Doug Van EttenYOUR JOURNEY HOMEGrand Junction Free Press Real Estate Columnist

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January 23, 2013
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Local real estate Q&A

Q: My wife and I own our house free and clear of any mortgage debt. We are planning to sell this house and move to the Front Range. Does it make sense for us to offer "owner financing"? These two terms mean that same thing don't they: "seller financing" or "owner carry''? A: Before we start, please let me suggest that I am a Realtor; I am not a Certified Public Accountant or other tax or financial planning professional. As we always say in real estate, I recommend that you consult an expert in that field. To set the lexicon straight, you are correct in that all three phrases you referenced above mean essentially the same thing.What I can do for you is look at how many sellers in our market are offering owner financing as an option for purchasing their house.Of the 743 houses, condos and townhouses currently for sale, 23 or 3% are offering owner financing. At this time there are 318 properties under contract and; of those, seven or .94% are being financed by the seller. Finally, of 2,565 properties sold in the past 12 months, 41 or 1.6% sold with owner financing.These small numbers of owner finance properties leads me to say, sure go ahead and offer the opportunity to buyers if your tax and financial planning professionals concur; but, do not count on that being a big selling point to make your house outshine the competition in a very competitive Grand Valley home sales market.If you do decide to offer this financing option, I suggest you work through the legal, financial and tax details first with a knowledgeable Realtor. I also suggest engaging the services of an attorney to draft the contract terms. Having a contract ready when a buyer comes asking will put you, rather than the buyer, more in the driver's seat on negotiations. After all, the attorney will put terms in your favor in a contract whereas a buyer is likely to come to you asking for much more leniency in the form of lower interest rate, less down payment, late payments and other important contract elements.Consult with your accountant and get their sign-off on what the rental income will do to your tax bracket and other financial considerations.The bottom line is: Thought out carefully and done right, seller finance can work for both you and a buyer; it is just not used very commonly in the current Grand Valley home sales marketplace.Q: Please settle a question that came up in discussion about real estate jargon. What the heck do you guys mean by "list-to-sale" ratio?A: We all know that a seller can ask any price they want for their property. When they do ask a price that you might say is "out in left field," they sometimes say to the Realtor, "just tell a buyer to make me an offer."Buyers in our current market do not operate like that most times. Let's say a seller is asking $235,000 for their house (which will eventually sell for $197,000). Most buyers would not offer $180,000 with the expectation of getting the house for $197,000. Instead buyers will wait until the seller adjusts the price to $220,000. If other similar houses are selling for $200,000 +/-, a buyer will still not write a purchase offer. When the seller finally adjusts their asking or listing price to about $205,000 a buyer is quite likely to write a purchase offer of say $190,000; then negotiate with the seller to an agreed upon price of $197,000. The sale price to list price ratio in this case is $197,000 to $205,000. That results, when divided, in a list sale percentage of 96%. That translates into the buyer having agreed to pay 96% of what the seller was asking; however, the buyer waited maybe 30, 75 or 160 days before the seller got their price right, from the buyer's perspective, to be worth writing a purchase offer. Breaking down various price ranges in our real estate market, I found in a recent analysis that the list-to-sale ratio in all price ranges under $1,000,000 ranged from 95-98%. Keep adjusting those prices, sellers, if you are not getting purchase offers. The buyers are comparative shoppers and when you get your price within that "right" range, buyers will reward you with a near-perfect offer. Remember from back in school, over 90% was an "A." Well, 95-98% can be considered by sellers to be an "A+."----------------------------Doug Van Etten is an associate broker with Keller Williams Colorado West Realty and is also the founder/organizer of the Real Estate Investors Network (REIN). Van Etten has been helping homebuyers, sellers and investors with their real estate needs since 1992. Contact Van Etten at DougVE@kw.com or 970-433-4312. For information on the REIN, info@REIN-WesCO.org.


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The Post Independent Updated Jan 23, 2013 09:29PM Published Jan 23, 2013 09:28PM Copyright 2013 The Post Independent. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.