This is my column for this week from the Arizona Republic (permanent link):
Seller financing can give you an edge over your competition in the Phoenix real estate market
If you have significant equity in your home, you have a potent weapon at your disposal on resale.
The big news this year is likely to be more and more stories of people with little or no equity trying to get their homes sold. Values for an average suburban Phoenix home were down 14.66% year-over-year. That doesn’t sound too bad, but prices were down almost six percent just in December. We’re down 24% from the peak in December of 2005, on average.
But here’s the silver lining: If you bought that average home in December of 2003, and if you resisted the impulse to refinance your loan, you’re still up over 40% from your purchase price.
That equity gives you a source of leverage on resale that you might not have considered.
First, as always, for your home to sell it must be priced right, prepared right and presented right to the marketplace. You can’t do any kind of elaborate negotiations if buyers don’t even see your house.
But because you have equity in the home, you have the ability to help a willing buyer navigate the suddenly-more-perilous shoals of the lending process.
Suppose your buyer has five percent for a down payment, but the lender is willing to make a much more attractive deal for ten percent down. If the lender is willing to accept the arrangement, you can offer to carry back a note for the extra five percent, using part of your equity as seller financing.
You’ll be taking a second or third position in the line of creditors, should the buyer default — and it’s always possible that you will lose every cent you are lending. But given the direction of the market, you could be a lot better off risking five percent now, rather than accepting ten percent less a few months from now.
As with everything, read the fine print, ideally in the company of your accountant. But seller financing is one more weapon you can deploy to set your home apart from the competition in this very competitive market.
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Mike Bouma says:
Well put. We’re not in the same type of market at the moment, but Seller financing can be a big advantage in high inventory markets.
http://www.bouma.ca
May 7, 2008 — 2:29 pm