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Frequently Asked Questions About Seller Finance

This Frequently Asked Questions (FAQ) page designed specifically for agents interested in learning more about Seller Financing. 

We put this page together to help address common questions and concerns associated with seller finance. This can help agents new to seller financing get a better understanding of it so that they can determine if it is a good fit for their client.

What is Seller Finance?

A seller finance sale is an agreement in which the seller agrees to sell the property to the buyer by structuring a loan that the buyer will pay off over time. 

This agreement is very similar to getting a loan from a mortgage lender, except the seller and buyer can create and negotiate their own terms including price, monthly payment, and the length of the loan, among other possible terms. 

With a Free and Clear property there is no bank involved in the transaction and therefore the buyer, seller, and property do have to follow traditional lending requirements.

Who is Seller Finance best for?

– A Seller who needs / wants to sell quickly, but does not want to discount.
– A Seller who does not need all of the cash immediately.
– A Landlord who still wants cash flow without the hassle of being a landlord.
– Heirs who need to “be done” with a property.
– Owners who do not have the ability to complete repairs.
– Properties that have High Days On Market and no acceptable offers.
– Sellers who need to “be done” with a property.
– Sellers who may not need all of the cash from the sale right now.

Who is Seller Finance not suited for?

Sellers who need immediate access to the entire net proceeds from the sale. 

What are the Key Benefits?

– Higher Price
– Faster Close
– As-Is Sale with no repairs
– No Closing Costs
– Buyer Pays Commissions
– Deferred Capital Gains Taxes

Why should I suggest Seller Finance to a client who has already turned it down in the past?

When a seller says “No” to seller finance it’s usually due to 1 of 2 things.
1. They do not fully understand how seller finance works and the potential benefits it can provide.
2. They were not ready to accept an alternative selling solution at the time.

Is Seller Finance a New Strategy?

No, seller finance has been around for a long time. You may just now be hearing about it because the real estate market was appreciating from 2012 to 2022. Now that interest rates are higher and the market is no longer appreciating at the previous rate, houses are sitting longer and buyers are becoming pickier. Now with the market becoming noticeably slower, seller finance is becoming a much more beneficial solution for sellers.

Could the seller potentially benefit from any tax incentives?

In instances where the seller is putting up a rental property for sale and hasn’t occupied the property for at least two of the last five years, they may be liable for capital gains tax on the sale. In such cases, opting for owner financing can provide significant assistance. 

Rather than receiving a substantial lump sum and facing taxes on that entire amount, the seller can opt for a more gradual approach, thereby mitigating the tax burden. This approach becomes even more beneficial to a seller if the sale could potentially push them into a higher tax bracket.

We strongly recommend speaking with your CPA in regards to this and the potential tax implications or benefits on selling the house the traditional way vs seller finance

What are the potential risks associated with seller financing?

Seller finance transactions are designed to keep the seller safe.

A Performance Clause in our contracts ensures that, in the event of a default by the buyer, the seller is able to repossess the property without a formal foreclosure. 

If this were to happen, the seller would greatly benefit by keeping any down payment money and all of the monthly payments made toward the loan. Often the property condition would have been improved and the property’s value may have appreciated.

The property is required to be insured by the buyer with the seller as the beneficiary. 

A seller finance transaction poses no greater risk (and probably less risk) when compared to suggesting a homeowner become a landlord. Factors such as vacancy expenses, potential eviction issues, rent collection, increased taxes and insurance, expensive repairs, and preparation costs may lead sellers to underestimate the 
challenges involved in being a landlord. 

How can the seller verify that payments are being made?

Payments are managed by a third-party loan servicing company which is responsible for facilitating the monthly payments. Additionally, the sellers have the option to receive notifications on a monthly basis, indicating that the mortgage payments have been fulfilled. The loan servicer will also alert them if any payments are late or missed.

What happens if you miss a payment?

While we’ve never missed a payment, we take precautions to ensure everyone involved is secured. We include a Performance Clause in our contracts which ensures that, in the event of a default by the buyer, the seller is able to repossess the property without a formal foreclosure. 

If this occurred the seller would benefit by keeping any down payment that was received, all the payments made towards the loan, improvements made to the property, as well as appreciation in the property’s value. 

How are utilities and insurance handled?

Our insurance agent will be responsible for replacing your current policy with our policy, which includes the addition of the sellers as additional insured parties. We will also take the necessary steps to transfer utility services into our name. 

How do I know if I am dealing with a qualified buyer?

The real estate industry has been overrun with wholesalers and investors who have no idea what they are doing. We have developed a questionnaire to help you determine who the real buyers are. All you need to do is have a potential buyer fill out the questionnaire and return it before you will consider looking at their offers. This will help you weed out unqualified buyers. We can send a copy of the questionnaire for you. 

What if the property has an existing mortgage?

You can absolutely sell your house through seller finance with a current mortgage in place. This is called seller finance subject to an underlying mortgage. We would need to look at your current mortgage, balance and interest rate – From there we can tailor a seller finance transaction to fit your particular needs.

If you have any additional questions please don’t hesitate to give us a call at 972-487-7653 or send us a message.

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