Buying Advice

Winning When Sellers Finance

It’s almost football season! The rankings are out but we’ll see who eventually takes home all the marbles. Do kids even play marbles anymore? Is there an online version? Even though that particular game isn’t as popular as it once was, like football, seller financing is always in vogue. In fact, if I had a marble for every reason a seller might offer to finance, I’d have a sock full. I’d have a “no other way to finance” marble and one for “I want to earn the interest”. There’d even be an “outside the ring” marble for distressed sellers. But not all marbles are regulation marbles. In fact, players sometimes “fudge” by playing a “non-regulation” marble. When this happens, the “pros “generally feel it’s time to take their marbles and go home! 

Reasons Someone Might Owner Finance

Here’s the thing. Knowing why a seller is willing to finance is critical. Vacant land loans are scarce especially for out-of-state buyers. At times, sellers also finance so that they can make extra money on their sale. Permit issues are another popular reason sellers finance. These fairly are straight-forward reasons.

But what about when the sellers owe more on the property than it’s worth, when their property is distressed or when the property is overpriced? These are situations when sellers tend to explore a creative sales approach. For a buyer, these offers should be considered with caution because there could be a “fudging” seller involved. Sales with an existing mortgage are conveyed by way of an “agreement of sale”. This involves “wrapping” the mortgage which basically means that the buyer pays the seller then seller continues to pay their note.

What About Lenders?

Not all lenders embrace this concept because such a sale further encumbers title. While it’s possible to wrap the mortgage without lender permission, title companies will rarely provide title insurance. But the difficulty presented in not gaining lender permission pales in comparison with problems created when a seller stops making payments on the underlying mortgage. This begins a chain of events that leaves everyone distressed. Of course, there may be ways to address risks but it’s never foolproof.

Seller-financed properties generally do not (but can) include a formal appraisal so carefully consider information about comparable sales. There may be times when seller financing works best, but be sure to consider the players and understand why they are playing and by all means, hire a REALTOR® who understands this type financing and who can advise about the advantages and pitfalls. In this all important transaction, it’s time to put aside kids games and equip yourself to play with the big boys!

About the Author

Denise Nakanishi

Denise Nakanishi is a REALTOR Broker with Hawai'i Life. Denise Nakanishi is one of Hilo's most acclaimed real estate agents. She reached the rank of Major in the US Army and is now known by many as "Major Mom." The nickname fits–not only does Denise bring the discipline and mission-oriented attitude you'd expect, she's also caring and compassionate, always looking out for her clients like they're her own family. Having made the Big Island her home since 1987, Denise combines her extensive knowledge of the area with a sharp focus on customer service and the results speak for themselves. She's the recent recipient of the Best East Hawai`i, Best of Zillow, Chairman's Circle Award, President's Circle, Top Producing Agent since 2001, and Realtor of the Year awards. Denise stays ahead of the curve because she's passionate about education–she served as Education Chair for Hawaii Island REALTORS® for many years. She's one of Big Island's best real estate resources, known for her weekly article in the Hawaii Tribune Herald. Denise leads Team Nakanishi for Hawai`i Life, who is committed to their family, work, and community. In her little time away from work, Denise is a committed runner and Grandy. She also devotes many hours to various Veterans' Organizations, the East Hawaii Cultural Center, and the Hawaii Island REALTORS®. You can email me at or via phone at (808) 936-5100.

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