Hot House Sales
Recently a friend called. She had inherited a Condominium. It had been for sale (not with Coulas Real Estate) for several months with little activity as the market was changing from favouring sellers to favouring buyers. She had the property listed on MLS for $275,900. The last sales of similar condominiums were in that range. Yet the only offer she had received was for $239,000. Her Realtor was suggesting she should take it as the market was declining and she might not see such an offer again.
She asked me what she should do as the remains of a reverse mortgage, maintenance and taxes were taking their toll on her financial resources. She added that she was tempted to accept the low offer and be done with it. There are many reasons why I counseled her against a fire sale in spite of the emotional relief it might give. I told her I had a plan, a strategy that would get her fair market value quickly.
I explained that people buy the various features of a house. Some are tangible like the condition, layout, lot size and extras included in the sale. Others are not so tangible like future potential or financing. I suggested that the property was just one of several similar homes for sale. None were attracting much attention from buyers. We had to make her property stand out but we were limited because we could not alter the tangible features of the property. My instincts told me we should be looking at creative financing.
She was surprised when I suggested she hold a three year interest free first mortgage. I suggested that if the listing promoted an interest free first mortgage she would likely find a buyer willing to pay near her list price and her property would be the first to sell out of all the others in the market.
I knew she intended to invest the cash proceeds from the sale into a GIC. The rate of return would be 2.4%. However the proceeds get taxed as passive income leaving her a net income of 1.25%. For a $200,000 investment over three years she would lose only $7,500. I told her many buyers would be happy to pay $7,500 more for a house offered with an interest free first mortgage.
Buyers Benefit Big Time
An interest free mortgage is an extremely attractive feature to a prospective buyer. If the buyer had to arrange the mortgage he would pay perhaps 4%. He’d pay more if he had any blemish at all on his credit report. Simplified, a two hundred thousand at 4% would cost him $8,000 per year interest, $24,000 over the three year mortgage. Because he would have to pay with after tax dollars he would likely have to earn $48,000 over the three year term. A financially savvy buyer would realize quickly that he could turn his mortgage interest savings into overdrive by investing into an RRSP or something similar.
Happy Ending
My friend called her realtor and had him make some changes to the MLS listing reflecting her willingness to hold an interest free first mortgage. At that point the home had been for sale for six months. Within one week she had an acceptable offer very close to her list price. She could now see an end to the monthly tax, maintenance and utility costs that were eating her savings. She felt very relieved from the stress of selling.
Creative Financing Can Sell The Unsellable
This strategy can apply to many situations and is very effective for marketing property that buyers have ignored. Our tax structure and low interest rates have combined to create an unparalleled opportunity for both buyer and seller to win.
Of course both parties will want some professional advice. The sellers need to be careful about the buyers’ ability to pay the mortgage principle. The sellers need to get sufficient down payment to provide a secure foundation to their mortgage investment. The buyer needs to be certain that the house really does suit her needs and that she is not buying it just because of the attractive financing. A good Realtor can help both to attain their goals.
The Coulas Real Estate Advantage
The agents at Coulas Real Estate have been handling real estate transactions for decades. Our skill knowledge and experience allows us an insight into the marketing of real estate that can only evolve through experience and practice. We continue to offer the same high level of integrity and personal service our clients have enjoyed for years. We have learned that real estate is a dynamic industry under constant change. Our marketing strategies have to change with it.
The marketing strategy presented here can be a great benefit to our sellers. If you know someone who might benefit from this creative financing advantage please pass along our newsletter or get them to call. We can help.
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