Pat Kapowich for the San Jose Mercury News ~ Saturday, March 6, 2009

Q: Our parents are selling their home and the listing agent is pushing an offer with seller financing. The agent is making it seem like the house won’t sell without a seller carry-back of 10 percent or 20 percent of the purchase price. That does not sound right. The agent is also making it look like the best of all worlds; i.e., selling our parents’ house and getting a monthly stream of income for their retirement. My siblings and I don’t like the sound of our mom and dad playing the role of a bank. Selling the house outright without seller financing is a lot cleaner in our view. We don’t feel this listing agent has their best interests at heart. Are these safe conclusions?

A: Probably. Seller financing in residential real estate is also cyclical and typically associated with markets that are experiencing lofty interest rates. Nowadays, the lending qualifying pendulum has swung hard in the other direction. Now a buyer has to fill out a loan application in his or her own pen and provide real paycheck stubs. If that happens and the lender does not qualify the individual to buy your parents’ house then that speaks volumes.

Agents have a habit of telling sellers, Don’t worry, if the buyer defaults you can just foreclose. The foreclosure process is not the walk in the park that such agents make it out to be. If fact, most don’t know the procedures and/or ramifications surrounding this process. It makes sense that they also don’t know the safety mechanisms that should be in place prior to the property changing hands. Only financially strong sellers savvy enough to engage the counsel of a real estate attorney should even consider seller financing.

Contrary to media hype, there is still plenty of money to lend to qualified homebuyers. Tell the agent to go back to work and find one who does not need a seller carry-back.

Do you have any questions for the new real estate Q&A Market Wise column in the SJMN? If so, please email them to: Pat@SiliconValleyBroker.com