AGREEMENT FOR SALE
An Agreement for Sale in short term AFS. It is a right to purchase through seller financing. The title of the property remains in the owner, and the buyer has 100% responsibility and interest to make the payments towards the purchase price. The buyer will take over the control of the property and will be responsible for the expenses, issues, damages, taxes, insurance, and payments of the mortgage towards the purchase price. AFS can be used when the seller has no/low equity. It also works for homeowners that are distressed. It benefits both parties if set out properly. Most sellers though have mortgages close towards the market value in which AFS comes in as the only solution because it fits in the situation. Agreement for Sale is a quick solution but a long-term strategy and a long-term commitment. It works amazing as a solution for sellers who have real estate problems such as foreclosures, no equity to pay realtor fees, cannot afford renovations, and homeowners that can’t afford to pay the house anymore. This is a quick closing strategy and a quick solution.
Now, this might seem like an assuming a mortgage. Agreement for sale is a type of seller financing that is not assuming a mortgage. Sophisticated investors are creative with agreement for sale that it comes a great solution to any problems and profitable. The reason that it is fast because the investor does not need to qualify for the mortgage. The things that investors are looking before the acquisition are cashflow, rate of return, and risk. The buyer/investor will be responsible to continue paying the remaining mortgage balance towards the purchase price.
The acquisition of agreement for sale and how it is set up is that the purchase contract is given to the seller through saying “by way of agreement for sale” under the conditions. The purchase contract is the step that tells the owner and buyer they agreed the terms and price on the deal. The buyer pays a certain deposit or no deposit at all depending on the sellers financing decision. The balance that is owed after deposit is called the “unpaid seller’s equity”. The investor will be paying that by way of paying the mortgage every month and giving the money at the closing date. The AFS does not work for short term like 6 months-1 year. It is a long-term strategy of at least 2-5 years.
Many People will fight that it is like an assumption of a mortgage. This is the confusion but the major difference is that the title remains in the seller’s name. The investor /buyer is the one responsible of paying the all the good in the property and the mortgage towards the purchase price. The longer the term for agreement for sale at a discounted price the best solution it is because sophisticated investors do not predict the market.
What are the Benefits for the Seller?
- One of the challenge that seller is looking for is getting a buyer; however when a seller is looking only for a traditional way of selling a house, the opportunity is limited. There are buyers out there and investors looking for properties and banks are the hindrance for financing the deal. If you are working with an investor as a buyer, it would benefit the seller because investors have different exit strategies such as flip, rent to own, and rental with the property to make it profitable. It may be difficult for a person with the intention to live because you should make sure that they can pay because if not, problems will arise unlike with investors they can make the property profitable which puts the seller in safe hands. Advise: If going for agreement for sale, work with investors.
- Another advantage is the delay of mortgage penalties. This is a big equity killer. However, with the AFS, the seller can easily avoid these problems. Again, the longer the agreement for sale of at least 3 years, the better. Perhaps after 3 years, there’s little to almost none mortgage penalty.
- The best benefit and the best solution for the seller is that the buyer is 100% responsible for all the costs with the property such as taxes, insurance, repairs, renovations, and mortgage. These problems are not anymore the responsibility of the seller.
- Seller can save thousands of dollars from penalties, realtor fees, defer taxes, and secure the equity. If the seller has only $20-$30K equity. The equity can easily be eaten up by these fees leaving the seller with no money at the sale unlike with agreement for sale an investor would secure that to you and get paid at the closing later in years.
What is the challenge with this solution?
- Not all real estate lawyers are sophisticated with real estate transactions. Also, not all real estate agents are sophisticated. Most lawyers and agents only do retail common transactions which means they do not deal outside the box.
- Real Estate investors are solving real estate problems with sellers that are in tough situation. It is important to talk to lawyers who understand AFS because if the other part does not understand, the deal will be dead because of the lack of understanding. It is really important to get advice from the RIGHT people even though they are professionals they might not know a whole lot and perhaps they don’t help sellers with problems.
Overall, agreement for sale is a common transaction nationwide in creative real estate solving real estate problems.
– Blake P.