As a Realtor telling you this I realize your first thought is you don’t want me to buy for-sale by owner because you lose money. And yes that is a fact anytime you don’t buy a house through me I don’t gain money. So very true. Point acknowledged!
I have had an interesting year this year trying to sell a home for a seller that had bought there home for sale by owner a few years ago with very easy to get into seller financing. They thought they could do better “on there own” and this is what they got.
They purchased a home for about 35k more than it was worth. (You should ask your Realtor to run comparables for you) and they got written up into a contract that was impossible to get out of. They got written into a 5-year balloon meaning they needed to pay it off in 5 years. Well that is good and well if:
1. The property is finance-able
2. You do not owe more on it then it is worth.
3. You have some equity in it at that time and you can get a decent financing deal on it. Ideally needing to borrow less than 80% of the properties value. So you can get a good loan on it.
4. You have the cash or will have and this is a good deal for you
They hit the 5-year mark with still owing 20k more on it then it is worth. And a property that is hard to finance in the first place if its loan to value was right. So what is happening to them you ask? Well, there down payment and there 5 years worth of payments is going down the drain. That seller also made them sign a contract that they were not allowed to rent the property either so after not being able to sell it for more than its worth and not able to rent it out and they can’t finance it because they don’t have another 30k to get that home to a point where they could finance it he is going to repossess it. Which by the way this is the 3rd time he has done that in the last 15 years. Do you think they got scammed?
He once again is offering it low down rent to own or for sale by owner seller finance and all the other to good to be true options that are out there to take advantage of the unknowing. The next buyer will have the same terms pay it off in 5 years no renting it etc. The next ones will also be out the door on their ear.
And don’t get me wrong I am not knocking a seller contract. But you need to be aware. What are the terms? Is it a contract that you can legally ethically get out of down the road. My sellers on the above transaction were very willing to keep the property and rent it out. That seller was unwilling to do that because he knew he could do better by repoing it and starting over. He had no intentions of letting them create new terms for it. Even though they could prove that they could not finance it because the appraisal came in way to low he was still unwilling to rewrite terms. And the fact of the matter is they signed a contract agreeing to his terms. They had nothing to fall back on.
So you want to consider if it has a balloon where are you going to be 5 years 10 years down the road. Jobs change, family status changes, life is full of change. Is it a property that in case of emergency you could take a loan out on? There are some properties that a bank just will not loan on. No matter what. Those properties are going to have to be seller financed to sell. They could be neat properties but that is the deal. Are you going to be in a position when you need to sell it that you could carry the paper on it also? If the answer is NO because you will need the money to move on then you should probably reconsider. I am an optimist by nature but I truly believe expect the best but plan for the worst.
Are you financially prepared for the worst? Seems to me usually that the people that can least afford the financial disaster are the most likely to get into one. Funny how that works.
I’m not sitting here trying to push you to use a Realtor. i do highly recommend it for your own protection but I know it happens every day that people take on making the biggest investment of there life with no assistance, thinking they are getting a better deal. Thinking it will save you a commission or save you some extra fees. Generally speaking, if you are a buyer, you can still get the seller to pay the commission to the buyers representative and you end up with someone that is on your team. It is not a question of you paying more or less. Sometimes you can’t afford to not pay for help. You buy something you are trapped in that your going to lose your butt if you have one ounce of a problem that 2 or 3% that it would have cost you for assistance is nothing in comparison.
In my above client example, they paid almost 30% more than the property was worth. They could never have caught up in the 5 years they had to make payments on it. And they put down a decent down payment they put 10k down. So my words of advice really are be careful. And make sure you have an escape clause. That your not upside down and that you could resell it or rent it if you needed to down the road. Those are the things an experienced agent should be able to help you with. Your devils advocate per sea.
And I am not saying No to the weird non conforming property that suits your family perfect its good go in with your eyes wide open. If your credit is a disaster but you need a home and all that is available is an overpriced seller financing home that’s fine go in with your eyes wide open. Have a plan. And know what you might lose and be prepared for that. We all do things sometimes that we don’t want to do but have to do. That is fine but know the pros and cons.
I’m here to help you with all your buyer and seller needs. Please feel free to request help. Questions and answers are free
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