Carryback Loans: For Sale By Owner vs Real Estate Sellers

Carryback loans are second loans or seller’s loans where the seller financing and amount of the purchase. Usually this amount is 20 percent of the purchase price, which is equivalent to the required down payment. The purposes of these loans are to provide the seller with a way to quickly sell a home. This also places tremendous risk and burden on the seller in the event that the borrower defaults on the loan.

Interest in Offering a Carryback Loan

The seller who provides the financing in a carryback loan has an interest in selling the home as rapidly as possible. Offering the down payment by way of a seller’s loans is one of the sweeteners that they put forth in order to accomplish this. The fact that a seller offers a carryback loan as an enticement to a potential borrower does not change the process of selling a home. A “for sale by owner” transaction has the same motivations as one accomplished by a real estate seller.

For Sale by Owner Transaction

A for sale by owner home sale is one that most likely features a carryback loan. The homeowner looking to sell the home is motivated by finding a buyer that can meet the overall price of the sale. The 20 percent offer helps facilitate the discussions necessary to secure a deal and get the homeowner out of the house quickly. In this scenario the homeowner accepts the risks associated with offering the carryback loan in exchange for not having to pay the broker or agent’s fees that are attached to the sale of a home when using a real estate professional.

Real Estate Seller Transaction

The sale of a home through a real estate seller may not have the same sense of urgency as a sale performed by the homeowner. This may due in part to the fact that the homeowner may have more of a sense of urgency to sell the home and will do whatever it takes to do so where  the real estate seller may not be as motivated. The motivation of the real estate seller to receive a commission is great but is not the only factor involved in selling the home. The real estate professional knows that if they are unable to find the right person for the house who qualifies financially, the potential for loan default is greater.

Risks and Costs

Whichever way a homeowner decides to go with respect to the sale of their home will involve costs and risks. The cost of going it alone is the also its risk should the buyer be unable to maintain payments and defaults on the loan.  For a real estate seller it is the time value of their commissions the longer that it takes to sell a home in behalf of the homeowner.