Vendor Finance Misconception 2

The houses are way more more expensive, or are they?

When you are considering selling a house, whether it is on Vendor Finance or whether it is a real is an agent, it pays to know what price range the property is worth at the time. It is the investor job to understand price bracket the house belongs in. I don’t know if you really noticed that houses are usually sold for a number of between “X and Y” or they are sold as “offers over X” or “X dollars plus”. The reason that this happens is because there is no definitive amount that that house is worth. So when you get a real estate agent into look at your property and give you an appraisal they will generally say “well your house will sell for somewhere between this price and this price” because either they don’t know what somebody is willing to pay for it as a actual number, they just know that it will sell for somewhere between this price and that price.

If you can get a bank loan then obviously you have the ability to negotiate with somebody who wants to sell their house immediately as all they are offering you is the house itself. So you can negotiate the price up and down according to what you feel you are willing to pay for the property, but more often than not people work within frameworks that the agent has put on the house. Why are people who sell through real estate agents more open to negotiating the price? Quite simply because they are going to get all their money now stop

With a Vendor Financed house the owner of the property still has a substantial amount of money still invested in the property. They don’t get their money now because people who buy houses on Vendor Finance usually don’t have very much in the way of deposits. Therefore you end up paying a bit more for the product (the house) because you don’t have the large deposit and the bank loan to be able to give the owner all their money upfront. That is why you pay a little bit more for the Vendor Financed house than you will pay for a house you can just buy outright using your own funds.

This takes us back to the agents telling you that a property is worth between X and Y. If you can negotiate with your own funds you can usually get the price down around X; if you need to buy the house using Vendor Finance than you are going to end up paying Y the house. Doesn’t mean you’re paying too much for the house, or does it simply mean that you are paying the upper end of what the house is actually worth.

With Vendor Finance you’re not just buying the house, your buying the house with finance in place, (which also means a substantial amount of the owners money still sitting in that house). So what is the right price?

The people that demonise Vendor Finance tend to use the words “may” or “could be” in their sentences for a reason why you should not do it. They tell you that the house maybe drastically overpriced, while it may be, but if it is you don’t have to buy it.

Yes, the house will most likely be more expensive than it would be if you bought it through a real estate agent, but if you cannot use the real subagent system because you can’t get a bank loan than it means you will end up paying a bit more for the house.

This is where it gets tricky. If you are going to buy a house on Vendor Finance, it’s no different the new going out and buying a car, a phone, the TV or any other of the more expensive items that we tend to take for granted around us. Your job is to make sure that you are happy with the price which means you should do your own due diligence and look at other properties of a similar size, similar land size, similar features in that area to ascertain whether or not the price is reasonable.

If the price of the house is not reasonable or is not in line with prices of similar properties in the area, then it is my recommendation that you discuss the price with the person selling the house, or simply don’t buy it.

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