What can 5000 year old tablets tell us about saving $35,000 when selling a home?
For most of recorded history, humans were nomads and moved from place to place in search of food and shelter. Humans wandered for thousands of years before learning to control the flow of rivers as far back as 4000BC. Controlling water flows was the birth of agriculture and led our ancestors to “plant our roots” to grow food and raise livestock. Tribes and kingdoms would control most of these lands, but archeologists have found real estate contracts etched in cuneiform tablets in symbols. A simple real estate deal has a hidden trick that would save modern home sellers tens of thousands of dollars.
How did our ancestors sell their property?
When people bought and sold property before banks made mortgage loans, they had to agree on all the terms between each other. These were direct real estate sales. There were no brokers and lenders to tell you what “standard” payments were. No lenders limiting the sale price with appraisals. They just got together and figured out what worked for them and made the deal. Both sides found a way to win.
“The Middlemen are coming!”
5000 years later, selling a property is a lot different. Sellers now pay a long list of costs and fees including commissions, title fees, closing costs, and thousands of dollars to prepare the home for sale. They also have to wait 2-3 months if things to well — or even years in bad markets. Today’s home sales cost about 8-12% of a property’s value, according to Zillow and Realtor.com and including the costs of waiting to sell. And according to the Federal Reserve, the median home price is $347,000. This means it costs about 10% of $347,000, or $35,000 to sell a typical American house in 2021.
Even with prices rising across the country, the costs to sell leaves sellers asking “What could I do with an extra $35,000?”
When the middlemen are involved in a transaction, do you think they want to wait and be paid their fees over time instead of up-front? Of course not! This means they steer buyers and sellers to close in cash (or with a loan) so everyone can collect their piece of the seller’s equity. If buyers and sellers got together directly, they could avoid most of these closing costs. And if the seller doesn’t need all their equity at closing, they can agree to sell their property on payments instead of the lump-sum. That adds up to a lot more money in the seller’s pocket than if they “cashed out” at closing.
It Pays To Seller Finance Your Home
When you sell your home the normal way, you have to pay all the costs at the time you close on the sale. That 8-12% of your property value goes in the pockets of all the middlemen involved in the transaction. The “ancient” alternative to that is simply called “seller financing”. Seller financing sounds complicated but it’s very simple: the buyer takes over the property and the seller gets payments until they’re paid in full. If the buyer fails to pay the seller as agreed, the seller gets the property back AND they get to keep all the payments already collected. They can sell it again and make even more money!
When you seller finance a property directly to a buyer, you don’t need to pay a commission to an agent. That saves you 5-6% of your home price. You can also push the typical closing costs to the buyer. Plus, when you accept payments for your property, you can sell it for a higher price. Or you can just sell it quickly by asking for market price and offering seller financing payments instead of requiring a lump sum.
Ever buy a car that cost more than you could afford if you had to pay cash? That’s probably because you were able to make payments over time. Well, if you sell your own home on payments, buyers can afford to pay you more.
Being The Bank
When you sell on seller financing, you become the Bank of You. You get to set the terms that work for you, and as long as a buyer can pay those terms, you win.
How Long Until You Are Paid In Full?
How long until you get all your money? It all depends on your agreement with a buyer. It could be 3 years or 100 years. Whatever works for both sides. The longer you’re willing to take payments, the more money a buyer can afford to pay. You become the bank. Do you want long-term passive income for retirement or travel? Go with a longer term. Need the money in a few years for a major purchase such as kids college tuition or a property purchase? Make it shorter. In either situation, you take home more money than selling the “normal” way where you pay 10% to the middlemen.
Is A Seller Finance Contract Complicated? Not at all.
It’s common for sellers to think seller financing a property sale is going to be very complicated. But if the ancient humans could do it through carving symbols into a tablet, we can do it on a single page contract. In fact, most “standard” real estate contracts can be easily updated for seller financing. The “standard” contracts are usually created by the real estate agent organizations and are unnecessarily long to accommodate their commissions and fees. A direct property sale contract can be far simpler.
Set the price, set the payments, close date and a few other items and you’re all set. It’s really that simple.
What Happens If a Buyer Defaults?
When buyers make their payments and stop, the seller is able to foreclosure on the property to take it back. The process for foreclosure can be very messy as you’ve probably read in news stories over the years. But if you’re working with a strong buyer who is willing to sign paperwork for the “automatic foreclosure”, you don’t have to worry. The automatic foreclosure is where the buyer pre-signs the deed which is kept at a title company. If the buyer misses two payments, you simply notify the title company of the breach and the deed transfer back to you is processed and you get the keys. You also get to keep all the money you were paid! Not so bad.
What if You Have a Mortgage?
Many property owners think they can’t sell their property with seller financing because they have a mortgage in-place. The good news is there are multiple ways of selling that work with any existing mortgage. The simplest way is to use a ‘master lease’. A master lease lets the buyer take over the property as the landlord and pay you monthly rents until a scheduled sale date in the future. You are still able to avoid all the costs of selling and keep about 10% of your home’s value.
What If Your Home Needs Repairs?
A home that hasn’t been updated to HGTV standards might normally turn off buyers and bring in the “lowballer” investor types. But you can still get a good price for your home by seller financing the sale, even if it needs work. The right buyer can
How to Know if Seller Financing Your Home Is Right for You
Not every home seller can seller finance their property. The fastest way to know the answer to this question is to ask yourself “Is renting out my property instead of selling a possibility?”. Even if the thought of being a landlord makes you shudder, if the answer is “I *could* if I wanted to”, that means you’re able to sell with seller financing. By taking your equity in payments over time, you end up with more money than selling the normal way.
If you need all of your cash immediately at closing to buy another property or for something else, seller financing a sale isn’t right for you. It can be helpful to think about your plans for your home equity and what the alternatives might be. Were you planning to buy another home right away? Would you consider renting for a few years if you were “paid” an extra 10% for your current home?
How to Find the Perfect Seller Financing Buyer
If you made a list of your perfect buyer, it would probably look like this:
- Pays your full asking price (and reasonable monthly payments)
- Willing to close when you’re ready
- Willing to cover all the closing costs
- You pay $0 commissions
- No repairs, updates or renovations
- Sell it as-is
- No public listing photos showing your home’s flaws to your nosy neighbors
- Buyer is experienced at buying property with a track record of investments and an 800+ credit score and cash reserves
You’d probably be happy if a buyer who checks all these boxes showed up with an offer for your property. Fortunately, Full Price Offers is actively buying real estate across the country using seller financing. If you want the easiest sale that gets you more money compared to a regular sale, let Full Price Offers take care of everything.
Alternatively, you can consider advertising your property on social media and in your local community
About Full Price Offers
Full Price Offers is a real estate investment company based in the windy city of Chicago. With over 15 years of real estate management, investment and valuation experience that spans large office buildings to small apartment buildings, we are bringing the simple “ancient” techniques of seller financing that we learned in the commercial real estate world — from Wall Street to Main Street. Our no pressure offers won’t be beat.