LOCAL RECORDS OFFICE - LOS ANGELES, CA – Dealing with an unsure buyer may always be tricky, you go ahead and try to convince him or her by letting them know it’s a deal of a lifetime, how the price is just right and how the price will definitely go up in the future but the big questions is, “is it really that easy? “All of this is very valuable information and on paper this looks very doable. Yet, often what trips up investors from selling on financing terms is the fact that one aspect of the buyer doesn’t quite add up to your qualification standards. Maybe the prospective buyer fits all your criteria but only has 5% to put down, or maybe the prospect has more than enough down payment money, and great credit but suspect job stability. What are you to do?
Try the Lease-Option Approach
Now, I am not going to suggest you setup a one-sided lease-option where you hold the property forever and the prospect only gets further and further away from homeownership. I am talking about utilizing the lease-option as a trial period so the buyer gets an opportunity to build up credit history with you.
A couple years back, we had a property for sale on financing terms. It was a great property in a desirable neighborhood but for whatever reason we couldn’t find a buyer. One day, one of our sales agents presented an offer from a homebuyer who had suspect credit at best, but had a huge down payment, a stable job, and documentation to prove his willingness to pay on time. Upon meeting with the prospect we understood his situation much better and decided to sell to him, but on one condition; a lease-option. He could lease the property from us for 12 months, and upon making 12 one-time payments the lease could be converted to the land contract.
Predicted Outcome With Short Sale?
We could never have predicted the outcome. He turned out to be our best homeowner! He brought his payment in each month a few days early, hand delivered in the form of a cashier’s check. Needless to say, at the end of twelve months, he converted his lease to a land contract and was credited the principle portion of each of those payments for the previous twelve months. Since his conversion to the land contract he has continued to pay with cashier’s checks each month. As it turns out, he made positive changes in his life to re-establish his credit, and create stability in his family. Because we extended the opportunity of a lease option, he is now well on his way to homeownership.
The Highest Offer May Not Be the Best One
In simple terms, when evaluating offers on a short sale, the highest offer may seem great, but there may be terms and conditions that are not in the best interest of the seller. For example, will the buyer with the highest offer agree to all of the necessary terms and conditions that may come from the bank? Will this buyer agree to pay for pest control if the bank refuses to do so? Will this buyer agree to wait three months for a short sale approval letter?
Now, with regard to short sales, the offer that is the best is clearly from a buyer who is serious, who is willing to stick around, and who is willing to accept any changes to the terms and conditions that have been dictated by the bank.
Finding the Buyer to Stick through the Short Sale Process
A buyer that is willing to stick around for the long haul is probably the best buyer of a short sale. Bank employees do not care a lick that the cash buyer can close in two weeks; they still take their sweet time to process the short sale despite the fact that this inefficiency is causing them to bleed money right and left. Keep in mind that buyers that are willing to agree to terms and conditions that may change at the eleventh hour are better, stronger buyers than those who will march when the bank refuses to pay closing costs or termite repairs.
The cash buyer is great for the short sale because he or she does not need to worry about lender approval of the HOA or an appraisal that comes in sub par. But, will this buyer be willing to come up to the purchase price that the bank is looking for on their short sale? Aaah. That’s a good question. Lately it seems that the bank thinks all short sales are mansions made of gold, platinum and diamonds–instead of the diamonds in the rough that short sales really are.
This example is not an exception to the norm. There are many instances where a lease option can be a great trial period for prospective land contract buyers who do not meet all your requirements. If this story turned out the other way, and the prospect failed to live up to the terms of the lease, then we would have been left with the property, a nice down payment, and at least some payments.
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