Greetings!
We all know how important equity is. Generally speaking, the more equity a property has, the more committed the property owner. It's tough to walk away if times get tough.
When a seller agrees to carry back a note in order to get a property sold, he is not cashing out. In addition, he is assuming a new risk - he continues his tie to the property and faces the possibility that his buyer just may not make his payment next month. If that were to occur, not only has the seller not cashed out, he now has to deal with a potential foreclosure proceeding and the attendant pain and expense.
When a seller and buyer are negotiating, the exchange typically involves "numbers". Each side is vying for the best deal. However, there is one component in a sales situation that can be the most powerful of all, and every seller needs to find if it exists in his buyer.
Emotional equity!
If your buyer loves the school in the neighborhood, that's emotional equity.
If your buyer got a big job promotion and your neighborhood is the nicest and closest to work, that's emotional equity.
If your buyer is "moving back home" and wants to raise his children so they can be close to Grandpa and Grandma, that's emotional equity.
The stronger the bond to the neighborhood and immediate area - for whatever reason - the stronger the sales transaction becomes. Sometimes, a seller will know very little about his buyer. This can happen by choice or because the seller allows his realtor to handle the transaction, and instead just focuses on the sales price and down payment.
Mistake. The risk is too great.
If you as a seller are going to allow your property to be sold because you are willing to act as the bank, look beyond the numbers. Try to find the connection your potential buyer has to the neighborhood, the immediate area. What is the attraction bringing him here? What is the glue that will keep him here?
Find the emotional equity!
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"I have never let my schooling interfere with my education." Mark Twain
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Texas and California Lead the Way in Seller Carry-Backs
According to Advanced Seller Data Services, the number of seller carry-back transactions increased by 7.5% between 2012 and 2013(1910 counties reporting). Texas led the way with almost 24,000 transactions, followed by California with almost 11,000 and Florida with about 10,000. These are 1st position only, $30,000 minimum. Close to 90% of these are done by sellers who are creating only one, possibly two notes. They are not creating paper as part of a business plan. This means most folks will not run afoul of Dodd-Frank provisions, and will not have to concern themselves with becoming a Mortgage Loan Originator.
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"Yield is not realized until you get paid." Tom Henderson, Note Investor.
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How Does Your Housing Market Compare?
The National Association of Realtors reports that the national median existing single family home price was $191, 600 in the 1st quarter 2014, up 8.6% from 2013. NAR President Steve Brown said there's been some trouble in housing affordability. "Both home prices and mortgage interest rates are higher than a year ago, but the good news is that median income is enough to purchase a home in most areas."
In my home state of California, the median single family home price is $416,720, requiring a minimum annual income of $86,419 to qualify for a loan( California Association of Realtors First Quarter 2014 Housing Affordability Index).
Increasing prices will make it difficult for many people - nationwide- to purchase a home of their choice. Sellers who do not need to cash out will be in a position to help potential buyers and our real estate market by offering to carry the note, and constructing sound terms that protect both parties. And, don't forget - look for the emotional equity!
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"You can't fix the foundation in the middle of a storm." Mark Jackson, retired NBA player and Coach.
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