Sell Your House Without an Agent

To Sell Your House Without an Agent may be very tempting. Why should I pay an agent a commission. I could save the money by selling it myself. Before you do, call (951) 901-8153. Let us see if we can help you first. We can help you navigate the waters. Here is some areas to consider:

  1.  How much is your home really worth. This is an emotional decision if you are not a real estate investor in the business of buying and selling for profit. Today’s explanation is better known as “Fix ‘n’ Flip.” To investors it is all about the bottom line profitability. You can’t let all of the memories cloud the real value. . . a buyer only sees your home through their eyes. Suggestion: Call a few local real estate professionals and request a Property Market Analysis. (951) 901-8153.
  2. Determine the best time to list your home. Certain times of the year may be more profitable than others, although this will also be dependent on where you’re located and relevant events in your area. Selling a family-sized home once school has started or to sell it at an ideal price may tough and traumatic for families with children changing school mid-semester.
  3. Consider the weather. Take into consideration the weather. Depending on your geographic location you may have excessive cold and/or snow to deal with. How does your yard look with two feet of snow? Would your home be better to show in the spring, when your yard and beautiful landscaping can be at their most appealing to buyers? Do you live in an area where seasonal heavy rains would create difficulty of viewing the interior of your home without tracking mud, etc. in the house.
  4. Inform your “visitors” with a fact sheet about the property. Indicate the “List Price”  and the “Terms of Sale.”  You might also include a list of all exclusions or items that may be subject to negotiation. Have information on hand about commuting, schools, and your town or community. The buyers may be from out of the area and not be familiar with roads, schools or local transportation. Be prepared to answer questions about why you are moving.

Preparing to Sell Your House Without an Agent.

  1. De-clutter.  You are intending to move, start getting rid of unneeded, not essential items. However, remember you may still need to sleep, eat, and live in this home in the short term. You are not taking it with you? Then give it away, donate or trash it. Extra furniture can make homes look smaller, giving the impression  there is less room available. Children toys can be rotated with the extras stored out of sight.
  2. De-personalize.  The idea: let the buyers picture the home as theirs, without any distractions of your own preferences, beliefs, styles, etc.
  3. Consider curb appeal. First impressions can do a lot. Prepare the outside of the property:
    Make sure walks and stairs are cleared and safe to walk on. Make sure there is access to the backyard and detached garages also.
    Consider refreshing the home with paint of power washing the exterior. Plant flowers in flowerbeds and/or use pots for part of your staging to make the home more inviting.
  4. Safety first. Do you live alone? Be smart. Make sure you have someone “keeping you company” when the house is open for inspection. Not everyone may be coming just to buy or look. Put away valuables–safely and securely locked up. You don’t want to follow potential buyers.

Informing your Buyers: Paperwork and Handouts to Sell Your House Without an Agent.

  1. Make acceptance of the offer and closing contingent on approval of the paperwork by your attorney or title company. Have the paperwork checked immediately. Be sure that the mortgage papers and the deed are prepared properly for your protection. You will be signing over your rights, including the title and deed to the other parties, so it has to be done correctly. You can contact a Title Company to assist with this part of the transaction.
  2. Require your buyer to buy a buyer’s title insurance policy. If there were any problem with the title or any cloud on the title found after the closing, then the title insurance will be responsible for making it right, not you.
  3. Are there any disclosures you need to make. Some disclosures aren’t mandatory when selling your house without an agent, but having the information available can answer many buyer questions about your home. Lead paint disclosure is mandatory. Make sure you have one for your home, particularly if it were built before 1978. Disclosure forms are generally available online.
  4. Exposure. It is all about exposure. Balance the costs as they can add up quickly. Calculate what you are willing to spend and spend wisely: newspaper advertising, flyers, property information sheets. Make sure you post a For Sale sign and the best number to contact you.

I Did It. Sold My House Without an Agent. Now What to Expect.

  1. Negotiate the contract. Someone who would like to make you an offer. Congratulations, now for the hard part. How to accept an offer. Only accept written offers! You need a contract for the buyer to use. One may be found on line, or ask your real estate attorney for one. The buyer is buying directly from you to save the commission. Don’t be surprised, if the offer is lower than you planned. Be prepared defend your price. If you are able to agree on a price, terms and conditions, read the offer, making it contingent upon approval by the attorney. The buyer should be furnish a mortgage pre-approval letter from a qualified lender, as well as an initial deposit check. Was the buyer represented by an agent? As seller you will be paying this agent at the closing. This individual is not representing you and is actively working against you getting the best price available. The agent is more concerned with the buyer than with your needs during contract negotiation, inspection issues and bank appraisal. If something they say sounds off, it would be worth it to talk with an attorney or discuss with realty agents to see about getting yourself a selling agent. Saving money by selling your house without an agent is great, it’s not worth it, if the buyer’s agent loses you thousands of dollars. Are you tempted to accept a contingency offer?  The purchase of your property is not a done deal.  If anything goes wrong on their end, you lose your contract and are back to square one without any remedies available to you.
  2. Home Inspection. It has become common practice for the buyer to request a home inspection. During inspection, anything the inspector points out is of concern (especially to a first time buyer). Inspection issues are the biggest reason contracts fall apart. Ultimately, it always comes down to how much you want to sell and how much they like your home.  “Certificate of Occupancy” or “Fire and Safety Inspection”. You will need to check with your governing agencies to find out if there are regulations with which you must comply. Find out the requirements for the smoke detector, fire extinguisher and carbon monoxide detector so that when the inspector comes there will be no issues.
  3. The bank appraisal. The bank giving the loan will need to appraise your property. Banks are not being generous with appraisals. You will have to rely on the appraiser to pick the right comps. If the buyer is obtaining a conventional loan, putting down 20 percent or less, they cannot get the loan, if the home does not appraise for the amount offered. An FHA loan, you will bind you with the appraisal given for six months, even if there is a different buyer. If your home does not appraise you may need to lower your price to the bank appraisal amount if you really want to sell.
  4. Other reasons for the deal to fail. Bank regulations keep changing, making it more difficult for a buyer to qualify. If the buyer chooses to use a non-bank or large, well-known reputable lender, the processing of the loan may be held up for days, weeks or months, even when there are no real issues. Circumstances change.  The buyer may no longer qualify and can’t get the loan. Therefore they cannot buy the house.

If the contract is canceled for any reason, (failure to appraise, inspection issues, buyer failing to qualify for the loan), the buyer will probably get their monies back. This can be costly to you, as not only is your home now “older inventory” but the new buyers may be concerned that there are inspection issues that they cannot see. In a declining market, the price you need to set when you go back on the market may be lower than your original offer.

Now if you don’t want to encounter this experience, All Counties Real Estate Solutions might be able to help. Call (951) 901-8153.

How to Sell Your House Without an Agent

US News Susan Johnson Taylor- How to Sell Your House

5 Reasons Owners Offer Seller Financing

Why would a seller allow a buyer to make payments over time for the purchase of property?

Wouldn’t the seller rather get paid now and require the buyer to obtain a bank loan?

Here are 5 reasons property owners offer seller financing:

1. Reduced Marketing Times

What is the first thing a real estate agent does when property is not moving and has been on the market for 60 to 90 days? They reduce the price and add the tagline “price reduced” to all advertising and signs. Rather than reduce the price, it might be beneficial for the seller to offer financing. Buyers provided with financing can certainly pay full price in exchange for the many benefits they receive with owner financing, including the money they save by not paying expensive loan fees, origination fees, and points.

2. Increased Inventory of Prospective Purchasers

By offering owner financing, the seller increases marketability with a wider group of available purchasers. Statistics show that almost 40 percent of the American population is unable to qualify for traditional bank financing. While not all of the “unqualified” group would be an acceptable risk for owner financing, it still widens the market of prospective buyers considerably. Anyone who has added the words “Owner Will Finance” or “Easy Terms” to a For Sale ad or Multiple Listing Service (MLS) listing knows the phone will ring off the hook with interested prospects.

3. Reduced Closing Times

Another advantage of offering owner financing is substantially lower closing times. A closing involving a third-party conventional lender can take six to eight weeks while closing a seller-financed transaction through a reputable title company can take as little as two to three weeks. This is due to the reduced paperwork and less restrictive due diligence process.

4. Investment Strategy for Hard to Finance Properties

There are many properties that encounter financing difficulties including mixed use property, land, mobile and land, non-conforming, low value, and others. Investors realize excellent returns by paying a reduced cash or wholesale price on a hard-to-finance property and then reselling at a higher retail price with easy financing terms.

5. Interest Income

Why let the banks earn all the interest? Sellers can keep the property-earning income even after they sell by offering owner financing. For example, a $100,000 mortgage at 9 percent with monthly payments of $804.62 will pay back $289,663.20 over 30 years. That additional $189,663.20 (over the $100,000 mortgage) is power of interest income!

Work with Owner Financing Specialists

If considering seller financing, be sure to consult with a qualified professional to properly document the transaction.

It also helps to speak with note investors to gain insight on appealing terms and structuring techniques. This assures top-dollar pricing should you ever want to convert the payments to cash by assigning your note, mortgage, deed of trust, or contract to an investor.

 

Safekeeping the Original Mortgage Note

Can you easily locate the original mortgage note?

This important legal document should be kept in a safe place, and here is why!

The promissory note is a promise to pay or IOU from the property buyer. It spells out the amount due and terms of repayment. In legal jargon it is known as a negotiable instrument. Similar to a check, the original must be presented to collect or prove ownership.

If the seller desires to sell and assign the payments to a note buyer, the investor will ask for the original note to be provided at closing. The promissory note is then endorsed over to the investor. Similar to endorsing a check, the holder signs on the back of the note.

Sample Note Endorsement on Back of Original Mortgage Note

Pay to the order of, (Insert name of investor), without recourse.

 

Dated this ____ day of _______, 2011.

(Seller Signs and Dates)

Sometimes the note endorsement is executed on a separate piece of paper, also called an allonge. The allonge is then attached as a permanent rider to the original note. The endorsement enables the investor to prove they are a holder in due course, with the same rights of repayment as the original note holder.

An investor may also ask for the original recorded mortgage or deed of trust at closing. However, if this original is lost, an investor will usually accept a certified copy from the county recorder’s office.

A lost original note, on the other hand, can cause a problem. In most states the note is not recorded. If the original note becomes lost a note investor may ask for a duplicate or replacement note to be signed by the payer or maker. This means going back to the person that owes you money and asking them to resign. This relies on their cooperation and can cause delays.

The investor will also ask for a lost note affidavit from the seller or note holder, stating the note has been lost and it will be presented if found at a later date.

Some investors will consider accepting just the lost note affidavit with a copy of the original note.  However, this is increasingly rare as a lost original note can create problems foreclosing should the buyer stop making payments.

The best option is to avoid losing the note by keeping it in a safe deposit box or a fire and waterproof safe. Some sellers elect to have the original held by their attorney or a third party servicing agent for safekeeping.

Whatever method you choose, be sure to keep the original mortgage note in a safe place that is easily located!

 

Seller Financing – How Much Can The Buyer Afford?

Many sellers accept owner financing without any idea of how much the buyer can actually afford to pay.

The last thing a seller wants is to stress over receiving monthly payments or worse, getting the property back through foreclosure.

3 Ways to Calculate Payment Affordability Before Accepting Seller Financing

The amount a buyer can afford to spend on a house depends on their income, overall debt, cash they can put down, credit rating, and the mortgage terms.

There are three different calculations that are traditionally used by mortgage companies to determine how much house a buyer can afford. These are known as the Income Rule, the Debt Rule, and the Cash Rule. While owner financing does not require the strict use of these rules, it makes sense to utilize the standard as a guideline. (Better safe than really sorry, right?)

1. Income Rule

If you ask a real estate agent or lender for an estimate of how much house a buyer can afford, they’ll typically use a version of the Income rule. The Income Rule says that the monthly housing expense — which is the sum of the mortgage payment, property taxes, and homeowner insurance premium — cannot exceed a percentage of income.

This is often referred to as the front-end ratio and ranges from 27 percent to 30 percent for most lenders.

If the maximum percentage is 28 percent, for example, and the monthly income is $4,000, the monthly housing expense can’t exceed $1,120 (4,000 x .28 = 1,120). If taxes and insurance on the home are $200 per month, the maximum monthly mortgage payment is $920. At 7 percent interest for a 30-year loan, that payment will support a loan of $138,282. Assuming a 5 percent down payment, the maximum price of the home this buyer can afford would then be $145,561.

2. Debt Rule

The Debt Rule says that the total debt expense – which is the sum of the total mortgage payment plus monthly payments on existing debt like cars, credit cards, etc. – cannot exceed a percentage of income.

This is often referred to as the back-end ratio and ranges from 36 percent to 43 percent.

If this maximum is 36 percent, for example, and the monthly income is $4,000, the monthly payment can’t exceed $1,440 ($4,000 x .36 = 1,440). If taxes and insurance are $200 a month, and existing debt service is $240, the maximum mortgage payment the buyer can afford is $1,000. At 7 percent interest and a 30-year loan, this payment will support a loan of $150,308. Assuming a 5 percent down payment, the maximum price of the home would then be $158,218. (You’ll notice that’s significantly higher than what we calculated using the Income rule.)

3. Cash Rule

The Cash Rule says that the buyer must have cash sufficient to meet the down payment requirement plus other settlement costs.

If the buyer has $12,000 and the sum of the down payment requirement and other settlement costs are 10 percent of the sale price, then the maximum sale price using the cash rule is $120,000 (12,000 divided by .10 = 120,000).

Since this is the lowest of the three maximums in this example, it would be the affordability estimate that is safest to use for this scenario.

Putting It All Together for Seller Financing

How much house a buyer can afford is easy to overestimate if you ignore one of the three rules. Don’t make the same mistake as many of the mortgage lenders that ignored these standards in past years.

Granting loans to buyers that could not afford the payment played a large role in the current sub prime toxic mortgage mess that is currently in the headlines. There is no federal bailout program for sellers accepting owner financing.

Play it safe and be sure the buyer can afford the house payment before accepting payments over time.

Seller Financed Notes and Interest Rates

The interest rate a seller agrees to accept when providing owner financing to the buyer has a large impact on the note’s value. Unfortunately, many sellers overlook this important decision.

Why Private Mortgage Note Interest Rates Matter

Inflation Fighter

Each year it seems the cost to buy the basics just keeps going up. It’s not your imagination; it’s inflation.

In fact in July 2008 that inflation rate was 5.6 percent higher than in July 2007 (based on the Consumer Price Index reported by the U.S. Department of Labor on August 14, 2008). Worse yet, some basic items like energy increased 29.3% over that same time frame.

So what does inflation have to do with seller-financed notes? Well a seller would need to at least charge an interest rate equivalent to the inflation rate just to break even!

Return on Investment

Rather than just breaking even, a seller desires a return on their investment. By accepting an IOU or payments from the buyer that money is tied up. Plus, once the property is sold the new owner will be the one to directly benefit from any increase in property value.

The seller is now acting as the bank and should expect a return at least equivalent to the interest rate a bank is charging for a similar loan. The seller does not have the protection of private mortgage insurance that many banks require adding another level of risk that should be rewarded by an increased rate.

Since the buyer is saving the costs a traditional bank might charge for a loan (points, underwriting fees, origination fees, etc.) it is reasonable to expect them to pay an interest rate above what a bank would charge. On average, it is recommended that a seller financed note carry an interest rate of 2-4% higher than bank rates to compensate for these matters.

Improves Resale Value to Note Buyers

If a note holder ever desires to sell their future note payments for a lump sum of cash, they will quickly realize how important the note interest rate is to investors.

While investors look to a variety of factors to determine their pricing, all things being equal, a higher interest rate results in a higher purchase price from a note investor.

For example, a seller holds a note with a balance of $100,000 with monthly payments of $1,110.21. If the note rate is 6% and the investor wants a 9% yield then the offer would be $87,641. Now if the note rate were 4% the offer would decrease to $81,623, but if the note rate were 8% the offer would increase to $95,274.

For simplicity of comparison, these examples assume the monthly payment amount remains the same and there are acceptable credit, equity, and documentation. But you get the idea, the higher the interest rate the more valuable the note.

There Are No Take-Backs!

The time to give serious consideration to the note interest rate is at the time of creation. There are no take-backs or do-overs. The rate you agree to accept at closing stays the interest rate for the life of the note. The only way to change it later is to get the buyer to agree and execute a formal note modification. It’s highly unlikely a buyer or note payer is going to agree to have their interest rate increased at a later date (unless there is some advantage to them).

Be sure to give the amount of interest charged on a seller financed note serious thought. It will affect the value of your note not only today, but also far into the future.