The 2008 National Association of Realtors Profile of Home Buyers and Sellers reports that 93% of home buyers surveyed indicated they financed their purchase (Realtor.org). Real estate agents have become accustomed to and usually can anticipate most hurdles that came with a typical transaction; agents can usually prepare home sellers for home inspections, FHA appraisals, and shaky buyers.
These days, however, home sellers may feel as if they are trapped in an obstacle course. If finding a home buyer isn’t enough, home sellers are finding that closing the deal is getting more difficult as changes in the mortgage industry creates new obstacles.
Changes in home buyer sentiment and mortgage underwriting guidelines have created a new trend – uncertain closings. A continued disparity between the price home sellers are asking and what home buyers are willing to pay, along with increasingly tightening mortgage guidelines and indeterminate appraisals would make any home seller skittish.
Tightening mortgage guidelines are increasing the pool of unqualified home buyers, while questions of home values have made some closings problematic. Such obstacles have forced some real estate agents to using creative techniques to get their clients to close; some of these techniques have not been used since the 1980’s, when lenders also tightened underwriting guidelines in the wake of the S&L crisis.
One technique is the use of seller financing and land contracts. Home sellers looking to sell to a home buyer who does not qualify for a mortgage and/or get a higher sales price can possibly bypass the mortgage lender by offering seller financing. Once the note is consummated, the seller may decide to sell it to an investor; there are many investors who specialize in purchasing private mortgage notes.
Seller financing is not for everyone. Besides the fact that many home owners need the proceeds of the sale to purchase another home, it requires the seller to assume the risk of the home buyer defaulting. Additionally, sellers looking to cash out their notes may only get a percentage of the sale because investors purchasing these notes usually offer a percentage of face value. If considering seller financing, it is a good idea to consult an attorney to assist you and ensure you comply with local and federal laws.
Another creative technique that is gaining in popularity is “permanent” home swapping. Home swapping has been around for a long time, and has been popularized as a means of ensuring short term accommodations for vacations and sabbaticals. In fact, home swapping has become more chic as evidenced in its use in a recent episode of “Million Dollar Listing” (Bravo Channel; www.bravotv.com/million-dollar-listing) when two parties liked each other’s properties but couldn’t agree on terms. Due to an increasing number of home sellers consider permanent home swapping, more resources are becoming available to identify like minded home sellers. Of course, an experienced attorney should be consulted to facilitate such a transaction.
Although market conditions continue to stabilize, home sellers are encountering new obstacles to selling their homes. Real estate agents and home sellers are increasingly considering alternative and creative means to overcome problems. Before you embark on non-traditional means to sell your home, consult an attorney and other professionals for information that will help you determine if creative home selling is for you.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 30, 2009. Copyright © 2009 Dan Krell