A buyer texts me and says: “will the seller carry the loan?” As a land broker, buyers ask me this all the time. It’s totally reasonable to ask about the availability of seller financing because there are very few conventional loans for vacant land.
The thing is, when a buyer asks the question in this simplistic way, I cannot give them an answer. And, there’s no point in me contacting the seller, my client, with a simple “hey man, will you carry the loan?” Because I already know what the answer will be. The answer from the seller will be “no”. Or, if it’s not a flat out “no”, it will be a bunch of questions:
- How much will the buyer put down?
- What interest rate?
- How many years?
- What price?
- What are the monthly payments?
- Who’s paying the closing costs?
Then, since the buyer has not stated the terms they are proposing, what happens is a lot of back and forth between buyer, agent and seller. It’s a big ‘ole unnecessary time-sink for all involved.
So, my friends and valued buyers, I offer you my advice on the best way to approach a listing agent to ask if the seller will carry the loan. I will show you how to save time and get positive results.
Let’s get started.
Sample Ideal Email Inquiry From a Buyer
Below is an example of an email that you might send to the listing agent.
“Hi Some Broker,
I’m interested in that parcel APN 987-654-321 at 1234 Some Street in Some City in Some County. I was wondering if the seller would consider carrying the loan with the following terms:
- Price $80,000
- Down payment $20,000
- Principal $60,000
- Interest rate 6%
- Term 15 years
- Monthly payments $506.31
- No pre-payment penalty
- Closing costs (escrow/title) shared 50-50
- Closing in 21 days
Please let me know if the seller would consider these terms. If yes, I am prepared to submit a written signed offer.
Notice the specificity? Notice how the email includes everything that is needed and nothing that is not needed? See how the inquiry clearly spells out the terms including the price, down payment, interest rate, length of the loan, and monthly payment? Do that. Please.
How to Calculate Monthly Payments
It’s easy to calculate the monthly payment so that you can include it in your email. However, it’s not as simple as just dividing the amount owed by the number of months that you plan to make payments. That only works if your interest rate is 0.
To get the monthly payment for a fully amortized loan, use an online calculator:
What Terms Should You Offer?
Buyers, in order to draft the email above, you will need to decide up front, before even asking the Realtor if seller-financing is available, what terms you are proposing. This will require a little advance thought on your part. So, spend a few minutes running some numbers. It will be worth it when you get a positive reply. Below are some customary seller-financing terms to help you out.
- Down payments typically range from 20% to 50%. Please do not offer less than 20% for reasons spelled out here.
- Interest rates on seller-financed land generally range from 4% to 10%. I recommend that you not offer less than 6%.
- Terms (length of the loan) typically ranges from 2-10 years.
Out of all these items (down payment, interest rate, and term) the thing that sellers care most about is the down payment. To increase your odds of success, make the down payment as large as you can.
How Not to Ask a Realtor if the Seller Will Carry
For comparison, let’s look at how not to ask a Realtor if the owner will offer seller-financing.
Buyer: Yo, will the seller carry the loan on that parcel?
Agent: Which parcel?
Buyer: The one on the internet
Agent: Which parcel on the Internet? What street, city, county, state please?
Buyer: The land listing
Agent: I have 50+ land listings.
Buyer: The one priced at $100,000?
Agent: There are two, the one in California or the one in Oregon?
Agent: OK, that’s the one in Riverside. I will be pleased to ask the seller if they will carry the loan. In order to ask the seller, I need to know the price, down payment, interest rate and term that you are proposing. Then I can ask the seller.
Buyer: Can’t you just ask the seller if he will carry, like, in general?
Agent: Sorry, no, because if I do the seller will ask me to specify the terms before he decides. What terms are you proposing please? I need your proposed price, down payment, interest rate and the length of the loan.
Buyer: I can put 25% down
Agent: OK what price, interest rate and term?
Buyer: 6% interest
Agent: Are you offering $100,000? How long would you like the term to be?
Buyer: No, I only want to pay $80,000.
Agent: OK what term?
Buyer: 10 years
Agent: Payments would be $666.12 per month. I will ask the seller and let you know when he replies.
Buyer: No, I can only afford about $500 per month
Agent: OK then let’s change the term to 15 years. I will ask the seller if he will consider $80,000 with $20,000 down at 6% interest for 15 years, payments to be $506.31 per month. I will let you know when he replies.
Buyer: OK thanks
Buyers, you don’t want to spend a bunch of time going back and forth on the phone, text or email just to get an answer to your question, do you? I mean, the email/text exchange above took like half an hour. You don’t want to invest that same half hour with five different Realtors on the five different parcels you’re interested in, right? It would be much easier for you to spend a little time thinking about it before even contacting the agent and just send the agent the email I recommended above. You could even use it as a template and send it to multiple agents on several parcels, editing key items slightly for each one. Save yourself a bunch of time!
Who Should Name Their Terms First: Buyer or Seller?
I find that Buyers usually want sellers to name their terms up front and sellers want buyers to name their terms up front. So, who goes first?
I recommend that the buyer “go first”. Here’s why: As a listing agent who represents the seller, it doesn’t make sense for me to even ask seller if they will carry the loan at the time of taking the listing. Why? Because if I ask the seller if they will carry at the time of signing the listing agreement, the seller’s answer is almost uniformly “no”. So, there’s no point to even asking. Almost all sellers prefer cash, and, at the time of listing, they are usually thinking their parcel is so special it will sell quickly and for a full cash price. At the outset, sellers see no reason to carry the loan. This means that if you’re the first buyer me to ask, “will the seller carry?” it’s likely that I won’t know the answer to your question.
And I cannot just pose this question to the seller “in general” or “hypothetically”. I find that sellers run into a mental block when they are asked whether, in theory, they might consider carrying the loan. Most sellers have no clue whether they should ask for 20% down or 50% down, whether the interest rate should be 4% or 10%, whether it makes sense to carry for 2 years or 15 years. I find that most sellers cannot wrap their mind around the question of whether they might carry in general for some hypothetical nameless faceless buyer. Sellers can only think about financing when the precise terms are spelled out by an actual buyer. It’s a psychological thing.
So, as an agent, instead of asking the seller at the time of taking the listing whether or not they will carry, I wait a month or two until I get the first inquiry about seller financing from a buyer. Then I ask the buyer to name their terms. Armed with those terms, I go to the seller and say hey there is real buyer proposing actual specific terms and I ask the seller if they will consider those exact terms.
This strategy is more likely to get a positive response from the seller. One reason is that a couple of months into the listing period, sellers are starting to see that their parcel has not flown off the market with a full price all cash offer. By this time, sellers are beginning to think about new ways to get their land sold. A second reason is that if I can specify exact terms to a seller, he can ruminate about it in a concrete way. Is the 20% down proposed by the buyer sufficient, he will wonder, or would it be better to counter at 30% so that the buyer has more “skin in the game”? Is he willing to carry for 10 years, as the buyer requests, or will he need the money in 5 years for his kid’s college education? Is the 6% interest rate proposed by the buyer less or more than what he earns on his other investments? What would it be like to get a regular check for $506.31 per month? That might be nice, he will think.
So, buyers, when you name your terms this gives the seller something concrete to focus his thinking on. It works much better this way and he is more likely to say “yes”. Trust this advice from the experienced land broker.
Consider Your Audience
As a buyer, it’s best if you can learn something about the seller and agent before preparing your detailed inquiry about seller-financing. Is the seller younger or older? Is the Realtor a residential broker or a land broker?
If the seller is older, you will want to propose a shorter term for the seller-financing. While banks can entertain long loan terms like 15-30 years, because they exist in perpetuity, land sellers are not banks. They are humans with finite lifespans. Some sellers are older and naturally want to get paid off while they are alive. So, consider the seller’s age when deciding what term to propose. The older the seller, the shorter the term you should propose.
The reason to consider whether the listing agent is a residential broker or land broker is that residential brokers will be less familiar with seller financing. Residential brokers sell mostly houses and condos and may have only one or two land listings. Since conventional loans are plentiful for houses, Residential brokers may not be aware that there are few conventional loans available for vacant land. A residential Realtor might wonder “why doesn’t the buyer just go to their bank?” Residential brokers may even greet your seller-financing request with suspicion. Some may not have a clue how to prepare a seller financing offer, calculate monthly payments, create an amortization schedule, etc. (By the way, these are just some of many reasons that land sellers should list with land brokers not residential brokers, but I digress….) Buyers, if your audience is a residential Realtor, it is even more important to spell out your proposed terms in detail in your first inquiry as I have shown you above. If you do this, you will look like a serious buyer. In addition, you will be educating the residential broker so that they will see that preparing an offer like this would not be all that cumbersome (for them). Then they may take your “seller financing?” question more seriously.
Also remember that your “audience” for this inquiry, the listing agent and the seller, are probably not mathematicians or loan brokers. So keep it simple! I recommend that the type of loan you propose be as basic as possible. For clarity, make it fully amortized. This is because loans that are amortized involve just a single monthly payment and when you’re done making those payments the whole principal will be paid off. It’s an easy concept for sellers to grasp. Try to avoid proposing a balloon payment and never ever propose multiple balloon payments such as “I’ll pay you $20,000 up front, then monthly payments, the another $30,000 in 1 year, then more monthly payments, then $40,000 in 3 years.” OMG. Do not ask for an interest-only loan because that involves a balloon payment at the end. A final recommendation is to avoid proposing multiple options. Never say “we could do it this way or we could do it that way”. You might think it’s totally logical that the seller would prefer to have choices, that way the seller can get more what he wants and so is more likely to carry the loan. Wrong. It just confuses the negotiation. Think about Trader Joes. One of the reasons they are so successful selling tomato sauce and frozen burritos is that they offer one option not multiple options. If you want the seller to say “yes”, just propose a single garden variety amortized loan with one set of terms.
Finally, buyer, keep in mind that most sellers prefer all cash. So, your audience for your “seller financing?” question will be someone who really doesn’t want to carry the loan. You will have to entice them. So, don’t go in with an offer that is low price AND a small down payment AND a low interest rate AND a long term because that’s not going to work. Give the seller something to hang his hat on. Make him want to work with you. You’re not the only buyer out there. You are in competition with other buyers, actual or theoretical, past, present or future. And while you cannot make your offer superior to other buyers in all ways (because you’re not offering cash), you can make it superior to all other buyers in one way – and that’s on price. So, if you’re going to request terms, at least offer full price.
Sometimes buyers worry that if they send a detailed inquiry like the one I am suggesting, the seller will get the mistaken impression that it is an actual offer. They fret that if the seller says “yes” they will be “under contract”. Not true. In real estate, a contract has to have two signatures. And when a buyer sends this kind of inquiry to a Realtor, and the Realtor forwards it to the seller, and the seller says, “sounds good”, nobody has signed anything. The seller’s positive response just means “I invite you to submit a formal offer and, if you do, and I will look at it favorably”. However, until there is a signed agreement, there is no deal and either party can walk. So, buyers, don’t be afraid to state your terms up front with some specificity.
From the Perspective of the Realtor and Seller
In addition to increasing the odds of getting a positive response, something that benefits the buyer, the strategy that I am advocating also serves the purposes of the Realtor and seller. Asking the buyer to give a few minutes of thought to the kind of seller-financing deal he wants, weeds out those buyers who are not serious about the parcel in question and are just sitting around in their jammies, watching Netflix, surfing Zillow, and blasting off “seller carry?” emails to random agents. After all, not all “buyers” are buyers. And there’s no point in getting a seller’s hopes up if the buyer is not really a buyer. I find that real buyers are willing to spend a few minutes crafting their seller financing proposal. It’s a good test.
If you’re interested in purchasing a piece of land, it’s reasonable to ask a Realtor whether or not their seller client will carry the loan on a parcel of land. The best way to do it is to briefly specify all terms up front. This will increase your odds of getting a positive response!