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Brokers may want to follow the lead of this Alberta veteran. He’s increasingly working for Realtors to create the kind of vendor-finance deals that win buyers time to quality for traditional mortgages, while helping sellers with tougher-to-sell properties.

“The mortgage industry has tightened,” says Chris Richards, with Mortgage Intelligence operating out of Red Deer and Calgary, “but that hasn’t changed the demand for housing, which is driven largely by employment. So what we’re seeing here is growth in interest, or demand, for these kinds of deals and Realtors are finding that they don’t have the knowledge or expertise to fully handle them.”

That’s where Richards now comes in, working not for the buyer or the seller, but for the real estate agent handling the vendor financing deal.

“It’s easy for sellers and buyers to get into these types of transactions but that’s where DIY train-wrecks can happen,” he says. “Realtors and lawyers aren’t trained in mortgage finance. This is a financing play, and knowing the rules is essential.”

The trick is successfully executing the strategy, including the exit strategy, argues Richards.

As an expert in structuring the financing terms of the mortgage end of those agreements and pre-screening the buyers, Richards’s contributions are seen as integral to not only ensuring correct structuring but also an exit strategy for the buyer, one that usually ends with a “take-out” mortgage with a prime lender.

Some Alberta analysts expect to see a rise in the number property sales financed by the seller as the economy attracts inbound workers in search of high-paying jobs. Many of those workers are young and not necessarily with the full down payment and guaranteed employment needed to immediately secure bank funding, but don’t really want to rent.

More and more Realtors are willing to take on the role of brokering those deals, but only under the guidance of a mortgage professional.

If all goes to plan, the Realtor handles the trade in real estate, and the mortgage broker handles the advice and expertise in financing these complex originations as well as any subsequent mortgage deal involving buyer or seller.

 

  • Ron Butler on 15/01/2013 7:28:41 AM

    I have always maintained that the traditional mortgage broker will always have a place offering creative, intelligent advise in specialty situations and this is a great example of that ongoing truth.

  • Broker on 15/01/2013 9:14:12 AM

    What ltv are the sellers usually taking on in this situation ? Small 5% down payments or would they be looking at needing to vendor finance 20-25%

  • Chris Richards - Mortgage Intelligence on 16/01/2013 5:41:11 AM

    The LTV answer depends. Vendor-financing is actually a toolbox of techniques, each with its own risk profile, hence different down payment/deposit requirements. Depending on technique and who holds title, the buyer's "skin in the game" could be as little as 3-4% at one extreme (lease with an option to purchase, aka rent-to-own), 10% in the middle (Agreement for Sale), where title is retained by the seller, and certainly 20%+ at the other end (Vendor-Take-Back mortgage), where title does transfer to the buyer and foreclosure can be a costly and lengthy process. The value the mortgage broker provides is meshing the seller's primary need (which really boils down to a combination of disposal and cash flow management) with the prospective buyer's needs (a path to ownership and interim property control) and proposing the financing options and their respective pros and cons, including risks and risk management. This is a real value-add for the Realtor/Mortgage Broker relationship as both sides need each other to craft and execute a solution for their respective clients.

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