Savvy listing agents can create a win-win for their clients by selling the property for a higher price while also lowering the total cost of ownership for the buyer–and also generating more buyer traffic (and thus leads) to boot.

Good agents know that the best way to get a property sold quickly in a buyer’s market like the one we currently have in many parts of the DC area is to make sure it shows well, and then price it aggressively; properties that come on the market with aggressive pricing and that show well are actually more likely to get multiple offers and be bid UP in price rather than having to negotiate down in price. (My general rule of thumb is that in a buyer’s market, if you want to sell your property quickly, you need to be in the best slice of the market in terms of quality, AND the best slice of the market in terms of price, where the number of slices is the number of months of inventory; for example, if your listing is in a market with 8 months of inventory, then you will need to be in the top 1/8th of that market in terms of how well the listing shows AND in the lowest 1/8th of that market in terms of price, or else you stand a good chance of having that listing sit unsold for an extended period of time.)

Agents also know that many owners don’t want to start off pricing their property as aggressively as they might otherwise, which usually results in the seller having to lower their price, either directly or during negotiations. For agents who have clients like that, though, all is not lost; Seller-Assisted Financing is a great tool that can help get those properties sold faster (although not as fast as if they were priced aggressively to begin with), while also generating more leads for you and netting a higher total profit for your seller than they might get if they negotiated down in price at a later date.

What’s Seller-Assisted Financing (or SAF)? At its core, it comes down to your seller agreeing to “buy down” the interest rate for their buyer rather than lowering their price. How it works is probably best explained by an example.

According to MRIS, for example, in Alexandria in June of 2009, the typical listing sold for 95% of the listing price at the time that negotiations began. (That is, the typical seller in Alexandria was conceding 5% of their asking price during negotiations, over and above any price reductions that they had already made previously.) The average listing price of properties that sold during that time was just under $478k, meaning the typical seller in Alexandria was agreeing to a price roughly $24k below their listing price.

What did that $24k discount mean to a typical buyer and seller, though? Let’s assume for now that this was a buyer putting 20% down on that purchase, with good credit, income, and assets; a typical rate during much of June for that buyer would have been 5.500% on a 30-year fixed-rate mortgage.

For that scenario, if the buyer had agreed to the seller’s asking price of $478k, they would have ended up with a monthly PI payment of $2171.23/mo.

By negotiating the seller down from $478k to $454k, the buyer would have ended up with a monthly PI payment of $2062.21/mo–a monthly savings of $109.02/mo. to the buyer, and a loss of $24k to the seller.

Now consider the SAF option. What if, when that buyer submitted an offer at $454k, the seller had responded “how about we keep the price at $478k, but I pay to bring your interest rate down to 4.25%”? If the buyer had agreed to that counter-offer (and it would have been in their best interests to do so once the seller’s agent had gone over the math with them), here’s how things would have played out. With that lower interest rate, the buyer’s monthly PI payment even with the higher sales price would have been much lower, at $1881.18/mo–$290.05/mo lower than the original payment, and $81.03/mo lower than their payment would have been if they had lopped $24k off of the price, instead! And the seller wins, too–because the cost of buying down the buyer’s rate by 1.25% for that scenario would have been about $14k, meaning the seller nets an extra $10k in profit vs. having agreed to a price reduction of $24k, while also giving the buyer a better monthly payment than the $24k reduction would have given them.

SAF also helps more buyers qualify for the property in the first place: for the “$24k off” scenario above, a typical lender would probably want the buyer to earn at least $80k/yr in income, while in the SAF scenario, the borrower would be able to qualify with an annual income of around $7k less. More potential buyers means a faster sale, and the effect on qualifying ratios is even more pronounced when looking at high-end properties–in one scenario a loan officer I know was running for a client recently, SAF on a $2.2 million property reduced the minimum annual income for potential buyers by nearly $100k/yr while netting the seller more profit and reducing the buyer’s monthly payments.

Agents benefit from having SAF listings, too, and not just in getting their listings sold faster.

For one thing, since many agents’ commissions are based on the final sales price of the property, SAF can help agents earn higher commissions. (Note that we don’t endorse agents negotiating deals for their sellers that will increase the agent’s commission by reducing the seller’s net profits; increasing your own commission by increasing your client’s profit, though, is exactly the aligning of interests that commission-based work is supposed to engender.)

And, last but not least, SAF listings can be used to generate more buyer leads than other listings do. Years of late-night infomercials and “get rich by investing in real estate” books have trained a generation of buyers to look for sellers who will provide financing to buyers directly (either by giving the buyer a loan, or letting the buyer assume an existing mortgage loan), because (especially in the now-long-gone days of easily-assumable mortgages) those sellers were often the best deals for buyers (especially investors). True seller financing is very rare these days–but in my experience, listings that offer “Seller-Assisted Financing” tend to trigger that same “it must be a good deal” center in buyers’ brains; ads for properties featuring SAF in online media like Craigslist in particular tend to get a lot more buyer calls than ones that don’t have that language.

Want to know more about how to use Seller-Assisted Financing to help your sellers and yourself? Drop us a line and we’d be glad to go over your listing inventory with you to see which properties might be most amenable to using SAF, and even help you prepare marketing pieces for them.

No related posts.

Tags: for-agents