Creative Financing: Way of the Future?

The slower market particularly in top end property in Auckland is seeing some innovation in the New Zealand residential property scene.

There appears to be a few new trends appearing which have been absent from the local real estate scene for a while: vendor finance and swaps. So how do you sell a house in a quite market?

Price it Right

Well the bottom line is that some properties aren’t worth what they were 6 months ago: unfortunately a lot of sellers aren’t prepared to face this reality check yet. They don’t want to “loose money”! Well hello – unless you bought six months ago and are now selling you aren’t loosing anything – except an unrealised capital gain which share market investors could tell you didn’t exist in the first place! So bottom line every property will sell: you just need to meet the market’s price expectations.

Vendor Finance

With banks becoming less willing to lend with out guarantees and are looking for larger deposits. Vendor finance can help bridge the gap for a first-time buyer. With vendor finance the seller leaves some equity in the property which can be used as deposit. So for example for a $400,000 property the vendor may accept $360,000 cash and leave $40,000 (10%) in the property which is repaid and at an agreed rate and in specifiecd  time-period.

The advantage of vendor finance for the purchaser is that if they have for example a 10% deposit ($40,000) they now only need to raise a bank mortgage of 80% ($320,000) which most banks will lend at without additional security or insurances.

For the seller they manage to sell their property probably at a higher price than they would have got if they hadn’t offered the finance. There is a risk that the buyer defaulted on payments so only a “good quality” buyer should be considered and anyone considering leaving vendor finance in the deal should get competent legal advice for the right contract wording.

House Swapoing

No not for your holiday’s – on a more permanent basis. Here a house/land/business is swapped for something of equivalent value in another location. Obviously the advent of websites make it a lot easier for potential buyers/sellers to get together, but also some flexibility will be required as to your perfect swap. High-end  real estae swaps may include boats and furntiure as well. Real estate agents in Auckland are reporting a much large rnumber of sales being closed by using a part of full swap of anything from investment properties, overseas holiday homes or boats. A good place to start looking for a swap would be trademe.co.nz which has the majority of NZ’s real estate listings. A new site has just been launched particularly focused on property trades or swaps: www.realtrades.co.nz and we will be reviewing this site in a future post.

Bottom line really hasn’t changed: if you want to sell your home then find out what is important for the buyer and negotiate: price is always going to be number one but trades, vendor finance and even the old standby of delayed settlements and subject to buyer selling their own property all come into play.