Seller financing

How to ask if seller financing is available

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.

Thank you,

Some Buyer”

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:

http://www.moneychimp.com/calculator/mortgage_calculator.htm

http://bretwhissel.net/amortization/amortize.html

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?

Buyer: California

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.

Buyer Worries

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.

Conclusion

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!

No, the seller will not accept $0 down

by Tammy Tengs

In lieu of requiring buyers to pay all cash, some land sellers choose to offer “owner financing”. The seller accepts a down payment from a buyer of, say, 20% and then the buyer makes monthly payments to the seller over time.

When one of my seller-clients decides to do this, I ask them to specify up front the terms they will consider, i.e., the down payment, interest rate, and number of years. An example is 20% down, 6% interest, 10 years. I put the seller’s terms in black and white in all of my marketing materials. Yet, inevitably, I find that whatever down payment the seller requires, a few buyers will always contact me and ask if the seller will accept a smaller down payment.

Typical conversation with a buyer

This video shows a typical conversation that I will have with buyers. It explains why sellers offering “owner financing” will not accept a small down payment:

Additional reasons why sellers will not accept $0 down or a low down

The commission and closing costs are not the only reason sellers will not accept $0 down. The seller might also have liens or back property taxes to pay.

For example, suppose the seller in our $100,000 video example still owes $4000 on a loan tied to the land. In addition, he owes $3000 in a child support lien and $2000 in back property taxes. In order to transfer the land to a buyer “free and clear”, escrow will require the seller to pay those items, along with the commission and closing costs, out of the seller’s proceeds. Even though the seller is paying these items, and the buyer is not paying them, the down payment that the buyer gives the seller has to be sufficient to cover all of the items the seller is responsible for or the seller will have to write a check to escrow in order to close. Land sellers do not want to write checks. They want to receive checks. Getting money in return is kind of the whole point of selling land when you think about it!

Further, when a seller offers to carry the loan, he will naturally have a keen interest in making sure that the buyer will make their monthly payments in full and on time. The higher the down payment, the less likely the buyer will flake out in the future. This is because buyers realize that they will lose their down payment (and the land too) if they don’t pay.

Other sellers have in mind a certain amount of money that they want up front for a particular and immediate use in their life. Maybe they have medical bills to pay. Maybe they’re trying to fund the family’s vacation to Hawaii. Maybe they want to buy another parcel of land. Maybe they want to renovate their kitchen. Maybe they owe money to their drug dealer. Who knows? The point is, some land owners don’t want to sell their land at all unless they can get some threshold dollar amount down from a buyer. If they can’t get at least that amount, they won’t sell at all.

Occasionally “the seller” is actually multiple sellers, each with a percent interest. So, whatever the buyer puts down ends up getting split 2, 5, 8 ways (or whatever) after costs are deducted. The amount each individual seller will end up with at closing is therefore small. The more co-owners there are, the more the required down payment can get ratcheted up.

Advice to buyers

Before buying land, consider saving your money for a while so that you will have a sizeable down payment. Or, find a co-investor. Or purchase a less expensive parcel of land.

If you really want to purchase land with $0 down or a small down, don’t even look at parcels listed by Realtors. This is because, when there is a Realtor involved, the seller will always have to pay the commission out of any down payment that you propose. The math is not going to work out. So, buyers, if you don’t want to put at least 20% down, look only at For Sale by Owner (FSBO) listings where the seller does not have the expense of a commission.

If you have your heart set on a parcel listed by a Realtor, then at least contact the Realtor and ask if the land is “free and clear” of all liens and back taxes. Sometimes the agent will know the answer to this question and sometimes they won’t. Depending on what the agent says, do a “back of the envelope” calculation. Consider things from the perspective of the seller. Add up all the costs you think the seller will have to pay at closing: liens, back taxes, commission, and closing costs. You won’t have the exact numbers, so just estimate. When estimating, keep in mind that commissions are not always 6%. They can be 8%, 10% or anything and the listing agent is unlikely to tell you what commission the seller is paying. The total you come up with is your estimate of the bare minimum down payment the seller might possibly consider. Throw in an additional cushion of several thousand dollars over that sum and that’s the down payment you might propose in your seller-financing offer. If you find that the total exceeds what you want to put down, then don’t even bother submitting an offer. Move on down the road and buy a different parcel.

Suppose that the seller’s total costs, including liens, back taxes, commission, and closing costs, add up to $9642. Buyers, please don’t assume that you can offer the seller $9700 down and he will accept it. The seller is not going to transfer title to you in return for a check for $58 dollars at closing. The seller will want to receive a check for thousands of dollars at closing in order to agree to carry the loan for you. That’s why it’s important to cushion the down payment offer by several thousand dollars over and above the seller’s total costs.

Also, note there are basically two ways the seller can carry the loan. One is with a “trust deed” where title is transferred to the buyer at closing. Escrow records a lien on the land in favor of the seller and the seller and becomes a non-owner and lender just like he is Wells Fargo. The second way is a “land contract” where the seller retains title until the loan is fully paid off. The land contract is sort of like buying a car. After you make all the payments, then you get the pink slip. You don’t get the pink slip (title) up front. I’m not sure about other states, but the trust deed is the most common in California and Oregon, and I have never seen a “land contract” used in these states in my career. However, a “land contract” is the only kind of agreement that is likely to work with $0 down or a low down. This is because sellers are unlikely to want to transfer title to you up front when you are putting no money down. As a buyer, you might try proposing a “land contract” to FSBO sellers instead of a “trust deed”.

Finally, buyers, remember that, in addition to the down payment, you will also be expected to pay your portion of closing costs. Closing costs include the escrow fee and title insurance. These costs are entirely separate from the down payment and are paid to the escrow and title companies, not to the seller and not to the Realtor. Even in the unlikely event that you can convince a seller to accept $0 down, you will still be expected to pay your share of these costs. Purchasing real estate is not free.

Advice to sellers

Offering to “carry the loan” is one way to dramatically increase the odds of selling your land, and for top dollar. The reason is, there are virtually no good bank loans for most kinds of vacant land. Sellers who offer to “carry” do not think of it as a burden. They think of it as an investment that yields a return secured by real estate. Consider whether or not seller-financing is right for you. If you don’t want to carry the loan, that’s totally fine, just know that your buyer-pool will likely be limited to those buyers who have all cash. If you do decide to offer seller-financing as an option, consider requiring at least 20% down.

Conclusion

The notion of a zero-down payment on land is basically a myth. I have never seen a seller accept that in my career. Purchasing land with a low (not $0) down payment might be possible but not when a Realtor is involved in a transaction. Buyers who are seeking seller-financing, and want to consider parcels listed by Realtors, should be prepared to put down at least 20%.

How to buy land with (almost) no money

by Tammy Tengs

So, you dream of owning land.

Maybe you want to build a tiny house, a storage container home, or a yurt. Or you dream of having a garden, a few chickens, and a barn for your horse. Perhaps you envision a unique modern home with lots of glass and a panoramic view. Or you’re thinking of a large, rambling house where you will sit on the big covered porch and watch your children play. Maybe you just want a place to go. Get away. Hang out in your RV. Chill.

But you’re short on cash.

You discover that your bank will gladly give you a mortgage on a house or condo. But they won’t give you a loan on vacant land.

The good news is that you can still be a landowner. But how?

The seller of the land may offer financing!

Last year in California, for example, sellers financed 17% of land purchases in the $50,000-$200,000 price range.

What is seller financing?

Well, it’s pretty simple: A landowner sells his property to a buyer and then acts as the lender. The buyer makes payments to the seller over time.

There are two kinds of seller financing: 1) note and deed of trust and 2) installment land sale contract. The main difference is the timing of the transfer of title from seller to buyer.

With a trust deed, the seller gives title to the buyer upfront. The seller then has a lien recorded on the property. If the buyer fails to pay, the seller forecloses and takes the land back. This is the same way a bank mortgage on a house works. The seller is essentially the bank.

With a land contract, the seller retains the title until the buyer makes all payments. Upon receiving the final payment, the seller gives the buyer title. This is the way a car loan works.

About 99% of the time, California land sellers use a note and deed of trust for owner-financed sales. A land contract may be more common in other parts of the US.

Who prepares the paperwork?

In California, Realtors complete a special Seller Financing Addendum that spells out the terms. The buyer and seller sign it. Then, the escrow officer uses that addendum to prepare additional legal paperwork. At closing, the escrow officer also records the lien.

What if your credit is not so great?

Don’t have perfect credit? I’ve got good news for you. About 80% of the time, the seller does not request an income or credit check. Weird, right? I don’t know why this is the custom in California, but it is. Maybe it’s because sellers are motivated to sell and consider seller financing as a kind of investment secured by the land. They want the interest, and sometimes they can get a better price if they carry the loan. They realize that if the buyer doesn’t pay, they can always foreclose, keep the deposit and all payments made to date, get the land back, and re-sell it, possibly at a higher price in a better economy. Likely, they wouldn’t have to go through the hassle of eviction because there is no house on the land. Occasionally, I even encounter a Machiavellian seller who almost hopes the buyer will not pay. Don’t shoot the messenger. I’m just telling you like it is.

OK then! So, how can you find a seller who is willing to finance the deal? Read on.

Craigslist.org

Craigslist is an excellent place to find land with seller financing. This is because there are many For Sale by Owner (FSBO) listings.

First, choose a geographic area. Then go to the “Housing > Real Estate for Sale” section. Although a misnomer, the Housing section is the place to find vacant land. Choose Housing Type = Land.

To search for seller-financed properties, enter terms like these into the search field:

seller financing, seller-financing, seller finance, seller-finance
owner financing, owner-financing, owner finance, owner-finance
carry (picks up phrases like “seller will carry the loan”)
OWC (abbreviation for owner will carry)
OMC (abbreviation for owner may carry)
contract (identifies sellers who say they are offering a “contract” or a “land contract”)
bank (picks up phrases like “no bank needed”)
finance (picks up phrases like “I will finance”)
financing (picks up phrases like “may offer financing”)
loan (picks up phrases like “owner may offer a loan”)
seller (picks up phrases like “seller is anxious to move out of the state”)
terms (picks up phrases like “seller will consider terms”)
motivated (picks up phrases like “motivated to sell”)
submit (picks up phrases where the owner is inviting buyers to “submit any offer”)
note (picks up phrases like “will consider a note”)
down (picks up phrases like “will accept payments with a down payment”)
paper (picks up phrases like “seller will carry paper”)

For example, here’s how to search Craigslist for California land in the Inland Valley area using the term “carry”:

One downside of this search method is all the false positives. Unfortunately, searching for a word like “carry” will capture listings that contain phrases you don’t want, such as “seller will not carry.”

Note also that the best search phrases vary by part of the country. You’ll want to experiment to see what works best in your area. For example, in rural areas, a search on the word “carry” may capture unwanted listings that mention the “carry” capacity of wells or the number of livestock the acreage will “carry.” These false positives will not happen in an urban area with no livestock and few wells.

Whatever you do, you will still have to sift through a collection of ads that pop up to find those gems. No search will be perfect.

For example, I searched Craigslist for vacant land in Sacramento, California, using the word “carry.” It yielded 20 good results, including these:

“I may also be able to do a finance option and carry the balance if you put enough down”
“Seller Will Carry with Large Down”
“Willing to do an option on the land as owner-financing to carry the majority of the cost for you”
“Will carry with 50% down”
“Possible carry paper with large $”
“Owner will carry a note with a large down payment”
“Possible owner carry option available”
“Get the directions and parcel maps to all the owner carry properties with low down payment at …”

My search also captured two unhelpful results:

“No owner carry option”
“I can not carry any loan”

There are 115 land parcels for sale in Sacramento currently advertised on Craigslist. So statistically, at least 17% offer seller financing.

Pro tip: If you want to get sophisticated and string multiple search terms together or omit listings that contain specific terms, you can learn more about Craigslist search here or here. If you decide to go this route and create a complicated search string, save it somewhere so you don’t have to re-create it next time.

Multiple Listing Service (MLS)

For a comprehensive search of all owner-financed land listings represented by real estate agents, ask a Realtor to search the MLS.

Before choosing a Realtor, consider where you want to buy land. There are many MLS systems, each specific to a different geographic area. So be sure to find an agent with access to the MLS with the most comprehensive coverage in the geographic location that interests you. For example, do not ask a Los Angeles agent to help you if you’re interested in San Francisco area land.

Below, I describe search strategies for two of the largest MLS systems in California: CRMLS and MetroList. Although only a Realtor can search the full MLS, it might help you, the buyer, to understand the MLS data fields related to seller financing. This way, you can discuss search strategies with your Realtor.

Not in California? No worries. The MLS systems in your state will be similar.

Pro tip: If you ask a Realtor to search the MLS for you, be sure to also specify other requirements that you might have. Don’t ask for a list of every single seller-financed property in the MLS. For example, do you have a price range? Need access to water? Want to eliminate properties that are landlocked with no road access? Ask your Realtor to narrow it down for you.

California Regional Multiple Listing Service (CRMLS)

The California Regional MLS (CRMLS) covers southern California and parts of northern California. Search the field “Listing Terms” using this strategy:

Listing Terms=Owner May Carry OR Owner Will Carry

“Owner Will Carry” means that the seller will likely agree to carry the loan with acceptable terms. The seller may even prefer to act as the lender over receiving all cash. This is because he wants the interest payments. “Owner May Carry” means that the seller is not fully committed to offering financing and prefers cash. Whether the seller will carry the loan depends on the details of your offer, how clearly and enthusiastically his agent explains it to him, and what kind of mood the seller is in that day.

To expand your search, try:

Listing Terms=Owner May Carry

OR Owner Will Carry

OR Contract

OR Lease Option

OR Private Financing Available

OR Submit

“Contract” sounds like a generic word, but it is short for “land contract,” the type of financing that works like a car loan. Even though you, the buyer, may prefer a trust deed over a land contract, consider including “contract” in your search. This is because few Realtors appreciate the difference between a trust deed and a contract, and the seller’s agent may have chosen “contract” to indicate that some form of owner financing may be available.

If you want to buy land, not lease land, then a “lease option” is not what you are looking for. However, as with “contracts,” some agents may not appreciate the difference between a lease option and seller financing since both involve making payments over time. The listing agent might have chosen this option during data entry to indicate that owner financing is available. So search on it to see what you find.

“Private financing available” indicates that a loan may be available from an individual or company that isn’t a bank or traditional mortgage lender. For example, the seller may be affiliated with a hard money lender or a wealthy family member who likes to lend money. Listing agents also sometimes mistakenly choose this option at the time of data entry to indicate that the seller will carry the loan.

“Submit” is an ambiguous term and can mean many things. Sometimes, listing agents choose this to say their client is motivated to sell. The agent is encouraging other agents to “submit any offer!” Other times, it means that the listing agent has not discussed seller financing with the owner but thinks that there is a chance that he may be willing to carry. The agent could be encouraging you to submit an offer and find out.

A search of CRMLS for land in Los Angeles, California, on Listing Terms=Owner May Carry OR Owner Will Carry yielded 355 owner-financed parcels of land for sale. There are 3102 land parcels for sale in Los Angeles County today. That means that 11% of land sellers offer seller financing.

Sometimes, the seller will carry, but the agent leaves the “listing terms” field empty. Instead, the agent enters phrases into one of these text fields:

Description
Private remarks
Publication remarks
Syndication remarks

Weirdly, it is impossible to search the above text fields in the CRMLS. But there is a workaround: Your agent can export the data into a spreadsheet and then search.

For the Los Angeles data, I searched the four text fields in Excel for the word “carry.” I found 366 instances where the “listing terms” menu field was blank, yet the seller was willing to carry the loan as explained in a text field. Here are three examples:

“Owner may carry half with only 2% friendly interest”
“Seller is open to carrying back financing for an attractive offer”
“Seller willing to carry”

Pro tip: In the CRMLS, do not search the field “buyer financing.” That field is for properties that have already sold.

MetroList MLS

The MetroList MLS covers portions of northern California. Your Realtor can search the “Terms” field to identify properties where the seller will carry the loan. This field is under “Additional Criteria”. Search on:

Terms=Owner May Carry

To expand the search, try:

Terms=Owner May Carry

OR Owner May Carry 2nd

OR Owner May Carry 3rd

OR Creative

OR Lease Option

OR Private Financing Available

A search on Terms=Owner May Carry in Placer County, California, yielded 35 owner-financed parcels of land for sale.

Zillow.com

The national website Zillow is another place to find seller-financed land. The great thing about Zillow is that you don’t need a Realtor to search it. The disadvantage is that it lacks important data found only in the MLS.

Zillow has two sections, “By agent” and “By owner and other.” You must review each separately. The listings in the “By agent” section come from the MLS. The “By owner and other” section contains listings from sellers not represented by an agent.

MLS systems have rules about what data fields they will syndicate (transfer) to sites like Zillow. Unfortunately, the “seller financing” field is not syndicated. This means that even in the “By agent” section, you cannot search Zillow by simply choosing owner-financing from a menu. So you will have to get creative.

Enter terms and phrases into Zillow’s “Keywords” search field.

For example, enter “carry” or “seller financing.” This will identify parcels where these terms appear in Zillow’s “What’s special” paragraph. This field is identical to the MLS description field.

This search strategy will not identify properties where the seller is, in fact, offering financing, but the listing agent entered that detail in the special financing or terms field of the MLS without mentioning it in the property description field.

My search of the “By agent” section of Zillow in San Diego County on the keyword “carry” yielded 18 owner-financed parcels for sale.

Pro tip: You can also try searching Redfin.com or Realtor.com in the “Keyword search” field. The data from all three public-facing sites is syndicated from MLS systems. Results will be similar, so you only need to search one, not all three.

LandFlip.com

Sites like LandFlip.com have many listings not represented by Realtors, so they are not in the MLS. Private land investors are selling these parcels.

Search on city, county, or state. Then, to the right of the search bar, click on the filter icon. Choose “Owner Finance” and click the green search button:

A search of LandFlip.com for all California parcels with owner financing yielded 292 listings.

Land.com

Land.com is like LandFlip.com in that investors, not real estate agents, offer most properties.

Search on city, county, or state. Then, in the Misc. section, check the “Owner Financing” box and click “Apply Filters”.

For example, my search of land.com for all active vacant land listings in California with owner financing yielded 745 properties.

Land Investor Websites

Land investors purchase property at low prices and then re-sell at higher prices. Sometimes, they advertise these parcels on their website. One example is DesertLand:

DesertLand offers financing on all listings. Currently, they have 7 parcels available in the greater Joshua Tree, California area, all with seller financing.

Another investor site is Landio. They have 15 parcels available with seller financing all over the US.

I have no affiliation with DesertLand or Landio and do not know the owners. I offer them only as examples of the many land investor sites like this nationwide. To find investor websites in your area, cut and paste one of these strings into Google, substituting in your state:

“real estate” land “owner financing” <your state>

“real estate” land “seller financing” <your state>

Realtor Websites

Unlike houses and condos, vacant land is commonly sold with seller financing. So, Realtors who sell land, not houses, may state on their website when the seller offers owner-financing. For example, at my company, Land22 Real Estate, we have several parcels with seller financing.

For example, here are the terms on this corner lot south of San Jose: “Cash or seller may carry the loan with $12,000 down at 6% interest for 5 years. Payments would be $927.97 per month.”

And here are the terms on this 120-acre parcel in the southern California desert: “Cash or seller may carry the loan with $20,000 down at 4% interest for 3 years.”

Just Ask

What if you fall in love with a property, and there is no sign the seller may carry the loan?

You should still ask!

If the property is vacant land and not a house or condo, you’ll get a “yes” or “it depends” maybe 10–20% of the time.

But only if you ask in the right way.

Please do not contact the listing agent with “Yo, will the seller carry?” The Realtor can’t answer that question unless you specify the price and terms. For example, are you offering half the asking price, 5% down, 3% interest, and want a 30-year term (when the seller’s age is 80)? Then the answer is “no”. Or are you offering the full price, 30% down, 10% interest, and want a 2-year term? Then the answer might be “yes”.

As you can see, it depends.

Here is an example of the kind of email inquiry that will increase the chance of a positive response:

To calculate the monthly payment, use any online mortgage calculator. This one is simple to use with no distracting bells and whistles.

There are many ways to structure a loan, e.g., interest-only, balloon payments, etc. But don’t be creative in this initial inquiry. Just propose a simple, fully amortized loan: Down payment, interest rate, term, and monthly payments. That’s it. Your goal is for the seller’s agent to understand what you are asking so that you can get a “yes” from the seller. Keep it simple.

If a seller is willing to carry the loan, why isn’t it advertised that way? The answer to that question has to do with seller psychology. Most land sellers suffer from “Lake Wobegon” syndrome (where all the women are strong, all the men are good-looking, and all the children are above average). Sellers think their land is far better than other parcels and likely underpriced. When listing their land for sale, they expect an instant cash offer at the crazy low list price their agent has suggested. And since they prefer cash, why would they offer seller financing? This is why the listing agent doesn’t even ask them to consider carrying the loan at the outset. It takes a few months for sellers to realize that they will have to negotiate with buyers on price or offer financing if they want to sell. That’s why financing is often not advertised, and you have to ask about it to learn if it might be available.

Pro tip: On seller-financed vacant land, down payments are typically 10–50%, interest rates tend to be 4–10%, and terms are 1–15 years. If the land is listed with a Realtor, do not offer less than 15% down. This is because the seller will have to pay Realtor commissions of 5–10% out of your down payment. For example, suppose the commission is 6%, and you were to offer a super low down payment, such as 3%. To accept, the seller must reach into his pocket to pay the commission and closing costs. The chance of the seller agreeing to write a check while transferring the title to you is virtually zero. Land sellers like to receive money, not spend money.

Conclusion

Bank financing for vacant land is scarce, and many buyers do not have all the cash. Even buyers with cash may wish to finance a portion of their land purchase. Buyers can use these strategies to locate land offered by owners who may be willing to carry the loan.

Seller financing…Genius!

Where do land buyers find the money?

by Tammy Tengs

When buying a house, most people finance the purchase their home purchase with a bank mortgage. However, when it comes to purchasing vacant land, where do land buyers find the money?

Their choices are:

Cash
Loan
Seller financing

Which source of funds is more prevalent? How does the source of funds vary by price range? I’ve always wondered. So I did some research. Now I can share my research with you.

First, let me explain what I mean by each source of funds.

Cash

I thought that “cash” was self-explanatory until the time I told a buyer that the seller required “all cash” and he replied “so, you want me to come to your office with dollar bills in a duffle bag and put it on your desk”? From the perplexed look on his face I understood in that instant that “cash” means different things to different people!

Paying for land with “cash” means that you pay with money you already have in the bank or some other account. The money is sitting there, ready to go toward your land purchase. It is “liquid”. You can write a check or wire the funds to escrow tomorrow.

Loans

Loans to purchase houses and condos are plentiful. But remember, you’re buying land, dirt, not a home with four walls. Loans to purchase land are scarce.

When available, a loan to purchase land might be available from a bank, credit union or other conventional lender. Loans are sometimes financed by so called “hard money” lenders. Occasionally sellers receive loans from family, friends, or acquaintances.

Seller Financing

Seller financing is also a type of loan. The only difference is that instead of the bank serving as the lender, the seller becomes the lender.

It works like this: The buyer makes a down payment. The seller transfers title to the buyer at closing and the seller becomes the lender. The seller has a lien on the property, just like a bank. The buyer makes payments to the seller (now the previous owner) over time. When the buyer finishes paying off the loan the seller removes the lien. If the buyer does not pay, the seller contacts the Trustee and forecloses, just like a bank would.

How Common is Each Source of Funding?

To figure out where buyers were getting their money to buy land, I searched one large Multiple Listing Service (MLS), the California Regional Multiple Listing Service (CRMLS). I identified all vacant land parcels sold in the last year in various price ranges.

In the one-year period that I reviewed, a total of 4786 parcels of vacant land sold. Of those, 3398, or 71% were purchased with cash. Further, 910, or 19%, were purchased with a bank loan or other loan of some kind. The remaining 478, or 10%, were purchased with seller financing.

Land purchase funding source, all price ranges

Variation in Funding Source by Price Range

The source of funding varies by price range. For land selling in the $50,000-$199,000 price range, seller financing is more common than outside loans. Seller financing is used in approximately 17% of transactions. This is clear in the figure below:

Land purchase funding source, $50,000-199,000 price range — Land purchase funding source, $50,000-199,999 price range

For land selling in the $200,000-$1M price range, outside loans are more common than seller financing and are used in 23% of sales:

Land purchase funding source, $200,000-999,000 price range — Land purchase funding source, $200,000-999,999 price range

Cash is the most common way buyers purchase land in all price ranges except the $1M+ range. In that high price range, buyers are slightly more likely (51%) to purchase land with a loan than pay cash (46%). Seller financing in the $1M price range is rare (2%).

Land purchase funding source, $1M+ price range

Here is the complete data for all price ranges:

Price Range	N	Cash	Seller Financing	Loan
$0-49,999	2127	76%	7%	17%
$50,000-99,999	724	76%	16%	8%
$100,000-199,999	638	68%	18%	14%
$200,000-499,999	635	69%	10%	21%
$500,000-999,999	305	64%	9%	27%
$1M+	357	47%	2%	51%
All	4786	71%	10%	19%

Conclusion

In California in 2016, mortgages are plentiful for homes, but not for land. Land is generally purchased with cash. Seller financing is common, especially in some price ranges.