By Charles Bogue
Saturday, August 11, 2007
Be it fashion trends or home financing, all markets and conditions are subject to cycles.Just like wide ties and thick glasses, seller carry-back financing is rapidly returning as a key stimulant in the creation of a successful home sale.The recent retreat and tightening of institutional financing for home loans has revived the need for sellers to fill in the gap by providing a second trust deed to create a successful sale.With the increase of homes available for sale in the Napa market, each seller seeks a competitive advantage and the offering of seller financing will generate more qualified buyers for your home.
It is important to realize that you are changing from seller to banker when providing financing. You will need to investigate and protect yourself, as any other lender would, by obtaining qualification information from the buyer, creating complete loan documents and knowing the risks that you are taking on.Should you decide to assist in financing, here are some steps to take to protect yourself in your new role as a banker:• The cash investment. The seller’s risk increases proportionately with the amount of the note and the total indebtedness of the buyer. If the buyer has invested only 5 or 10 percent cash of the total purchase price, he or she has less at risk in the event of default. You should exercise caution if the buyer’s total debt exceeds 80 percent of the purchase price.• Tax liabilities. The creation of seller financing may impact your interest income and capital gains on the proceeds from the sale. Consult with your tax advisor before signing a sales contract. Know the after-tax consequence of your providing financing. You can negotiate the term, interest rate and conditions of the note you carry.• Qualification documents. Obtain a loan application, credit report, employment records and all other information that would be required by a conventional lender.• Review senior loans. You will want to know what loans will be ahead of you in priority, the amount of those loans and what your payment and foreclosure obligations will be in the event that you need to take over the total indebtedness.• Title and hazard insurance. You will want to insure that you are named, as any other lender would be, in the coverage of title insurance and in the coverage of hazard insurance in the event of fire or other damage.• Record documents properly. The deed of trust must be properly recorded with Napa County to secure the executed note. Use escrow services in all cases and have an attorney draft or approve all signed documents.More now than ever, seller financing can be a useful negotiation and sales tool that can work to the benefit of both the buyer and the seller. It can give the seller a quality cash-yielding investment and greatly increase the number of qualified buyers and the chances of a successful sale.
Charles Bogue is a broker with Coldwell Banker Brokers of the Valley in Napa, where he offers real estate marketing services as the CB Team. Phone: 258-5221, e-mail: cbnapa@napanet.net.
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