Posted 17 days ago

How to Deal With a Difficult Seller When Doing Terms Deals

Dealing with a picky seller? Don’t budge! Chances are, they’ll come around.

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Sometimes sellers are hesitant to structure a terms deal. They might be picky about the specifics of the deal, they may be nervous because they’ve never done a terms deal before, or they may just want their money as soon as possible.

Whatever the reason is, we’re no stranger to these situations. Most people don’t know about terms deals and it can be confusing at first. The best way to deal with picky sellers is to explain everything as best you can, provide some options, establish credibility, and most importantly, don’t budge!

We have full scripts we use, of course, but generally speaking we let them know that we understand they’d like full price for their home and all their equity/cash out, and that 99% of sellers prefer the same. BUT—and this is a big seed you’re planting—the reality is that a very large percentage of buyers cannot qualify today.

You’re offering a strong alternative to buy, given the small buyer pool, and sellers often don’t have any alternatives. If you’re patient, chances are they’ll come around. That’s exactly what happened in this deal.

2 days from the initial voicemail

The source of this house was a Slybroadcast. This is a system we use to call on expired listings. You basically record a voicemail that explains what you’re offering to the seller and asks them to call you if they are interested in learning more about a potential deal. It then gets automatically sent out to expired listings.

This is a great system because it takes little to no effort on our end. Sometimes it takes a while to hear back from these sellers—it can take months or even over a year, that’s just the nature of the business—but in some cases, we hear back quickly. In this case, our Associate sent out a Slybroadcast and heard back from the seller within two days!

But when he talked to the seller there were a few issues. The seller was very picky, very thorough, and very nervous about the idea of a terms deal. He didn’t like anything we presented to him, and there was a lot of back and forth about potential deals.

In the end, we gave him three options. Then we left. We had given him all the information he needed to make a decision, as well as three perfectly good deals—the only thing left to do was wait. If he came back to us wanting to secure a deal, great! If not, we had only spent a few hours on this. No harm no foul.

Structuring the deal

Lo and behold, the seller came back to us a few weeks later looking to structure a deal. He was interested in getting his equity on the home as soon as possible—which was one of his biggest initial reservations about a terms deal—so he ended up choosing the shortest term out of all the options we gave him.

The options we gave him were to structure a sandwich lease purchase with either a 48-month, 60-month, or 72-month term. He went with the 48-month option as it was the shortest.

Now, if you’ve been reading this column for a long time or if you’ve done terms deals yourself, you might be thinking… “48 months? That’s not a short term!”

And you’re right. 48 months is still a fairly lengthy term, but because we only gave him the options of 48, 60, and 72… 48 was still the shortest! A longer term is great for us because we generate more money on Payday #2 and Payday #3 via the principal paydown and monthly spread. Our Associate knew the seller would likely go for the shortest term, so presenting these three options where the 48-month term is the shortest out of three makes it a no-brainer for the seller and ensures the deal will still be lucrative for us.

Always remember that you are the expert, and most people don’t have any concept of what constitutes a long or short term. If you want a long term, present a long term to the seller!

One final point that really sold this seller was the team backing up our Associate. At first, he was hesitant to structure a deal with a single person who was working out of their home. That’s certainly understandable.

But when he realized there was an entire team of experienced real estate professionals across the nation who have done hundreds of deals just like this, it made him feel a lot more secure about the whole thing. That is just one of many perks our Associates benefit from when they join the Smart Real Estate Coach community, in addition to how we help them secure Better Business Bureau Accreditation.

All 3 Paydays™

Let’s get into the numbers on this deal. The house was originally on the market for around $300,000, and the seller owed $241,000 on it. Our Associate agreed to a “purchase price” of $289,200, but what’s really happening is that he’s agreeing to pay off the mortgage and give the seller his remaining equity. So in this case, that’s $289,200 minus the $241,000 he owed, meaning our Associate owed the seller $48,000 at the time of cash out plus the payoff of the underlying loan.

When we structure these types of deals we rarely use the term “purchase price.” The purchase price is merely a point of reference—what we’re doing is paying off the seller’s mortgage and giving them the remaining equity based on the price we agree upon.

So with that said, let’s get into the Paydays.

Payday #1 is, as always, the down payment. In this case our Associate secured a $25,000 down payment. That might seem low, but he already has plans to increase that number by adding in additional payments over the course of the next year or so. Most times that is agreed upon up front versus leaving it loose so that we put them in the best position to get their financing at the best rate possible.

Payday #2 is the monthly spread. Our Associate owes $2,249 to the seller and is receiving $2,599 from the tenant buyer in monthly rent. That’s a monthly spread of $350, or $16,800 over the length of the term.

Payday #3 is the premium on the sale of the house plus the principal paydown over the length of the term. Our Associate was able to agree on a sale price with the tenant buyer of $339,000. That’s a premium of $49,800.

There is also around $300 being paid down per month on the principal. Over the course of the term, that’s $14,400 in total.

When you remove that initial deposit of $25,000, you’re left with $39,200 for Payday #3.

And when you add up All 3 Paydays™, the total comes out to $81,000!

This is a perfect example of why it pays to be patient with these deals. Our Associate only invested a few hours of time upfront with the seller. He educated him on how terms deals work, offered three potential deals, then walked away.

He could’ve made a bunch of compromises with the seller or tried to come up with alternate deals to make him happy, but that would’ve ultimately been a waste of his time. Instead, he was patient and didn’t budge on his offers because he knew they were perfectly viable. In the end, it worked out extremely well for him!

Have you ever had a deal like this, where you were patient and it ended up working out in your favor? Or maybe you weren’t patient and paid the price? Either way, I’d love to hear about it in the comments below.