Owner Finance Offer ~ Negotiation Advice

5 Replies

I have property listed for sale in Tennessee, $76K.  It is improved land; there is no house. There is no mortgage.

I have just received a verbal offer requesting owner financing.  The offer is $72K with a $25K down payment, interest only payment.  They have asked for a Balloon in 4 years, but offer that they will likely pay it off in 1 year.  They want there to be no prepayment penalty. They volunteered a negotiable interest rate.

Does an "interest only payment" suggest they are agreeing to pay $25K in interest, no matter when they pay it off?  Or am I misunderstanding these terms? 

Does this sound like a fair offer, and/or what should I counter?  I have never sold property, and certainly have no experience with owner financing.


@Veronica Brock

Welcome to the site.

$25k is the amount they will pay you up front.

They will pay you the remaining 47k in the form of an interest only mortgage with a principal payoff at year 4.

Lets use an example. $47k @ 8% annual interest is $3,760 per year or $313.33 per month. So if this were the case they would pay you 48 payments of $313.33 ($15,039.99) then at the end of year 4 pay you the remaining principal balance of $47k.

Interest plus principal

If you need a calculator to figure it out go to Bankrate.com under calculators

@Veronica Brock Seller financing can be a powerful tool for both buyers and sellers. It helps buyers finance a purchase without having to go to a bank and leaves flexibility to negotiate. A seller can also benefit by receiving interest payments above and beyond what you would get from a sales price, in addition to deferring capital gains in some instances.

As a buyer of real estate, terms and price are the crux of the deal and need to be considered equally.  You trade price for terms, meaning that if the terms are right then the Buyer doesn't have to pay rock bottom prices.

Without changing the direction of the boat if you like the basic structure of the offer I would counter with sales price and define the interest rate. This is just me but I would have purchase price be $76k, $25k down payment. If you're fine with 4 years then leave it be with a balloon at the end. Some people don't want buyers to be able to prepay, but this is a relatively small transaction. I personally would leave a little meat on the bone by not gouging your buyers with usury rates but would try to negotiate around an 8% interest rate if they don't have a prepayment penalty. Everyone one of these items are negotiable and in the end your looking for mutual ground. Best of luck!

Land that is zoned residential or can be a home site will fall under Dodd-Frank, it's a consumer loan and you don't occupy the property. So, first see how and if the consumer rules may apply to you, see an attorney or a mortgage originator, you can search the topic here. 

If it's acreage you may classify it as agricultural which can fall under a commercial loan, same is true if the buyer will be using the property to further a business venture, in such case, you're exempt from such origination requirements. 

I suggest you still need an attorney to draft he note and deed.

Depending on how long that has been on the market, I wouldn't be jacking with a fair offer, that was a good offer! 

8% is a fair rate, but if it's a consumer loan, you won't have a balloon payment in 4 years, not allowed. I also suggest you use a fixed rate, adjusting rates must be accurate, indexed, with a margin, floor rate, sometimes a ceiling rate is required and your accounting will be more difficult, for a small amount, save the brain pain and adjustment issues and go fixed rate.

James described the deal perfectly. 

I would probably counter offer subject to lending compliance at 8% either amortized or I/O depending on how that loan is classified. See your attorney! Good luck :)


You should also question their ability to pay.  Since you are becoming their bank, you might ask what their plan is for the property, get their financials, what's their backup plan if plan A doesn't turn out, etc.

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