Seller Financing - When 'Owner Will Carry'

Commercial Real Estate Agent with Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker AZ BR 528507000

YMMV o' course -- but in our Northwest Arizona real estate  market, properties are frequently offered with, among other terms, OWC which means Owner Will Carry (also called Seller Carryback, Seller Financing  or Land Contract).

Owner financing can be a GREAT way to buy a property!

  • No loan costs!
  • Escrow length can be shortened because there is no lender involved. The seller is your bank.
  • You can buy a property that a bank can't/wont finance (perhaps due to the age or type of the property, such as pre-HUD or singlewide mobilehomes, commercial property for a startup, properties with ‘issues' like repair or permit problems, or a home in a rezoned commercial area)
  • In rapidly appreciating or declining markets where appraisal  would be an issue, you can typically bypass it (but do have your agent research the market so you are not overpaying!)

Owner financing can be a GREAT way to sell a property!

  • No appraisal contingencies!
  • No fallthroughs or delays  from overloaded/unconcerned loan processors.
  • No  clueless underwriters.
  • Your transaction can close fast.
  • And YOU collect the interest!

Then again . . .

Owner financing can be a TERRIBLE way to buy a property!

  • Terms tend to be more advantageous for the seller. You can expect to pay a higher interest rate and larger down payment than if you got conventional financing. Also, owners do not like to carry for long periods or with too-low monthly payments. They want you to be in as risky a loss position as they are in order to agree to finance you. And who can blame them?
  • Your payments generally do not appear on a credit report. So you will most likely not be rebuilding poor credit  UNTIL you have paid off the property and/or can show that you pay timely.
  • There are setup and servicing fees that have increased dramatically in recent years.


Owner financing can be a TERRIBLE way to sell a property!

  • The risk and cost  of a default rests on the seller. You will need to remove the squatters, reclaim the property and repair it after it's been ‘lived in'.
  • If you don't insist on impounds for taxes and insurance, you may end up on the hook, as unpaid  property taxes can be liened and even title quieted after a few years of default. And should that property burn to the ground and the buyer didn't pay those insurance premiums . . . OUCH!

When selling an OWC property:

  • Either require a credit report or employment/income statement from your buyer.
  • Insist on impounds for taxes, insurance and any assessments that have been assumed.
  • Offer a home warranty,  to help buyers avoid cash flow problems due to system or appliance failure.
  • Receive a significant late fee for payments not on time.
  • TALK TO AN ATTORNEY about the tax/legal implications of owner financing and the remedies for default. Protect yourself. Some owners have made a career of making seller-advantageous deals and reclaiming/reselling after default-over and over-keeping the interest and DPs.
  • Know that changes in the law in recent years are affecting the way investors carry paper and on what type of property. Make sure you're doing everything by the book.


When buying an OWC property:

  • There are five major negotiating points:

Price - Interest rate - Down Payment - Term - Monthly Payment

Be ready and willing to compromise on at least three of those terms. You will probably not create a win-win if you ask the seller to deeply discount with low down, low interest, low payments long term!

  • Be forthcoming with evidence that you can be trusted to repay timely. If you have good credit, pull your report/FICOs. At least be prepared to disclose your employment or source of income. Yes it IS the seller's business, and it is the law that they must have reasonable expecation of your ability to pay.
  • If the property is ‘theoretically' financeable, don't expect the seller to offer a low interest rate because, if they are offering the property OWC, they WANT to earn the interest.

Personally, I love to buy with the seller as noteholder. If you offer the seller a 'skin in the game' DP and decent monthly payments short-term, you can often get a great deal and save on loan costs from the get.

PS. There are often occasions that owner financing is not LISTED as offered, but if you make your offer strong, research the encumberance level of the seller and ask for it . . . well, it has been known to happen . . .


Comments (36)

Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Pamela Seley I told a seller to duck just yesterday. If you want that property GONE, forever . . . get all your cash at close.

Thank you Lise Howe . Right. Here, note servicer handles collection/disbursement/reporting.

That's what this is made for, Sham Reddy 

Thank you Jill Sackler . We do these a lot in my area.

It can be a cool way to do a deal, Richie Alan Naggar and for small deals especially. 5-10k for loan costs eliminated could be a 10% DP on a 100k property.

Apr 07, 2016 12:46 AM
Theresa Akin

This is a great post. I see this OWC financing more often than in the past. I suggest the buyer and seller contact an attorney if they so choose to go this route of financing.

Apr 07, 2016 02:37 AM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

When I first got into real estate back in 1985, seller financing was prevalent. Many of our older, smaller homes would not finance - either because they didn't meet FHA standards or they were "too cheap." The banks wouldn't look at anything under $35,000 - and many of our 700 s.f. homes sold in the high 20's. 

And then there was land - lots and lots of land up in the mountains with no maintained roads. 

I knew people who became wealthy selling homes this way - and some of them sold the same home many times, because the buyers defaulted and they took them back! 

Apr 07, 2016 03:09 AM
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

I like that you shared the risks as well as the benefits of Owner Financing.  In my opinion, the risks far outweigh the benefits.  Sellers contemplating Owner Financing need to contact a local attorney to further explore the risks in their state.  I love Marte's upside to default.  If only, that could be guaranteed!

Apr 07, 2016 03:31 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Theresa AkinSharon Parisi  you bet, and our Seller Financing Addendums have a lengthy acknowledgement that all parties seek legal/expert advice.
Marte Cliff  I think that land is one of the most frequently seller-financed property type. And I have had friends and clients who have foreclosed/resold over and over on the same property as well. That's why 'skin in the game' is so important.

Apr 07, 2016 03:33 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Excellent list of pros and cons, for both Buyer and Seller.

It's already been said, but it bears repeating:  use an Attorney for legal advice, and to draft the documents.

Apr 08, 2016 10:37 AM
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

This is a great informative post on the benefits and pitfalls of seller financing. Commercial deals would be such a larger risk in our market.

Apr 13, 2016 12:10 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Thank you Fred Griffin !  Creative financing deals have lots of potential for pitfalls. Always talk to the legal and financial experts. I would!
Evelyn Johnston I think they are risker, period. The principals tend to have deeper pockets and more attorneys, too. ;)

Apr 13, 2016 03:01 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

As the market and other circumstances change the best way to do things also changes.  I am not seeing a lot of these.  But if I were a seller I would want a substaintial downpayment to help mitigate many of the risk.  Also be mindful many buyers may want Seller Financing because they have credit issues, issues documenting income, and so forth.  

Apr 14, 2016 03:24 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Correct correct and correct Gene Riemenschneider . It used to be that OWC was FOR buyers with poor credit, no questions asked . . . now with the new laws, we have to be able to document ability to repay, period. I love it!

Apr 14, 2016 04:24 AM
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

Seller financing may enable some buyers to purchase a home they could not otherwise buy. As you point out, it needs to be done with caution e.g. I have seen seller financing terms (advertised on AR in fact) with 2-yr bullets! Also, if the seller has an underlying mortgage on the property and stops paying, the new buyers may find themselves evicted in foreclosure even if they have been paying to the seller all along. 

Apr 19, 2016 05:52 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

That's right Olga Simoncelli ! All that research needs to be done by buyer and seller's agent needs to be clear on what is being offered - and unless it's assumed or wrapped, the property has to be free and clear at the start.

Apr 19, 2016 05:57 AM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

I bought my first 2 homes (1 primary, 1 investment) through seller financing and my 3rd (hard money, refi to 30 year fixed). It's fun to do the non-conventional thang!

Apr 19, 2016 10:07 AM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

It is an investor's BFF especially, Thomas J. Nelson, Realtor !

Apr 19, 2016 10:25 AM
Mary Yonkers
Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA
Erie/PA Real Estate Instructor

Buyer Beware! Seller Beware! Enter at your own risk!  Yes, OWC is an option when conventional lending will not work but do your research carefully.

Apr 19, 2016 11:34 AM
Melissa Jackson
Century 21 Alliance Properties - Azle, TX
Helping You Make The Right Move

We have a local investor that offers this type of homeownership.  If done correctly this can be a win/win for each party.

Apr 19, 2016 12:44 PM
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

As long as the seller is in first position, it is a great way to squeeze a little more out of a property if the buyer doesn't have quite enough cash. I've seen several them them lately.

Nov 28, 2016 08:10 PM
Cynthia Biechler
Biechler Grp Real Estate w/HOMESMART Connect - Chicago - Chicago, IL

Good info

Mar 05, 2017 08:40 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Wow! A very well written and informative post contemplating the pros and cons of owner financing, both for the seller and the buyer. The transaction is definitely fraught with risk for both seller and buyer. 

Dec 03, 2017 07:01 PM
Anthony Kirlew
Group 46:10 Network @ eXp Realty - Gilbert, AZ
Helping You Make Fiscally Sound Choices

This is a rock solid post. So many agents avoid the subject of owner financing, but it was certainly help sell a unique property and can be a win-win in many cases (especially land).

Nov 14, 2018 11:47 AM