Let’s face it, it’s hard to sell a house today. In many parts of the country, the real estate market is the worst in many years and home values have dropped significantly in some areas. We’ve seen double digit percentage declines in values and 10-14 months of inventory in areas near us over the last few years. If you can wait to sell, then wait for at least some stabilization in the market.
But what if you can’t wait and you really have to sell now?
There are many creative strategies that people are employing and some of them are fun to read about. I haven’t yet seen anyone include a second house in the deal, but I have seen cars and other valuable items thrown in as enticements for buyers!
There are three basic strategies still employed and Sellers today are wise to consider employing all three of them. Of course there are many variations on each theme; some variations are so creative as to possibly merit their own ‘strategy.’
The three basic approaches are Sell it Now, Seller Financed, and Rent-to-Own. Each has its own advantages and disadvantages and I’ll give a brief overview of each. Real Estate Agents are capable of handling any of these types of transactions, within the restrictions of state laws and guidelines of their brokerage. Sellers can conduct these transactions themselves as well, but certainly would be best served with appropriate legal, tax, and possibly other expert advice.
Sell it Now
Simply listing a property for sale and selling it outright to a qualified buyer. The deed transfers at the time of the sale and the seller walks away with no strings attached after closing.
Advantages: Seller cashes out at closing, most common and easily understood sales transaction; all Realtors deal with these transactions easily.
Disadvantages: high supply of houses on the market drives down price for straight sale transactions, harder to differentiate property, buyer must qualify for a loan. Higher than normal numbers of foreclosed or short sale properties have driven overall prices down.
Seller Financed
List the property for sale but offer full or partial financing to the buyer, usually with a balloon payment at the end of a term. The deed transfers when the balloon payment is made, so the seller holds title until that time (usually 5 yrs or less).
Advantages: Financing, especially 100%, can be a strong incentive for buyers, especially after the subprime loan meltdown. Allows flexibility to structure the deal to meet seller and buyer needs and buyer may have tax benefits. Seller is somewhat protected by holding the title for the term.
Disadvantages: Seller doesn’t cash out immediately. Seller has the added risk of the loan to the buyer; may be difficult to work with some lending institutions in the case of partial financing (2nd mortgage held by the Seller).
Rent-to-Own
Lease or rent the property for a term with the tenant-buyer actually purchasing the property at the end of a term. The deed transfers when the purchase transaction is complete, so the seller holds title until that time (usually 1-5 yrs).
Advantages: Produces revenue for the seller over the term, can be a strong incentive for buyers that cannot currently get a loan. Tenant-buyers usually care for the property as ‘owners’ rather than as ‘renters’. Price can be set at the end of the term, allowing for potential market improvement.
Disadvantages: Seller doesn’t cash out immediately. Seller has a lease, not a sale contract at the beginning of the term and usually has responsibility for maintenance.
Sellers should consider all three of these basic strategies for selling residential properties today and determine which ones fit their own situation. We encourage sellers to employ as many of these strategies as they can when marketing a property today.
Straight sales are difficult today and typically bring the lowest overall price, but offer a clean break and cash (if there is equity) at closing.
Seller Financing can help support a higher price point and a quicker sale. It is an actual sale but the final transfer of deed usually comes several years later and, while there is revenue during the term, there is also a risk associated with a loan to the buyer.
Rent-to-own can often bring the highest overall price since the actual sales transaction occurs in the future; if the market improves during the term, the sales price improves for the seller. There is revenue during the term, but seller involvement is higher and costs may also be higher. This may be the best option for someone who needs to move but has very little equity or owes more than they could get from selling at current market value.
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Contributor's Note
Value Property Investors is active in all aspects of residential real estate with experience in many strategies for buying and selling. The company’s current focus is on helping homeowners reduce debt.
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