The folks who track these things estimate that more seller carrybacks are being created now than ever before, about 1 in every 50 transactions. A seller offering to be the bank happens because conventional financing is difficult or unobtainable for the buyer, or, as happened in the 1980’s, interest rates are in the 18%-20% range. Seller carryback fills the void in these situations.
We have been experiencing an unusual marketplace for several years now. High unemployment, low interest rates, record defaults and foreclosures, low property values, low credit scores. Some big time buyers of seller carryback notes have been hurt badly by these events, to the extent of being out of the business altogether. The end result is that we have a lot of seller carryback notes with fewer buyers chasing them. Many of these notes are not marketable, as I have discussed ad nauseum in previous Blogs and my Newsletter.
Buyers are cautious. Buyers are picky. They don’t want to invest their capital in a poor or borderline note. They want to purchase the best of the available pool. That means a note that shows a good downpayment, a property that has maintained its value as much as possible, timely and seasoned payments, and a good credit history for the payor. Absent these qualities, an investor will move on to the next note.
The market is what the market is. Note sellers need to realize this. The best way for a seller to protect himself is to find a reasonably solid buyer and construct strong terms in the note. If selling the note will be the best option, the seller must make that note attractive to an investor, who has many other notes he is looking at. Is this particular note better than the others? If not, the seller will hear the two words he dreads:
“I pass.”
