*** TIPS FOR CREATING AN OPTIMUM REAL ESTATE NOTE OR CONTRACT FOR MARKETABILITY AND MAXIMUM CASH VALUE ***

Notice and Disclaimer: The following suggestions are provided to supply information regarding the process of selling real property via owner or seller financing. It is not intended to offer legal, accounting, investment, or tax advice. If assistance with any of these services are needed, the help of a competent professional should be sought and retained. For simplicity purposes, we will use the term "NOTE" to describe all real property security instruments. An investor has absolutely NO OBLIGATION to purchase any NOTE, newly created or seasoned, or under any other circumstances. We explicitly do not guarantee the ability of a seller to sell their NOTE even if the seller follows the suggestions stated on this web site.

1. SALES PRICE: The final sales price should be at or less than the current appraised value. If the sales price is higher than the current appraised value, perhaps to offset the discount when the newly created NOTE is sold, the current appraised value will be used as though it was the sales price to determine the equity. We suggest getting a complete inside-and-out appraisal from a licensed state certified appraiser. This will help you as the seller in two ways. First, you will have a true value so that you don’t sell the property under market value, or attempt to sell the property over market value, which can be just as detrimental. Second, you will have written proof of the current value to support the asking price. You should review the appraisal in detail with all potential buyers. This will give you credibility. You should never sell your property for much less than the current appraised value when offering owner financing.
2. DOWN PAYMENT: Negotiate the absolute largest cash down payment possible from your potential buyers — even more than 20%, (at least 30% for commercial land or recreational land), but ALWAYS AT LEAST A MINIMUM OF 10% OF THE SALES PRICE. Any potential buyer with a credit score of 650 or below should be required to pay AT LEAST 20% in cash as the down payment. This is the most important factor in determining the marketability and the maximum CASH value of your NOTE when you sell it. The higher the down payment, the less risky your NOTE becomes. If, due to the buyer’s financial condition, you are unable to negotiate a 20% cash down payment, we may suggest that you create a 10% to 15% second position NOTE to lessen the discount of the sale of the first position NOTE. This newly created second position NOTE would NOT be marketable to an investor, but you would receive monthly payments for the period and amount agreed upon between you and the buyer.
3. BUYER’S CREDIT REPORT and SCORES: The buyer’s credit report is very important to investors since it shows how responsible the buyer has been in making timely payments on loans and credit cards, as well as listing any bankruptcies, foreclosures, repossessions, judgments, or delinquent child support payments. We and/or our private investors may NOT be interested in purchasing any portion of your NOTE if your potential buyer has ANY of these negative items listed on their credit report, unless they have a great deal of equity in the property, such as 50% or more. Your potential buyer does not need to have perfect credit, but it must be satisfactory and ALL potential buyers should have a credit score of 600 or above. We always suggest that sellers should obtain a credit report with scores for the potential buyers BEFORE they discuss ANY terms, including the interest rate and monthly payment amount. Please visit the Credit Application and Authorization page on this web site which will allow you to obtain credit reports with scores for your potential buyers.
4. DUE-ON-SALE: Make certain that you insert a due-on-sale clause in your NOTE. You DO NOT want the buyer to sell the property to someone with substandard credit, as this will reflect greatly on the CASH value of your NOTE.
5. INTEREST RATE: Don’t be intimidated by a low offer — hold your minimum price — owner financing is hard to come by. However, don’t let a qualified potential buyer slip away because you were unwilling to adjust your sales price by $1,500. Instead, negotiate the interest rate up slightly higher, we suggest between 9% and 10% — the higher the better, (but be reasonable and check to see if your state has a usury law limitation), or shorten the length of the term and/or increase the monthly payment. DO NOT EVER agree to establish an INTEREST ONLY NOTE. Investors hate these and they may never be marketable.
6. TERM: We suggest to amortize your NOTE somewhere between 10 and 30 years with a 5 to 10 year balloon payment, but this depends entirely on the potential buyer’s financial capabilities. The best approach to this situation is to persuade the potential buyer to admit the highest amount that they can afford to pay for their monthly housing expenses and then you can "tailor" your NOTE accordingly.
7. LATE PAYMENT CHARGES: It would be greatly beneficial to explicitly specify the exact amount and time frame that late charges will apply. Be firm, but reasonable. Common: 5% of the payment amount after 10 days late.
8. PAYMENT APPLICATION: Our suggestion would be that payments are first applied to late payment charges, then accrued interest, and then principal. An additional payment or an overpayment should be applied as principal only.
9. CORPORATE BUYERS: If you are selling your property to a corporation, an LLC, or an LLP, make sure you require ALL of the buyers to sign the security agreement and/or NOTE INDIVIDUALLY as personal guarantors for repayment or you will greatly reduce the amount of CASH you will receive, or you may NOT be able to sell your NOTE at all!
10. LONG-TERM ESCROW SERVICING: It will be to your benefit, if you plan to sell all or part of your NOTE within a year, NOT to establish a long-term escrow account for the servicing of your NOTE, but rather keep meticulous records as to when payments are received, make copies of all checks and/or money orders, and keep copies of all of your deposit slips and bank statements for proof of payments and to create a payment history.

We highly recommend that you get legal assistance and advice during the process of completing a Purchase and Sale Agreement when selling real property from a competent professional. It is a legally binding document.

For more information, please review What We Buy and our most Frequently Asked Questions. If you have additional questions, or comments, please don’t hesitate to Contact Us.

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