Using Realtors For Owner Financed Homes
By Paul Esajian on September 25, 2015
What are the advantages and disadvantages of using real estate agents for owner financed properties?
How Does Owner Financed Real Estate Work?
There are actually a number of different forms of seller financing. There can even be different variations and cross-over terms between them, which can cause some confusion, but which may also be a prominent reason that some may want a Realtor involved. Let’s look at a few of the options, and how they differ:
Seller Financing
In its truest sense, owner financing means that the seller of the property will finance the buyer. This is normally via a seller held mortgage loan. So instead of the buyer going to borrow from a bank or mortgage lender, the seller gives them the home loan. This normally makes it very easy and speedy to get into a home. In turn, the seller can sell faster, often at a great price, and doesn’t have to worry about the deal falling apart. The seller also benefits from ongoing income, and may find additional tax benefits. Another variation of this may be a land contract or contract for deed, in which the buyer makes installment payments over time prior to taking official ownership and title to the property.
Rent to Own
Rent to own is certainly a form of owner financing too. This can often be blurred with land contracts and contracts for deed. However, in this case the buyer normally rents the property for a fixed period prior to taking out a traditional home loan from an institutional lender to buy the property outright. This is normally at a predetermined price. Some hybrid arrangements may include a portion of the monthly rental payments being credited towards buying the property or accumulating a down payment. The downside of this can be complicated legal issues if one of the parties does not live up to their end of the deal.
Lease Options
Lease options may not necessarily be true ‘owner financing’, but many of the concepts are the same. Generally a buyer-tenant will lease the property, with the right to purchase the property for a predetermined price within a specific time frame. Normally this is actually two distinct agreements. One for leasing, and one for the option to purchase. So this can also be done separately.
Realtors and Owner Financed Properties
While it may not appear common, Realtors do work with owner financed properties. This may be a small part of their business, but most will certainly list these properties. Fewer may be interested in helping buyers find them. These opportunities won’t always be highly visible in the MLS, so just ask.
Pros of Using Realtors for Owner Financed Properties
1. Credibility: One of the biggest reasons that individual sellers have trouble moving owner financed properties is lack of credibility and fear of fraud. You can put up a website or advertise on Craigslist, but there is so much junk buyers are often too fearful of being taken advantage of. A Realtor changes that dynamic.
2. Exposure: A Realtor can instantly provide a ton of exposure, locally, online, and internationally. The more people that see the listing the more offers you’ll get, and the faster it will sell, for more money.
3. Legal Protection: Having the legal protection of the buffer a Realtor provides can be invaluable. They take care of the paperwork and disclosures and can help better vet prospects.
Cons of Using Realtors for Owner Financed Properties
1. Realtor Commissions: The most obvious negative of using an agent is the cost. That takes an instant bite out of net profits, and may mean you have to ask for more upfront, and then lose a substantial pool of the best fitting buyers.
2. Not Motivated: Another serious downside is that Realtors often dislike this type of transaction. They normally don’t take buyers seriously, which can be a mistake. They are normally under the impression that these deals will net them less commission too. So they may focus their time elsewhere. In reality this doesn’t have to be the case. In fact, in the case of lease options agents can double dip with commission on the lease, and then the sale. Though they are going to have to postpone some commission till later on the sale portion.
3. Failure to Connect: Some of the right buyers aren’t looking to agents or the MLS for these deals. They assume Realtors won’t help so they do take to Craigslist, newspapers, and driving neighborhoods to scout signs.