The Owner Financing Strategy To Sell In Tough Real Estate Markets

Even though it seems counterintuitive, you can often make more money by selling at discount now than you can by waiting for a better price. This is based on the concept of the time value of money.

This is an example of the time value of money at work. Last year, a real estate agent listed a house in my neighborhood for $950,000. Even at the time, that seemed like much too high a price for the immediate area. For more than a year, the house stayed on the market.

PRICE REDUCED was added to the sign in front of the house. Then the prices started to go down, slowly and steadily as the house didn't sell.

$950,000, $929,000, $899,000, $869,000, $849,000, $799,000, $780,000, $760,000, $739,000, $725,000

As soon as the price started to go down, my husband wrote a letter to the seller asking if the seller would owner-finance. In other words, he asked if the seller would consider selling the property and carrying a note.

The real estate agent strongly advised the seller not to owner finance because it would mean taking a discount on the property.

After more than a year on the market, a SOLD sign finally appeared in front of the house. At this point, the seller's asking price has gone down from the original $950,000 to $725,000. Even if the buyer agreed to pay $725,000, the difference between the original listing price and the final listing price was a quarter of a million dollars, $225,000 to be exact.

This leads us to a question: How much money did the seller lose by being unwilling to discount a note? In addition to the reduced sales price, consider that the seller had to pay mortgage, taxes, insurance, and maintenance expenses for more than a year on a vacant house.

The strategy the real estate agent advised is the typical solution for tough times. Keep lowering your price, until someone will buy.

The fact is there was a much better solution to the problem than simply reducing prices. If the seller had agreed to sell the house with a note, it is very likely that the house would have sold months before, and the seller would have made more money on the sale. The real estate agent would also have earned a higher commission. The point of this little story is that a strategy of reducing prices simply means that you will get less for your property. Before you agree to a PRICE REDUCED strategy, take the time to understand why owner financing with a note can be a much more profitable way to sell your property.

By: Kalinda Rose Stevenson, PhD

Why owner financing is the safest way to increase profit, sell quickly, and increase cash flow. Discover how to expand your understanding of money with No Money Limits.

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