Whenever I have an investment that I am trying to sell I always try and get full asking price. To do this you have to be dealing with motivated buyers.
For example, when trying to sell my Lease Option property, the price is always set at the start of the contract so the asking price is predetermined.
But what if the asking price (option price) is higher than the appraised price at the time the Option Agreement is executed. What I mean is, what if the agreed to asking price is higher than the appraised value.
One of the things I do is agree to sell the property to the tenant buyer at the new appraised value. I will also have the tenant buyer agree that I will hold a second mortgage for the difference between the asking price and the appraised value. Let’s look at an example.
Let’s say I enter into a Lease Option with a Tenant Buyer with an Option Price of $210,000. That is, the tenant buyer has the option to buy the property from me for $210,000 at any time during the term of this agreement.
Three years later, the tenant buyer wants to exercise their option.
We go to the bank to get financing for the tenant buyer. The bank does an appraisal and the property only appraises at $200,000.
Next, I agree to sell it to the Tenant Buyer for $200,000 but I hold a mortgage for $10,000. This is commonly known as a Vendor Take Back mortgage because I am taking back part of my payment in the form of a mortgage.
This mortgage could be a regular mortgage with regular monthly payments or an interest only mortgage or even a balloon payment mortgage that is paid after a specified period of time.
So basically, I get my full price of $210,000. I get $200, 000 at the time of closing and I get the remainder in the form of a mortgage or note, payable as agreed. I use vendor take back mortgages when negotiating the sale of any of my other investment properties, assuming the buyer is motivated.
So the way I ensure I get full asking price when I sell, is to offer a vendor take back for a portion of the purchase price.