Sarasota homes for sale do NOT need to sit on the market while sellers constantly drop their price BELOW market just to entice one of the FEW buyers who can jump successfully through all the banks’ hoops.
For many buyers, it’s difficult (if not impossible) to bank qualify today.
Banks want you to jump through myriad hoops before they’ll consider your mortgage application. Oh, you’re not W-2 wage earner? Ouch! Self employed people are lepers to many banks…at the moment.
Therefore, many sellers end up dropping prices below market just to entice buyers who can pay cash or bank qualify. That’s a much smaller pool of buyers.
Say hello to owner financing.
Owner financing has re-emerged, bigger than during the early 80’s when interest rates soared to 15-18%. “Owner financing is not new…far from it,” Sarasota Realtor Mike Payne states. “For decades, buyers and sellers have utilized owner financing to buy and sell property.”
Owner financing has re-emerged, bigger than ever!
Click Read More below now to discover buying and selling options without BANKS.
BANKS BEGONE IN TODAY’S REAL ESTATE MARKET
Owner financing offers different options:
- The seller can be the bank for the buyer, holding the Note and Mortgage for the buyer. Buyer lives in and enjoys the property as if he had gone through Bank of America, for instance, to get a mortgage. Should buyer stop paying, seller will foreclose on buyer to reclaim the property.
- Lease-option the property. On other Other popular option is to lease-option the property. The buyer is a “tenant” during the option period. Therefore, the buyer is bound by terms of a lease agreement AND an option to purchase agreement. In other words, the buyer knows what’s expected of him during the lease term. He also knows all the terms for purchasing (i.e. purchase price, etc). Other synonyms describing lease option include “rent to own,” “lease with option to purchase” and “lease-purchase.”
- Contract for Deed. Both parties know what each needs to do before deed transfers to buyer.
When done right, both buyers and sellers enjoy a win-win transaction. The buyer grabs the keys to a nice home in a nice neighborhood at a fair price. Seller gets to “sell” at fair market value without continuing to drop the price during a buyer’s market.
Clearly, “lease options” are more popular today. For this reason, let’s focus on lease option for the rest of this article.
A lease option typically attracts a higher quality “renter.” This “renter” is a homeowner in training, who understands HE is responsible for maintaining the property. He will not call the owner to fix a leaky toilet.
In fact, I recommend seller (and/or buyer) pay for (or split the cost of) a home warranty with a $45-$50 co-pay. Should anything go wrong with the property during the lease term, the home warranty will fix the the problem.
(Note: remind me to disclose the “gotchas” of home warranties. Oh yeah, home warranties love their “gotchas.”)
The seller gets his sales price, depreciates his property during the lease term and collects a sufficient option fee from the buyer.
The option fee and rent premium are viewed differently by buyers and sellers. To the buyer, an option fee is a down payment in the house he’s soon own should he exercise his option. Fully expecting to exercise the option, buyers pay a 2-5% option fee to control their new home with no bank qualifying.
To sellers, however, these option payments are the best guarantee that their property will sell and that the tenant-buyer will maintain the property and exercise the option.
The buyer clearly understands he forfeits his option payment should he not exercise his option.
Further, each party relies on strong paperwork defining the lease and the sale/purchase terms. Incidentally, I still see many well-intentioned real estate agents with no understanding of lease options throw together a Standard Sale & PUrchase Agreement AND a lease agreement. Unfortunately, this is dangerous to both parties, in the event of disagreement.
(Note: paperwork never becomes an issue when both sides are happy).
Payne adds, “Many buyers and sellers have ended up in court over a bad contract they attempted to throw together without an experience ‘rent-to-own home specialist’ or real estate attorney experienced in lease options.
Beyond the solid paperwork carefully reviewed by attorneys representing each side, there’s screening. In fact, BOTH buyers and sellers MUST be screened!
“Proper screening of prospective tenant-buyers must separate renters from the homeowners-in-training. Once the tenant-buyer checks out,” Payne adds. “On the flip side, many property owners today are in jeopardy of losing their properties to foreclosure. Some unscrupulous property owners are taking people’s money, selling them on a lease option & then letting the property go in to foreclosure.”
“Unlicensed people can sell their own properties. This is how this scam is occurring,” says Payne.
A successful transfer of property from seller to buyer on a lease option depends on the details.
For instance, SELLERS must:
1. Prevent an equitable interest claim filed against the seller?
2. Oversee their property during the lease term?
3. Know about a monthly rent credit?
4. Know what causes mortgage underwriters to disqualify a monthly rent credit?
5. Know how to determine the length of the lease term?
6. What is an “assignment” and how could an assignment hurt you?
On the flip side, BUYERS must:
1. Protect their interest in the property against unscrupulous sellers who attempt to cancel the contract & take the property back.
2. Get contract language protecting against unforeseen setbacks.
3. Avoid unlicensed & untrained “rent-to-own home specialists” who have taken the latest “guru” weekend bootcamp and suddenly “specialize” in owner financing.
4. Protect their option payments with strong contract language.
5. Pay a real estate attorney $200-$300 to confirm the proposed contract protects the buyers.
Sellers and buyers both can benefit from “owner financing” provided both parties have their interests protected by attorneys & work with people who know how to present owner financing opportunties to both buyers and sellers.
Sarasota homes for sale do not require BANKS once sellers and buyers clearly understand their options. What questions or comments do you have about owner financing? One question I typically get from realtors is how they get paid. OKay, that’s a fair question, as I don’t work free. In a different article, I’ll address how realtors might consider requesting payment. For now, scroll down to the box to leave your comments, thoughts or questions. I look forward to hearing from you.
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