Creative Financing Brings the 1970s Back to San Clemente Real Estate

When the going gets tough, the tough get creative.

That seems to be the trend for sellers of San Clemente real estate over the years.

These are indeed tough times for local sellers, with market prices down almost one third from their 2007 highs. But what makes this market even more challenging for sellers than past bear markets is the higher level of debt on many properties.

Back in the early 1990s, prices dropped just as precipitously, but the average home for sale still had some equity. In the 1970s, high interest rates priced buyers out of the market, but, again, equity was not hard to find.

So let’s say you’ve had your home on the market for six months and you’re not getting any offers. What can you do to get the property sold?

When asked the same question, 60 Minutes commentator Andy Rooney famously bellowed, “Lower the price!”

Sure, you can lower the price. But what if you don’t want to, or what if you literally can’t because it would eat up your slim equity?

Instead of cutting the price, you might try offering creative financing terms to buyers. (Always check with an attorney before trying any of this at home.)

Some of the most common creative financing strategies offered in the SoCal Multiple Listing Service are as follows: 

• “Owner will carry.” In this scenario, the seller offers to lend the buyer funds to complete the purchase. The seller agrees to “carry” a second trust deed on the property, or a first trust deed or both. The interest rate, term and other provisions of the loan(s) can be very attractive to a buyer, who might pay the full asking price for the property. All terms are negotiable.
• “Owner may carry.” Same offer as “Owner will carry,” but a weaker marketing effort and therefore less attractive to potential buyers. I recommend using “Owner will carry” terminology in the listing verbiage.
• “Cash to existing loan.” In this scenario, the seller is advertising that the existing loan – usually a first trust deed – is potentially “assumable” by the buyer. If true, the existing loan is taken over by the buyer, who produces a cash down payment sufficient to reach the selling price. Buyer might or might not be required to submit a credit report to assume the existing loan.
• “Assumable loan.” This is another way of saying “Cash to existing loan.” All terms of the existing loan(s) are assumed by the buyer.
• “Loan subject to...” Yet another version of “Cash to existing loan.” Check with an attorney. They don’t call this creative financing for nothing.
•  “All-inclusive trust deed” or “AITD.” Also called a “wrap” or “wraparound,” this strategy was fashionable in the 1970s when interest rates were soaring. This allows the buyer to assume a lower-rate existing loan, and combine it with an "owner will carry” loan. Attorney alert.

As inflation eventually kicks in and interest rates rise, these strategies will again become as common as platform shoes in the '70s.

For more of the latest market news and statistics on San Clemente real estate, visit my blog at MCotter.com