In 1981 rates hit 18.63% and homes still sold. Five seller problems, five tools.

In 1981 rates hit 18.63% and homes still sold. Five seller problems, five tools.

Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes

Hi all, Rob here, a Louisville agent. In October 1981, the average 30-year mortgage rate hit 18.63%. Eighteen percent. And homes still sold. About 60% of existing home sales in 1981 used creative financing, according to the Federal Reserve Bank of San Francisco. Buyers took over the seller's loan. Sellers carried the note.

Same tools. Different decade.

Right now NAR's Pending Home Sales Index came in at 71.2 for August, lower than any month from 2008 to 2011. Mortgage applications just hit their lowest level since 1995. But this isn't 2008. Almost nobody is being forced to sell. People are sitting on 3% mortgages and they're not letting go. It's not a crash. It's a traffic jam. And the way you clear a traffic jam is you open more lanes.

Every seller you talk to is carrying something heavy. Your job is to figure out what it is, then pick the tool that takes the weight off:

The seller who has to move but has a great low-rate mortgage. That's a loan assumption. FHA or VA loans, lender has to sign off. That old loan can be worth more than the granite countertops.

The seller whose house has been sitting, and the buyer who's six months away from qualifying. That's a lease option. The buyer rents now and gets the right, but not the obligation, to buy later at a price everybody locks in today.

The seller who needs it gone fast and doesn't want to touch a thing. That's often an assignment. Know your state's rules on advertising these. Kentucky tightened them in 2023.

The seller whose house needs work they can't afford, but who'd rather get a fair price than a cash lowball. That's a novation. The seller stays on the deed while you fix it up and sell it on the open market, and you both come out ahead.

The seller who owns it free and clear and would love a monthly check more than a big lump sum. That's seller financing.

None of those are magic. They're just more tools in the shed. Seller won't come down on price? Maybe they'll come down on terms. Today's rate kills the deal? Maybe the old rate comes with the house. Seller can't fix it? Maybe they don't have to.

In a hot market, sellers don't need any of this. They've got six offers by Sunday. In a balanced market, creative terms stop being a weird ask and start being the thing that gets the deal done.

And the calendar matters. Fall and winter are when a lot of people pull their listings and wait for spring. The sellers who stay listed through the holidays usually have a real reason to sell. What you plant in October and November is what you harvest in March.

The routine isn't complicated. Look at what's new, what dropped in price, and what's been sitting 60, 90, 120 days. Run the numbers on the ones worth five minutes. Make offers, a lot of them by letter of intent. Follow up, because most deals don't come from the first offer. Then do it again tomorrow.

Which of the five have you actually closed with? I'm curious which one people find hardest to get a listing agent to take seriously.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1d

The biggest difference between 1981 and today in regards to real estate sales is in 1981 almost all existing mortgage loans were assumable WITHOUT lender approval, now almost none are.

The second biggest difference was that in 1981 almost no seller could sell their property unless they offered either seller financing or a mortgage “buy down”.

The third difference was that in 1981 “information” was in the hands of a few real estate practitioners only with the public having access only to the information that the real estate practitioners decided to provide - now 100% of information can be found by anyone instantaneously on line.

Fourth, real estate brokers, mortgage brokers, title company’s were legally allowed to operate in their own best interest, now they have either a fiduciary responsibility or responsibility for at least honesty and full disclosure.

Finally, in 1981 relatively few people were interested in investing in real estate; now it seems like everyone and their sibling wants to participate in this arena.

Private Mortgage Financing Partners, LLC
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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    1d

    The biggest difference between 1981 and today in regards to real estate sales is in 1981 almost all existing mortgage loans were assumable WITHOUT lender approval, now almost none are.

    The second biggest difference was that in 1981 almost no seller could sell their property unless they offered either seller financing or a mortgage “buy down”.

    The third difference was that in 1981 “information” was in the hands of a few real estate practitioners only with the public having access only to the information that the real estate practitioners decided to provide - now 100% of information can be found by anyone instantaneously on line.

    Fourth, real estate brokers, mortgage brokers, title company’s were legally allowed to operate in their own best interest, now they have either a fiduciary responsibility or responsibility for at least honesty and full disclosure.

    Finally, in 1981 relatively few people were interested in investing in real estate; now it seems like everyone and their sibling wants to participate in this arena.

    Private Mortgage Financing Partners, LLC
    • Real Estate Investor · Memphis, TN · Member since 2016 · 417 posts · 139 votes
      15h
      Quote from @Don Konipol:

      The biggest difference between 1981 and today in regards to real estate sales is in 1981 almost all existing mortgage loans were assumable WITHOUT lender approval, now almost none are.

      The second biggest difference was that in 1981 almost no seller could sell their property unless they offered either seller financing or a mortgage “buy down”.

      The third difference was that in 1981 “information” was in the hands of a few real estate practitioners only with the public having access only to the information that the real estate practitioners decided to provide - now 100% of information can be found by anyone instantaneously on line.

      Fourth, real estate brokers, mortgage brokers, title company’s were legally allowed to operate in their own best interest, now they have either a fiduciary responsibility or responsibility for at least honesty and full disclosure.

      Finally, in 1981 relatively few people were interested in investing in real estate; now it seems like everyone and their sibling wants to participate in this arena.

      So you are saying, Buyers didn't have to start the loan over with every sale?

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    15h

    @Don Konipol Exactly Don.. folks miss that part I was a very active agent in those years.. I mean top producer.. I did not sell one property that a buyer got a new loan.

    I know a lot folks think Morby created sub to or wrap.. but thats how we did the deals along with assumptions as you noted..

    If my sellers would not owner finance in some manner I would not help them sell their properties..

  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8h

    Rob, I like the way you framed this around solving the seller's actual problem rather than trying to force every seller into the same transaction structure. One thing I’d add is that the creative financing solution can also change the tax outcome, so I’d want the numbers modeled before deciding which tool is actually best. Seller financing, for example, can have very different tax implications from a straightforward sale, and the timing of the proceeds can matter just as much as the headline price.

    The loan assumption point is especially interesting in today’s rate environment. A below-market existing loan can have real economic value that doesn't necessarily show up in the listing price.

    Sometimes the best deal isn't the one with the highest offer. It's the one that solves the seller's biggest constraint while still working for the buyer. Happy to connect!

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  • Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes
    4h

    Don, that's the best summary of the gap I've seen. The assumability point is the big one. In 1981 the old loan moved with the house almost automatically, and today it only moves on FHA, VA and USDA, with the servicer's approval and the buyer qualifying. Conventional is almost never.

    Jamie, to your question: yes, on those loan types the buyer takes over the seller's existing loan, the balance, the rate and the remaining term, instead of starting a new one at today's rate. The catch is the gap between the price and what's left on the loan, which the buyer has to cover with cash, a second loan, or the seller carrying part of it.

    Don, if you were working deals back then, what did the sellers who couldn't offer financing end up doing? Sit on the listing, or buy down the rate?

  • Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes
    4h

    Jay, thanks for that. The way you describe it, the deal was whatever structure got the seller out, and a brand-new loan for the buyer was the exception. If I have my dates right, due-on-sale got real teeth with Garn-St Germain in 1982, right after the year in my title, so I'd love to hear how those sub-to and wrap deals changed for you once lenders could call the loan.

    Today I'd put it this way: acceleration is the lender's contractual option, not a crime, so the people doing it well use a third-party servicer so payments are documented and never late, name the lender on the hazard policy, disclose it in writing to the buyer, and keep reserves in case the loan does get called. Did you handle it differently?

  • Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes
    4h

    Ashish, thanks. I agree completely, and tax is exactly where I stop and hand it to a CPA. When a seller is weighing cash against terms, I ask them to have their own CPA run both side by side before they decide, because the headline price and the timing of the money can point in different directions.

    From where you sit, what do sellers most often miss when they only compare the sale price? Is it the recapture on a depreciated rental, or the interest on the note being taxed as ordinary income?

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