[Jeff Bowman]

Jeff Bowman

Hi all,

I was approached by an FSBO seller yesterday and met with him today. Seller is moving across the state and has been attempting to sell the home on his own with little success. He is pretty motivated in terms of getting the house sold but is a doctor and so has the cash to continue paying the mortgage for the foreseeable future but definitely would prefer to get it sold sooner rather than later, doesn’t trust realtors to move as quickly as he would like, etc. I mentioned HBS and he wants me to write a proposal to get more details.

5/4, 3800 sq ft. Good zip code
Current listing price: $490K
days on market: 30; 1 offer (financing fell through)
date of departure: June 30
equity: very low; $30 to 40K (property purchased in 2015 for $435K)
mortgage: +/- $400 K at 3.5% per 360 months
PITI: $2600
neighborhood comps: $400-440 K (2017 prices; 90-180 days in the market)
$450-500 K (2016: 180-365 days on market).

I think the $400 to $440K price range would be realistic for an HBS but not much profit for him at that range. I think he’s okay with that and wants the property gone.

I see four alternatives:
1) option price of $350; 50% split above option price.
2) option price of $375; 100% to me above option price (I’d be reluctant to do it at a price much higher than that)
3) Seller gets 80% of final price, 50% split on the rest.
4) HBS for highest down payment

questions
1) with #4 highest down payment, I would think I could put the purchase price higher. However, a) do I make my money off a straight fee? And B) being that this Doctor is not a fellow investor, how do I best ensure he is protected in case of default/foreclosure?
2) what is a realistic marketing budget? $1K? $2K?
3) doctor understands the speed of sale requires a discount but are there any ways to make sure he is comfortable with a final sales price? I mentioned that he didn’t have to accept the final bid if it was below what he wanted but I don’t want to do all this work and have him reject the final sale. Obviously, that’s the risk and skill that I bring to the table. However, I plan on giving him a detailed list of property comps to show the $400-450 is most realistic and stress all the hassles of waiting for a sale at a higher price. Any other suggestions?

Thanks,
Jeff

[DON WEDE]

DON WEDE

Do a highest down payment HBS. KEEP everything in the doctors name, and for your profit take a 50% interest in the down stroke and a 50% undivided interest in the debt instruments. You do the collection and receive 50% of the payment over debt service.

[Jackie Lange]

Jackie Lange

The only way this Highest Bidder Sale will work is if the seller agrees to sell with seller financing that wraps the underlying loan.

With so little equity, there is no way it will work to get the seller cashed out.

Don’s idea is spot on.

[Jeff Bowman]

Jeff Bowman

Thanks to both of you for the reply.

“With so little equity, there is no way it will work to get the seller cashed out.”

How best to explain that to the seller? I understand the concept but I’m having trouble formulating it in words that he can understand.

Thanks,
JB

[Jackie Lange]

Jackie Lange

Just tell him that you will not be able to help him get cashed out. The only way you can help sell his house is if he sells with seller financing. He should be able to get his equity with the down payment paid by the buyers but the loan will need to stay in his name until the buyers can refinance in a few years. He will still close at a title company who will prepare all the closing documents, note, deed of trust (or mortgage) and warranty deed for the buyers.

[Jeff Bowman]

Jeff Bowman

Thanks, Jackie. He’s having trouble wrapping his head around the concept but perhaps I can explain it better now.

[Mike Gibson]

Mike Gibson

Jeff, since your prospective seller is ‘having trouble wrapping his head around the concept’, my experience has been that if I put my proposal in writing — nothing formal — just the basics of how it would work, that might be helpful. That has worked out very good for me. Remember, some people are ‘auditory’ and some people are ‘visual’.

[Jeff Bowman]

Jeff Bowman

Thanks, Mike That’s exactly what I ended up doing. Haven’t heard anything since…keep the fingers crossed!