the price much for repairs. I'm not paying over appraisal or full price and have to do a bunch of repairs.

I suggested seller finance as a compromise.

Seller benefit:

Get full price or more, despite appraisal

Not be responsible for repairs or concessions therefor (except mold, I said they need to remediate that because they have to anyway sale or not because mold can be greater than what meets the eye)

Achieve the benefits they intended originally with the buy and hold strategy, minus landlord duties

Buyer benefit:

Less down payment than the 25% required by lender in exchange for taking on repairs (frees up cash to rehab)

Fewer challenges qualifying that come from conforming lender

Possibly lower rate negotiable for taking on project and for paying over ask

I would enjoy reading your ideas for an offer to make in terms of down, price, rate, and other terms. If any of you have done a seller financing deal, please share. Thank you!

Sounds like a deal.

Since the stated reason for selling is too many projects going on and they don't want to deal with repairs (I bet there is more going on than that, but let's use what they've stated)

1. Describe their problem to them. Remind them that if they were to sell for $225,000 on the MLS they would have to fix the mold and fix the property and have $13,500 in realtor fees and have to pay capital gain taxes on their profit. The final number for profit would be pretty small. More houses are hitting the market, existing listings are dropping their prices and delay will probably mean less price. (See Redfin and put in "Reduced last 30 days"

2. But, you can save them from all of the cost and time of repairing and listing on the MLS by taking over their financing, make the payments for them and take care of all repairs, for their asking price minus the cost of fixing the mold in the attic, this will be the best offer they get. (Called Subject To) They will not find a buyer on the MLS "As Is" and if they did, they face a $13,500 cost in realtor fees and also have capital gains tax. That will give you a dollar amount of their perceived equity. For instance, if it is $5,000 either pay that if you have it or make a promissory note of $5,000 to them at 0% innterest for 5 years for a payment of $83.33 per month.

I believe that prices ae leveling off and falling, so be careful about assumptions of value going forward.

2. If they need money out, you need to know if they bought the property with cash or if they financed it. If they paid cash, you will need to figure out the minimum Cash they will take and then the rest on a seller contract at 3% for 360 months with no prepayment penalty.

3. If they used hard money to buy the property, your choices are much more limited and you need to find private money to replace the hard money.

Everything you said are my exact sentiments. They own it outright. Interestingly this is an off market deal between the broker, my realtor at that brokerage and myself. Unfortunately, it's starting to look like they want all the money the fast way and without doing anything. I find it strange considering its an in house deal and I was willing to not ask for repairs except for that mold and offer more money for cash saving terms.

This isn't even the first deal I've come across this year where the seller wants full ask and more, and doesn't want to rectify things. I'm curious if this is becomming a common experience for others.

1 Reply

Looking stupid negotiating a seller financing option

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