Q. My partner and I are selling our Lake Shore Drive condominium so we can retire in Florida. Our condo has been for sale for over a year but we can't seem to find a buyer.
A real estate investor who lives in our building who agreed to pay our full asking price but wanted us to finance 100% of the purchase price. The offer is tempting because we could get our price and receive monthly payments, but we would get no money at closing. Is there any risk to us?
A. On the other side of every "no money down" transaction is the seller who accepts a piece of paper for his or her property instead of cash. Typically, these sellers are older and own their property free and clear. Even though the seller may be getting his or her asking price the question is should the seller take this kind of financing? The answer is no.
There are many valid and creative strategies to help buyers finance the purchase of real estate. A seller financing part of the purchase price is a legitimate method to make real estate purchases affordable to buyers and can benefit both parties in a sale.
With the "no money down" method of real estate financing, instead of the seller receiving the bulk of the sales price at the closing and financing 10 to 20 percent of the price, the seller finances the entire purchase price for a buyer who needs no money to close. An acceptable alternative would be to sell the condo on a land contract, receiving a 10 or 20 percent down payment while financing the balance over 20 to 30 years with a 5 year balloon
My advice to the couple in the question is that they should not sell their home to someone who does not have any money. Their buyer could be a big risk because he may lack the income and savings to buy the condo on conventional terms. The buyer could have bad credit, too many loans or have gone bankrupt.
Whenever a seller agrees to give up property for a promise of future payments at less than the going rate, the value of the deal is reduced. The couple would be better off selling their condo with different seller financing methods that offer real protection to the seller instead of only risk.