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Selling On Installment

There are many properties I know which have been on sale for several years and still have not gotten any serious buyers.  Of course, price is a big factor paired with the location, accessibility and condition of the property. Then there is the question of whether or not the right channels have been used in informing the public and potential buyers that the property is for sale.

All conditions being equal, selling your property on terms may actually increase one’s chances of selling one’s property.  Moreover, this arrangement is a “win-win” situation for both the seller and the buyer.

Benefits for the Seller

Consider the following needs of the seller and see how selling on installment can actually work for him/her.

Highest Price.   Most expectedly, a seller can get the highest possible price when offering the property using flexible owner-finance terms.  In fact, under this arrangement, it would be possible to sell the house way above its fair market value. People are always willing to pay more for the convenience of not having to go through bank and loan investigations when borrowing from them.  

Cash.  Nearly all sellers would insist on cash transactions. But if there is no urgent need for cash, net profit for the sale should be a better goal than getting the cash upfront. Since one is able to get the highest possible price, it would be expected that net profit (cost minus price) would be higher under an owner-installment arrangement. Besides, you find a bigger need to do costly repairs to make your house attractive to buyers if it were sold purely on cash rather than on terms.

Fast Closing.  Sales are most often delayed if the buyer needs to get a bank loan, not to mention the uncertainty of being approved.  Many sales agents of subdivisions have been victimized by this situation, thinking that they have a sure buyer only to find out that some technicality has prevented an otherwise serious and moneyed buyer from securing a loan. Also keep in mind that you are competing with many new subdivisions sprouting all over Cebu with nice amenities.  Owner financing would give you a good edge over these. Instead of giving the buyer a hard time in getting a loan, you cut the suffering and make the deal roll faster.

As you can see, the installment sale provides many advantages to the seller of real property.  In this “win-win” situation, there are several advantages for the buyer, as well.

Advantages for the Buyer

Easy Qualification. A buyer would prefer owner initiated installment compared to a bank installment since this would not require traditional bank income and credit approval.  There are many reasons why a person may have poor credit. Past financial problems may taint their history, but there are many persons, like OFWs, who are already receiving good salaries and are not yet that well qualified to get big house loans.  There are others who are in the informal sector (not formally registered with the BIR or the equivalent of such abroad). Or one could be new to a job, like a friend who only recently went to the states and promptly earned more than $5,000.00 a month but was rejected by a bank for a housing loan because she had no established credit history.  Smaller financing institutions sprouting all over Cebu may risk lending to OFWs but have high interest rates. 

As you can see, there are dozens of reasons why a buyer cannot (or will not) qualify for a conventional bank loan.  The installment sale becomes the perfect solution for him.

Credit Rating.  An installment sale may give the buyer a chance to improve his credit rating, especially if s/he is able to make timely payments.

No Loan Costs.  One of the biggest benefits to a buyer is that there are no loan related fees that have to be paid, like, service fees including credit reports, appraisal, and many other fees the banks can think of.  This can amount very big savings.

Fast Closing.  Because of the above reasons and since there is no third party lender holding up the transaction, the deal can be closed in a matter of days. The expected speed of closing the deal would itself be very attractive to the buyer.

Even if purchase price and interest rates are increased, there are many benefits to a buyer who engages in an installment sale transaction which will make it very attractive to them.

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